The U.S. financial services market has been buzzing since the Federal Reserve announced in 2019 that it would develop a 24/7 real-time payment and settlement network. The FedNow® Service launched in July 2023.
Tim Ruhe, a Fiserv vice president in electronic payments, said the original announcement sparked a fresh conversation around payments strategies, real-time capabilities and consumer expectations. That conversation continues.
Ruhe, who has spent the past 10 years helping financial institutions develop their payments strategies, spoke to us about how the FedNow Service fits into the broader context of real-time services and faster payments.
What does the addition of another real-time network mean for financial institutions?
It's not a new concept to have multiple payment networks in the U.S. market. It drives choice, innovation and ubiquity. We see this today with how ACH and wire payments operate. There's more than one option. And there's more than one option in debit networks and card networks as well. So it's no surprise we're seeing it again in real-time payments.
It's not a new concept to have multiple payment networks in the U.S. market. It drives choice, innovation and ubiquity.
In fact, we were already operating in an environment where there were multiple real-time payment networks, including Visa Direct, MasterCard MoneySend and RTP® network from The Clearing House. Each has its advantages. Having more options expands the availability of real-time services to the maximum number of stakeholders, from consumers to businesses to financial institutions and fintechs.
The FedNow Service is going to be another alternative for the market, and it's a clear endorsement for the importance of real time to financial institutions and the U.S. economy.
What are financial institutions' most common questions around the FedNow Service?
They're asking what payment networks they should support. There are a lot of good solutions available now, and most already rely on more than one network. This latest real time payment rail affirms real time is here to stay, so financial institutions are asking about what real-time services to deploy first and how to upgrade what they have.
They're also asking how to deploy solutions that can grow and expand to support future networks and consumer-facing capabilities. They recognize that meeting both near- and long-term requirements can be complex, so they're looking for partners that can deliver solutions that grow as new networks and applications come along. No one wants to implement a solution only to see it become obsolete.
The recent launch underscores the need for a strategic payments strategy and partner. That partner should be able to connect financial institutions to any network and facilitate real-time connections at the core and application layers so the actual transaction is simple, secure and seamless for the consumer.
What are the other factors financial institutions should consider in devising their strategies?
First, they should enable faster payments within their existing consumer and business payments services wherever possible. Real time is a feature. It's not a product. It means improving how person-to-person (P2P) payments work. It means improving how transfers work, how bill pay works, how payables work.
Most consumers and businesses don't know or care about network rails. They care about speed, security, efficiency, simplicity and transparency. So the first thing a financial institution can look at is what customer-facing services they can enhance with faster payments and which ones are most important to enhance first. Upgrade what you have if you can, but if your system can't adapt, it may be time to replace it with more flexible solutions.
After that, determine what rails are needed, what operational changes are necessary and how to achieve real-time integration to the core. These are instant transactions that need to be authorized instantly and recorded in the core-processing system.
But the top priority is enhancing the customer-facing service with new speed options because what's driving this is customer expectations. Consumers increasingly expect real-time capabilities, real-time responses, real-time alerts and real-time information delivery. If they don't get it from their current financial institution, they may go somewhere else.
How do you see the market progressing?
Financial institutions should move forward with their plans to enable their consumer-facing capabilities and make sure their technology partner is ready to embrace and support the FedNow Service, along with other payment networks.
I think every financial institution should have a roadmap for how real-time can enable every aspect of how they serve their customers with payments capabilities. And they should set priorities.
Most financial institutions are starting to establish and execute their plans. Many are starting with faster payments through P2P services such as Zelle®. From there, they're looking to enable other real-time services, such as instant transfers, deposits, disbursements, payables and bill pay. So there's a clear progression.
As the FedNow Service takes hold, it will improve the quality of applications. In some cases, it will mean more financial institutions are connected to send and receive real-time payments. As a result, the percentage of times a customer can make a real-time transfer will go up. The percentage of times a customer can do a real-time bill pay will go up, and so on. Increased participation and an increased number of new networks bring broader reach and adoption.
Does this new rail illustrate the evolution of consumer expectations for real time in payments?
The launch of the FedNow Service is an affirmation of the future of real-time payments, but it was the success of Zelle P2P that helped demonstrate consumer demand. Consumers not only said payment speed was important to them, but when you gave them a fast and easy payment capability, they jumped at the opportunity to use it. They voted with their keyboards and smartphones.
The launch of the FedNow Service is an affirmation of the future of real-time payments, but it was the success of Zelle P2P that helped demonstrate consumer demand.
It's one thing to have surveys tell you it's important to consumers. It's another thing to watch them actually change behavior. And Zelle ushered in a behavior change and an increase in adoption of P2P once it was launched.
It also proves what we suspected about consumer demand for faster payments and allows the industry to move forward with real-time capabilities with confidence, knowing that if we deliver, consumers will use and appreciate those services. So let's give them the services that they'll love and want to use.
It's also worth pointing out that the value of real time is not just speed. It's also about the ability to transact 24/7. Real-time payments are not limited to business hours or business days. We see a lot of them taking place in the evenings and weekends.
Consumers are proving real-time payments are, really, all they were cracked up to be. Once you use them, you don't go back. The FedNow Service will help the industry deliver on the promise of 24/7 real-time payments, allowing consumers to pay or get paid by anyone they know, instantly.