{"id":7928,"date":"2023-08-05T16:20:45","date_gmt":"2023-08-05T16:20:45","guid":{"rendered":"https:\/\/isafespend.com\/personal-finance\/banking\/what-do-we-get-with-the-federal-reserves-fednow-instant-payments\/"},"modified":"2023-08-05T16:20:46","modified_gmt":"2023-08-05T16:20:46","slug":"what-do-we-get-with-the-federal-reserves-fednow-instant-payments","status":"publish","type":"post","link":"https:\/\/isafespend.com\/?p=7928","title":{"rendered":"What Do We Get With The Federal Reserve\u2019s FedNow Instant Payments?"},"content":{"rendered":"<div>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">OBSERVATIONS FROM THE FINTECH SNARK TANK<\/h2>\n<p>Hurray, instant payments are here! To much fanfare, the Federal Reserve launched its new payments system, FedNow, last week. The new rail gives\u2014or <em>promises<\/em> to give\u2014consumers and businesses \u201cinstant\u201d access to payments and money moved between financial accounts. What goodies should we expect to get from FedNow? According to Yahoo! Finance:<\/p>\n<p>\u201cThe system lets Americans pay for groceries instantly, businesses pay their suppliers, or people pay each other. It will be available 24 hours a day, every day of the year, with full access to funds immediately.\u201d<\/p>\n<p>Not quite.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">History My Foot<\/h2>\n<p>Four years after it announced its plan to build FedNow, the Fed nearly fell over backwards congratulating itself over the launch. One Fed Reserve employee announced on LinkedIn that \u201chistory was made,\u201d ignoring the facts that The Clearing House (TCH) has offered real-time payments (RTP) for six years and that Japan has had real-time payments since 1973.<\/p>\n<p><fbs-ad position=\"inread\" progressive=\"\" ad-id=\"article-0-inread\" aria-hidden=\"true\" role=\"presentation\"><\/fbs-ad><\/p>\n<p>More dispassionate voices\u2014like Erin McCune, an Expert Partner at Bain and Company\u2014explained:<\/p>\n<p>\u201cIn the long lead up to this milestone, near-real time offerings like Same Day ACH, Zelle, and Venmo have gained significant traction. RTP isn&#8217;t likely to replace any of those offerings. In fact, Zelle uses TCH RTP to settle between banks and Venmo can take advantage of real time tranactions for funding and disbursement to\/from your Venmo account. And in many situations, Same Day ACH may be fast enough.\u201d<\/p>\n<p>McCune went on to say, \u201cOnce enough banks are connected to FedNow and\/or TCH RTP, real time payments in the US could be an attractive alternative to other existing payment options, particularly standard ACH, checks, and low-value domestic wire transfers. However, the adoption of RTP will significantly vary by use case.\u201d<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">To Get Instant Payments, Banks Have to Offer Them<\/h2>\n<p>\u2018Once enough banks are connected\u2019 is the key phrase there. A survey of banks and credit unions by Cornerstone Advisors found that less than half of banks and just 42% of credit unions expect to offer real-time payments by the end of this year. In fact, nearly a quarter of institutions aren\u2019t sure when they\u2019ll offer it.<\/p>\n<p>Another factor influencing the uptake of FedNow is the \u2018send\u2019 versus \u2018receive\u2019 aspect. Many of the early providers of the service plan to accept, or receive, real-time payments, but few of them are planning to turn on the \u201csend\u201d capabilities.<\/p>\n<p>If nobody sends instant payments, how can anyone receive them? This is a big issue according to Peter Davey, SVP and Head of Product Innovation and Labs at TCH:<\/p>\n<p>\u201cSend-side products are what customers want. If I have a loss on my car or home, I can receive a payout from my insurance company in real-time. But if I need to make payments to companies covering my car or home repairs, how do I get money to <em>them<\/em> in real-time? They\u2019ll want immediate use of the funds to service me.\u201d<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Faster Payments = Faster Fraud<\/h2>\n<p>Another dispassionate voice in the real-time payments discussion is Sara Seguin,<strong> <\/strong>a principal advisor on fraud and identity risk at Alloy. According to Seguin, faster payments means faster fraud:<\/p>\n<p>\u201cJust like other new technologies that have emerged in the financial services industry over the past several years, fraudsters will continue to adapt and figure out new ways to exploit these new technologies.\u201d<\/p>\n<p>Pretending to be someone else\u2014often a colleague or senior exec at your company\u2014fraudsters send messages and instruct you to send a payment to them. Their growing sophistication in hacking email accounts and gathering data from social media makes it difficult to spot and prevent the fraudulent behavior.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">When Will We See Benefits From FedNow?<\/h2>\n<p>For all the hype surrounding FedNow, the reality is that consumers won\u2019t get a whole lot from the new payment rail that they don\u2019t already get\u2014in the near-term, at least. With many of the largest banks already on the TCH platform, real-time payments volume on that network will dwarf FedNow\u2019s volume for a good number of years.<\/p>\n<p>Slower adoption on the send side of the equation and increasing fraud will slow the rollout of new instant payment use cases. The impact of FedNow will depend on:<\/p>\n<p><strong>Banks\u2019 commitment to payments as a strategic differentiator. <\/strong>Many community banks see themselves as commercial lenders and don\u2019t see payments as key component of their strategy. It may take a while, but these banks will have to compete on commercial banking\u2014payments and treasury management\u2014in order to grow their lending business.<\/p>\n<p><strong>Use case evolution.<\/strong> There are many possible use cases for instant payments. The question about which platform\u2014TCH or FedNow\u2014will grow faster is moot. The important question is which platform will be better for any particular use case\u2014and whether or not that use case generates incremental revenue for the banks or not.<\/p>\n<p><strong>Tech vendor support. <\/strong>Community-based financial institutions will need to rely on their core and digital platform vendors for FedNow deployment and support. How good will that support be? How well will the vendors be able to help their bank and credit union clients build solid business cases for instant payments?<\/p>\n<p><strong>Fraud prevention and management. <\/strong>Bankers are risk averse by nature. The fraud threat from real-time payments will cause banks to wait-and-see before building out the send side of faster payments. A newly-formed consortium called SardineX to share fraud data between banks, card networks, payment processors, and fintechs may help accelerate the adoption of FedNow.<\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.forbes.com\/sites\/ronshevlin\/2023\/07\/24\/what-do-we-get-with-the-federal-reserves-fednow-instant-payments\/\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>OBSERVATIONS FROM THE FINTECH SNARK TANK Hurray, instant payments are here! To much fanfare, the Federal Reserve launched its new payments system, FedNow, last week. The new rail gives\u2014or promises to give\u2014consumers and businesses \u201cinstant\u201d access to payments and money moved between financial accounts. What goodies should we expect to get from FedNow? According to<\/p>\n","protected":false},"author":1,"featured_media":7929,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[52],"tags":[],"class_list":{"0":"post-7928","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-banking"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.12 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Do We Get With The Federal Reserve\u2019s FedNow Instant Payments? | iSafeSpend<\/title>\n<meta name=\"description\" content=\"OBSERVATIONS FROM THE FINTECH SNARK TANK Hurray, instant payments are here! 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