Anniversaries are a time to reflect, evaluate and to anticipate what lies ahead. And so it is with the FedNow® Service, which celebrates a year in the marketplace on July 20.
As of now, about 900 banks have signed on to the new federal payments system infrastructure. The vast majority of those financial institutions (FIs) can only receive instant payments, not send them. And, of course, there’s a competing system, The Clearing House’s RTP® Network, which has already been operating for about seven years.
The roadmap toward ubiquity and toward mass adoption is clear — and will take time, given the fact that, taken together, the RTP and FedNow platforms cover about two-thirds of available accounts. As Drew Edwards, CEO of Ingo Payments, told Karen Webster: “There’s a long cycle of adoption required, first, with the banks and then with the enablers, and then with the businesses.
“It’s going to be interesting to see what FedNow does beyond just being the plumbing to influence new payments choices,” Edwards said. The younger generations, he noted, are the most primed to demand instant payments, as they’re already used to digital payments and digital wallets, and banks and providers have been accelerating their transactions. Joint research from PYMNTS Intelligence and Ingo Payments reveals that consumers are willing to pay a fee for faster payments.
In the meantime, as Edwards noted, the FedNow platform has had some influence, even if things aren’t fully “live,” because “in that first year, you’ve got to give them the ‘win’ in terms of waking the market up. That’s progress.”
Banks, FinTechs and especially consumers — who are asking those enterprises for instant transactions — are examining the ways in which faster payments can change the fabric of day-to-day financial life.
The shift will not be a sudden, seismic one — a magical, greenfield, de novo solution that, in Edwards’ telling, materializes all at once.
“What I believe is going to happen is that this will be more of an ACH replacement,” over time, he said, as the FedNow Service and RTP Network modernize and speed up those transfers across some ACH use cases, while not eliminating all of them. There’s a particular opportunity for business-to-business (B2B) payments and business accounts here, Edwards said, because not all firms have debit cards (and thus cannot embrace push-to-card options).
There are some side benefits taking shape too, Edwards said, remarking that in reality, instant payments are nothing new. With the help of providers such as Ingo, companies can push money instantly to just about every bank account, card and wallet out there. The advent of the FedNow platform, he said, brings more competition to the faster payments market, which in turn means that pricing for those transactions (and all payment options) gets more competitive/lower, to the benefit of the end consumer. Call it an improvement in the economics of sending money across all types of rails.
The push-to-card scenario, which uses the card networks’ existing rails, is a prime example. When Ingo Payments was founded two decades ago, transactions cost as much as $0.80 each time funds were sent to a bank account. Competition has shaved that pricing by 75% over time, Edwards said.
For the banks and the FinTechs, offering real-time capabilities ahead of anticipated use cases is a bit of a technical challenge. There’s no interoperability between the two instant payment networks in the U.S., and there is no interoperability between push-to-card payments and routing number aliases.
Building multiple integrations case by case is onerous for the banks, especially the smaller ones that face resource constraints. Ingo, for its part, offers payment orchestration across all the relevant rails through a single API so that instant payments can move between various accounts and endpoints, among small businesses and consumers.
Ingo has been working with KeyBank Treasury to process a “single outbound payment instruction” that lets the recipient decide how they want to be paid. That creates an opportunity for the FedNow Service and banks to offer incentives and choices to help spur instant payments adoption in commercial settings.
Looking ahead, the long tail of smaller FIs will need — and use — packaged solutions and partnerships from Ingo and others to go to market with new instant payments offerings.
As Edwards told Webster, as the real-time networks are in the early stages of coverage, “I’m a big believer in faster banking rails — and the combination of FedNow and RTP.” Instant payments, he said, “are going to happen, and they will impact everything.”
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