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The official launch of FedNow as a commercial service is set for July, but already the nation’s banking regulator, along with observers, have seen a pattern in where initial participants have been using the real-time payments service.
“We’re starting to see more activity around business-to-consumer [payments], related to payroll front and center,” said Tim Boike, vice president for industry relations at the Federal Reserve Bank of Chicago. He also pointed to “a lot more activity” in areas such as bill payments, disbursements, and account-to-account transfers.
Cross-border payments, too, are attracting “a ton of interest,” along with payroll funding through earned-wage access, pointed out Stephen Aschettino, partner and head of U.S. fintech at Norton Rose Fulbright, a London-based law firm serving corporations and financial institutions.
Meanwhile, long-existing real-time systems such as Visa Inc.’s Visa Direct network is attracting usage in areas the giant card network never considered, including merchant settlement, according to Ky Tran-Trong, vice president and associate general counsel for global regulatory affairs at Visa Inc.
Aschettino, Boike, and Tran-Trong spoke Tuesday as part of a panel on real-time payments at the Electronic Transactions Association’s Transact conference in Atlanta.
The Federal Reserve first proposed a real-time payments network in 2019 and has spent the past four years developing it. With the July launch, the system will compete head-to-head with such systems as the 6-year-old Real-Time Payments network from The Clearing House Payment Co. as well as the card-based services from Mastercard Inc. as well as Visa.
Boike was careful to outline how the Fed system may differ in crucial ways from its competitors. With FedNow, “We’re talking about instant settlement within master accounts at the Federal Reserve,” he said. He added the service has “direct connections to many of the financial institutions in the United States.”
“We are capable of clearing and settling within savings accounts and brokerage accounts as well as [demand-deposit accounts],” he added. “What we heard from FIs was, ‘This is complicated, can you give us some help?’” Also, FedNow will be a credit-push platform. “No debit allowed,” Boike pointed out. On the crucial issue of pricing, he confirmed FedNow will charge a flat penny per transaction to the requestor, paid by the party that requests the instant transfer (senders pay 4.5 cents). Transactions will be capped at $500,000.
Potential clients, Aschettino said, should start out with an analysis of the payment rails they are already using, comparing those systems with what their clients are looking for. He also cautioned that “the elephant in the room behind real-time payments is real-time fraud.” Entities that deploy FedNow, he said, should review their fraud policies carefully. “If you have a policy you can’t comply with, that’s arguably no policy at all,” he said.
The Fed will offer “some basic fraud controls” to start with, Boike added, including the capability for institutions to add a “specific account” to the list to prevent a transfer from taking place. Tran-Trong agreed fraud controls are becoming increasingly crucial for real-time payments. “There needs to be new fraud tools on top of these payments,” he noted.
