Instant payments on the horizon — but first the pilot programs.
To that end, the Federal Reserve said Monday (Jan. 25) that more than 110 organizations, including financial institutions and processors, are participating in the pilot program for FedNow, the instant payments offering that is at least a few years away.
As detailed in a press release, “The program will support development, testing and adoption of the FedNow Service, as well as encourage development of services and use cases that leverage FedNow functionality.”
The central bank also said it received “more than 80 submissions” from organizations that provide payment systems and services for financial institutions and end users that are interested implementing instant payments to meet business or consumer needs. As a result the Fed is creating what it calls an “ecosystem participant” program beginning later in 2021. Those participants will provide feedback on specific features and use cases tied to FedNow.
In a list of names participating in the pilot program, we see a number of marquee FI, including J.P. Morgan, Citi, Goldman Sachs and Wells Fargo and several regional players. Providers include Volante Technologies, Jack Henry and FinTechs such as Finzly.
The FedNow announcement comes at a time when dozens of faster payments initiatives are taking shape, or have already launched, around the globe.
In an interview with Karen Webster, Boston Federal Reserve Chief Operating Officer and FedNow Program Executive Ken Montgomery said that here in the U.S., FedNow is on track for a 2023/2024 rollout. Core clearing and settlement functions will be delivered in that initial 2023/2024 timeframe.
Commentary from stakeholders during the public commentary period and from the previously-announced FedNow Community (which debuted in May 2020) “highlighted the need for features to address accessibility, interoperability, security, liquidity, and fraud prevention,” Montgomery said.
The overarching goal has been to provide more competition for payments rails, and better integration with the 10,000 financial institutions that already work with the Fed. Interoperability, Montgomery added, will be fostered through the use of ISO 20022, for standardized messaging.
Initial use cases would be geared toward making sure that rent and other payments would be settled in a speedy manner for low- and moderate-income individuals, and serving underbanked populations.
Interest In B2B Use Cases
There is increasing focus on faster payments as a key value driver in B2B commerce as well.
In a separate interview, Sarah Billings, PNC’s senior vice president and head of payments product, operations and strategy; Bridgit Chayt, Fifth Third Bank’s senior vice president and director of commercial payments and treasury management; and infrastructure expert Domenico Scaffidi of Volante Technologies said banks must leverage real-time infrastructure to unlock value for corporate clients that moves well beyond the confines of simply being fast. That would include (but not be limited to) initiatives such as FedNow.
“One common thread is that we don’t look at payments just as back-office payments anymore,” Billings said. “They need to be looked at as a component of client experience.”
Chayt told Webster of faster payments in general: “When you start to think about corporates and middle-market companies, that’s when you start to understand that infrastructure, the straight-through processing, the managed-service wrapper that a bank can bring is where the real efficiency and value are seen.”
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