Experts Weigh FedNow’s Role in ‘Mainstreaming’ Instant Payments

Drew Edwards, CEO of Ingo Payments, and Doug Brown, president of NCR Voyix, told PYMNTS’ Karen Webster that the new instant payments rails will eventually go mainstream now that there are two bank rails in the United States up and running — but ubiquity is going to take some time.

The FedNow® Service launched in July. The Clearing House’s RTP® Network has been live since 2017 and was the first new payment rail to be set up in the United States in 40 years.

Yet coverage thus far is relatively small. Several hundred financial institutions and a few mega-corporates offer instant payments functionality.

“There’s an adoption pattern that needs to happen in the back office,” Brown said, adding that for use cases to work successfully at scale, they’ll need to be “battle-tested, and they need to be proven.”

Asked by Webster how we’ll get there from here — when ubiquity extends beyond the largest banks and reaches community banks and credit unions, connecting all bank accounts and their corporate clients — Brown offered up his take.

It’ll all come together “one payment at a time,” he said. “It’ll also take a combination of a little marketing flair and a message to the market, wrapped in value — wrapped into a couple of breakthrough use cases.”

Call it a marathon, not a sprint. Or to use another analogy, Brown said we’re in the fourth inning of evolution with the RTP Network, while Edwards posited that FedNow is in the second inning of development.

The headwinds lie partly with the fact that, as Edwards noted, ubiquity is already a hallmark of payment methods such as checks, ACH and even the instant capabilities of push-to-card. Given the fact that the sending/receiving pool of banks is relatively limited for the bank-to-bank instant payments rails, Edwards contended that the FedNow and RTP networks are “not going to move the needle” for Ingo clients like Geico or Caesar’s.

For the corporates, the question, stretching back to 2017 and RTP’s debut, has been just what problem RTP and FedNow solve beyond push to card, Edwards said. But now with the FedNow Service in the mix — and the fact that the Fed is an entity with which everyone is familiar — the conversation is changing.

“The Fed has definitely piqued the interest of the banks and the credit unions,” Brown said.

The Use Cases

As for the use cases that will bear fruit even at this early stage of faster payments embrace, Edwards said that B2B offers a unique opportunity. Since real-time functionalities flow between treasury banks, they can add invoicing and other information to transactions, which can improve visibility and cash flow management. Consumer adoption will hinge on faster payouts and disbursements from a range of providers, such as online betting sites and insurance firms.

Those use cases, Edwards and Brown agreed, will help spur banks not just to connect to real-time payments, but to activate new offerings across disbursements and verticals such as healthcare.

Edwards observed that anywhere there are ACH transactions happening today, there lies the opportunity to accelerate those transactions from batched-based processes to real-time payments. Fraud will be an ongoing concern, and it’s an issue that is still being addressed. Banks are still skittish in a landscape where account takeovers are still a threat to consumers, corporates and financial institutions alike, Brown said.

In the years ahead, Edwards predicted that FedNow will wind up “signing up probably every community bank in America. … The rails will be there, the connectivity will be there, and it will all work at scale.”

The relatively lower price point of the FedNow and RTP networks will force all the other rails to compete, making payments more cost-effective in general.

As Brown added: “The mass adoption across an ecosystem takes several stakeholders, multiple parties and time.”