FedNow Surpasses 600 Users. What’s Next?

The FedNow real-time payments service, which launched with 35 financial institutions on July 20, 2023, had grown to more than 600 banks, credit unions and service providers using the platform by mid-March, according to the most recent update from the Federal Reserve, which operates the platform through Federal Reserve Financial Services (FRFS).

With more than 9,000 financial institutions in the U.S., the opportunity for growth of the service is clear.

To help drive that growth and increase the use of the system by current participants, (FRFS) in mid-March today introduced the FedNow User Group, which is designed to facilitate regular engagement between FRFS and FedNow participants to promote innovation and inform the continued evolution of the service.

“The strong adoption and engagement surrounding the FedNow Service reflects our collaboration with the industry since day one, and this remains a priority as we pursue our shared mission of ubiquitous availability of instant payments,” Mark Gould, chief payments executive for Federal Reserve Financial Services, said in a prepared statement. “This new user group will provide institutions on the network and service providers who support them the opportunity to advise on new developments that further enhance the value of the FedNow Service for all participants.

”Through the FedNow User Group, all participating financial institutions and their service providers can receive a detailed look at ongoing service enhancements and share feedback to inform its future development via working groups, roundtables and webinars. The FedNow User Group also focuses on identifying innovative use cases to serve businesses and consumers seeking faster and more efficient ways to send and receive payments for various needs.

Early Use Cases

For the financial institutions looking to adopt FedNow in the year ahead, what does adoption look like? And what are the most compelling use cases today?

According to a recent Credit Union National Association(CUNA) article, Scott Young, vice president of HawaiiUSA Federal Credit Union in Honolulu sees instant payments as particularly helpful for smaller financial institutions, because it enables them to cut the number of interbank obligations. The near-immediate settlement of transactions enables financial institutions to quickly examine related operating expenses and uncover cost-saving opportunities.

At Pidgin, we’re seeing loan payments as one of the biggest opportunities for financial institutions in the faster payments realm. With a secure real-time network such as FedNow, we can enable financial institutions to collect and process loan payments instantaneously, providing benefits for both sides of the transactions.

Some financial institutions, perhaps most of them, will start with FedNow for only a single use – typically one with the highest demand among customers – then will expand their uses in the future. Most institutions will benefit by taking such a phased approach, starting with the real-time payment services that will provide immediate benefits for the most customers or members.

For example, if your financial institution serves primarily business customers, faster ways to send and pay invoices may be their top priority. Retail customers, on the other hand, may prioritize a faster way to transfer funds between accounts.

The most popular uses for real-time payments, according to Cornerstone Advisors’ 2024 What’s Going on in Banking report, are currently business-to-business payments, especially on the banking side. Within the credit union space, account-to-account transfers are among the top use cases. Other popular uses include last-minute consumer payments, recurring bill pay, government tax and fee payments, ad-hoc bill pay, sweep accounts, consumer retail purchases, e-commerce, business-to-consumers disbursements such as rebates and returns, and cash pooling/concentration.

Ready to Connect?

If your bank or credit union is looking to connect to the FedNow Service and maximize its benefits, consider partnering with a certified real-time payment provider that can guide you along the way. Pidgin can help – from best practices when onboarding to FedNow, to use case planning and more – we can help map out your optimal payment strategy.