05/16/2023 | Press release | Distributed by Public on 05/16/2023 13:55
The Federal Reserve has been working on this instant payment offering since 2019. FedNow is the first major new payment capability delivered by the Fed in more than four decades. As of this writing, FedNow is slated for delivery in July 2023.
Instant payments are a global phenomenon with instant payment schemes in or coming to market in over 65 countries. The U.S. has, if anything, been slow to make this innovation available. The Clearing House released RTPĀ®, the private sector instant payment offering, in 2017. RTP has seen a 70% CAGR in transaction volume since 2020. Clearly, someone in the U.S. is interested in instant payments!
Still, the excitement expressed by the Fed and many financial institutions about instant payments and FedNow doesn't seem to be shared by the corporate community. In my interactions with corporate financial professionals, the reaction has been a resounding "ho-hum."
Backing up a bit - what is FedNow? FedNow is a new payment rail being developed by the Federal Reserve as a product to be offered to financial institutions. Financial institutions, in turn, will offer the capabilities of FedNow to their customers: consumers, small businesses, enterprises, governments, etc. FedNow payments vary from payments that are familiar to corporates in four important ways:
These characteristics change the nature of bank payments and bring their behavior in line with "always on, always available" modern experiences. Instant payments create electronic payments that behave like cash.
When asked the question, "Do you want your money now or do you want your money later?" there are few reasons to not answer that you want your money now. Instant payments hold this promise. So if "everyone" wants to get paid instantly, why the reluctance on the part of corporates? The answer to this question is complex, but here are a few ideas:
FedNow is indeed a BIG THING. FedNow and RTP represent a modernization of payments that has been a long time coming and will certainly be a very good thing for corporate payments. Eventually. Corporate practitioners should work to understand what instant payments can - and can't - do for them.
As you continue learning more about instant payments, AFP will always be a great resource. Here are some other industry resources to help you understand more about FedNow and instant payments.
Instant payments will arrive on your doorstep in unexpected ways. Don't panic about the July launch of FedNow. But do get educated and prepared as you will be processing instant payments regularly within a few years.
Looking for more on payments? Check out these resources: