Real-time payments are changing the way money moves within the U.S. With payments processed securely, efficiently, and instantly, this can be a game-changer for both consumers and businesses. However, to implement real-time payments on a national scale, there are challenges that must be overcome, such as the need for a solid infrastructure.
During a recent PaymentsJournal podcast, Nick Botha, Global Payments Sales Manager/Sales Lead at AutoRek and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, discussed the benefits of adopting real-time payments, operational considerations, and what we can learn from the UK’s implementation.
What Does FedNow Mean for Real-Time Payments in the US?
One of the biggest benefits of FedNow’s upcoming launch is that it will offer an instant payment option for both consumers and businesses. No longer will users have to wait – transfers and settlements can take place within seconds. With other traditional payment options still experiencing delays and higher costs, FedNow will provide an innovative solution, helping the US modernize the payment environment.
“Having a government organization running real-time payments is going to be a bit of a game-changer in such a big market,” said Botha. “And with the number of benefits which FedNow has expressly defined, it eradicates the delay experienced by more traditional digital rails such as ACH transfers. One that’s more interesting to me and where we fit into the picture is that it creates new product offerings, encourages innovation, and creates competition.”
Botha explains that there will be an effect on the U.S. market. However, how much of an effect will be based on the level of adoption. Adoption of real-time payments has been considerably lower in the U.S. than it has in India, Brazil, and the UK.
In the US, Botha believes that organizations and regulators will be testing and monitoring regularly to determine where this new solution will be adding the most value.
Operational Considerations for Navigating FedNow
Although many organizations are eager and ready to adopt FedNow for its numerous benefits, including adding a competitive edge in the global marketplace, Botha says there are a few operational considerations to keep in mind.
“The most obvious one on the surface is: how is this going to affect existing infrastructure and technology that these organizations have?” Botha asked.
“We must remember that these organizations have built or bought the existing infrastructure and technologies to accommodate certain payment flows, and with something new coming in, how flexible can your organization be?”
Botha also mentions that there are considerable costs involved with adopting both FedNow and instant payments, especially if this is a completely new experience for certain businesses.
Compliance and regulations are other considerations. It is yet to be determined what the Federal Reserve will include as part of their requirements. Organizations must remain flexible to accommodate these regulations and change strategies accordingly.
Key questions to ask while pouring time and effort into the implementation of real-time payments are: How will this affect revenue? What if the demand is not there?
He also mentions training. How will it work? What benefits will customers be receiving? What will that mean for your internal stakeholders?
Bodine asks, “I think we touched a little bit in our previous conversation on the door that it opens up for fraud. Training is very important. Occupational fraud being a big component of any security or fraud program.”
New avenues for payments can quickly become the next target for fraudsters, yet Botha assures us that this might not be as much of a concern.
“Being run by a regulator does have an effect,” said Botha. “We’ve seen the FCA in the UK and how they’ve managed to partner up with industry players to make sure that fraud is not something that that’s been swept under the carpet. It’s brought to the forefront. It’s well understood. And that way the industry is able to combat some of these fraudsters and the potential for increased levels of fraudulent activity.”
Learning from Other Countries’ Implementations
Botha points out that, although the UK has successfully implemented real-time payments for some time, the FCA did not launch it from day one. Its implementation took more of a phased approach, something that the U.S. can consider emulating.
He believes that education is key, and communicating the benefits for users of real-time payments in the US would be critical to nationwide adoption.
“India has more than 5, 10, or 15 times the volume of transactions passing through their real-time payments schemes than the UK does, and likewise in China and Brazil,” said Botha. “So there definitely have been some success stories around real-time payments launched by regulators that the US could benefit from.”
Bodine adds, “I’m hoping that our institutions do have open ears as we move forward.”
In Closing
FedNow is poised to revolutionize the payments industry and will position the U.S. to further modernize its payments systems to remain competitive. In order to ensure successful adoption of instant payments through FedNow, organizations must count the costs, take a phased approach, and look to other regions to inform their adoption strategy.
