July 2023 will mark the second time in six years that a new real-time payments rail will go live in the United States.
And with it comes a lot of uncertainty about whether the Federal Reserve will move as “fast” in adapting these rails to the use cases that matter for credit union members. But forward-thinking CUs can leverage members’ trust to forge new instant payments ecosystems.
Kelly Botti, CEO of TruMark Financial Credit Union; Tansley Stearns, president and CEO of Community Financial Credit Union; and Chuck Fagan, president and CEO at PSCU, told Karen Webster that credit unions have been moving cautiously over the last several years as faster payments creep ever closer to reality.
Although it’s true that RTP rails have been in the U.S. since 2017, when The Clearing House launched, credit unions had hoped that a FedNow launch would help to bring broad swaths of the U.S. financial system closer to ubiquity — eventually — as thousands of financial institutions (FIs) opt in.
From PSCU’s vantage point, said Fagan, as part of the FedNow pilot and the advisory group helping to steer the launch, a few observations emerge. For many years, he said, credit unions had not been able to have a direct-to-the-Fed account. Juniper Payments, which was acquired by PSCU just over a year ago, allows PSCU and its owner credit unions to participate more fully in faster payments innovation by fostering that connectivity. But getting there will be a process, as credit unions traditionally have been laggards when it comes to payments innovation.
Fagan, Botti and Stearns noted that credit unions see instant payments rails as a way to create their own faster payments ecosystems, fostering new use cases for consumers and small business clients alike.
“The opportunity here is to change the very brands of credit unions,” said Fagan. “That FI-to-FI connectivity will benefit our CUs … but that hesitancy around just how reliable and strong of a technology is in place remains a question — and something that I’m hopeful the Fed will answer in a positive way.”
Webster asked what PSCU’s portfolio of CUs — spanning the breadth of the industry — is seeking in terms of instant payments and the FedNow rollout.
“It’s pretty consistent,” Fagan said, adding that most of PSCU’s credit unions are “considering ‘receive, send and request’ as the main components.”
That’s the general order of things, he said, noting that some credit unions will be more aggressive than others in bringing instant payments to market.
Regardless of progression, said Fagan, CU members should not think about how their money is moved; money movement should happen in as expedited a manner as possible.
And with that guiding principle in place, the low-hanging fruit is ripe to be plucked by CUs, serving members who trust them to help improve their financial well-being. Instant payments can help consumers and families send money to recipients who need money to deal with financial stressors rather than waiting days for funds to settle.
Faster payments can also be leveraged beyond the confines of peer-to-peer (P2P) transactions to help even the youngest clients foster a sense of financial responsibility. Stearns recounted how her CU has a partnership with Greenlight to offer debit cards for kids. Stearns’ daughter wanted to get tickets to see Taylor Swift.
“The question [to my daughter] became, ‘How much money have you saved through your allowance through Greenlight?’” Stearns said. “And now we’re having a financial literacy conversation.”
Younger consumers, the panelists noted, are ever more adept with technology and will want to see their money move when they want it to move.
No matter the use case, said Stearns and Botti, partnerships with the right providers have mattered.
“We have not been fast enough to be able to respond to what our members need,” said Stearns.
And as Botti echoed, “we started our journey around instant payments about four years ago … as we’re starting to look at FedNow, one of the things that we really had to do was right-size our operations.”
TruMark, for its part, will likely embrace inbound instant payments before moving to outbound transactions, where funding (member loans, etc.) will be seeing considerable demand. TruMark, continued Botti, serves low-income members, and instant payments can help salve the pressures of living paycheck to paycheck.
“We’re going to take it one step at a time so we can meet the market,” said Botti.
Both Community Financial and TruMark will find demand from small- to medium-sized businesses (SMBs), which will want faster access to payments, as cash flow, no surprise, is critical.
Artificial intelligence? No conversation would be complete without a discussion of AI, but as Botti and Stearns said, the world needs to stop and catch its breath before throwing AI at every use case in financial life.
“When the Elon Musks of the world are saying we should slow down,” remarked Stearns, “the answer is [to do that].”
Looking ahead, said the trio, faster payments may cannibalize at least some credit and debit spend, as well as ACH, but they will certainly take a bite out of cash. Botti predicted that as costs come down, instant payments will gain ground against other payments modalities.
“We’re going to [be] leveraging third parties and pulling them into our ecosystem so we can offer better products and services for our members that capitalize on this,” said Botti.
The benefits will accrue to the leading-edge CUs, said Fagan, which can act as the central hubs for how money is moved in consumers’ or small businesses’ financial lives because those FIs will wind up being the providers of choice, even, in Botti’s telling of it, the “wallet” for end users.
Added Fagan, “the interest level and confidence is going to grow … the faster pace of moving money is something that starts, and it never slows down.”
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