Since the FedNow® Service went live last July, more than 900 have banks have signed up, per the Federal Reserve.
Is that a good number?
Keith Olson, vice president of ACH and online banking at Nuvei, said FedNow has some accomplishments to tout as it celebrated its first year July 20, but the killer use case that will push instant payments toward ubiquity has proven elusive.
There have been key differences in the approaches toward getting financial institutions (FIs) to embrace and promote real-time transactions, especially debit transactions, Olson said. In Europe, for example, the push has been arguably from the top down, where central banks have directed FIs to sign on to their various payment schemes.
As we’ve seen in the United States, “even though it’s the Federal Reserve, because they did not mandate participation, they had to encourage participation,” Olson said.
With that encouragement stretching out over the past year (and even before the FedNow launch), the fact that more than 900 banks have signed on represents a laudable achievement, he said. Nuvei has been active since day one, having taken its place as a service provider/showcase member and active participant as the FedNow platform went live.
Beyond the initial signups, he said, “there has not been a massive splash in activity.”
That’s because a fair number of issues in financial services — including push payments — have already been solved by the advent of The Clearing House’s RTP® Network, which has been around for seven years.
Most of Nuvei’s collaborations with stakeholders, he said, reside with “pay-in” opportunities, which the real-time networks refer to as Request for Payment or RFP transactions. The marketplace continues to seek a way to secure “good funds” immediately without exposure to clawbacks.
“If the technology stack and the originators of those transactions evolve such that it’s an efficient process to participate in a RFP and respond to it in an efficient way, and then attach that to an instant movement of funds, that would be great,” Olson said.
We’re some ways away from that reality, said Olson. It’s a complicated task for the originators to gather all the necessary data and push that data out, especially with the traditional form factor and user experience of debit payments already firmly in place.
Beyond that, FIs in the U.S. remain accustomed to earning interchange revenues for access to their accounts for a debit — even if those revenue streams are capped by the existing Durbin bill legislation. As Olson told PYMNTS, 21 cents and five basis points on a transaction are still better than nothing.
“The commercialization of what’s in it for a bank to actively participate in real-time payments — well, that may be a significant barrier to solve for the evolving FedNow network,” Olson said.
He noted that Nuvei and other firms have nearly perfected the pay-by-bank/direct bank transfer model for pay-ins used in eCommerce across all manner of digital channels, which eliminates network expenses and interchange for their clients.
Asked by PYMNTS what the natural “progression” of use cases might be, Olson said that although much attention is being paid on the consumer side of the equation, instant payments hold appeal for commercial and B2B transactions.
Corporate and treasury professionals find that the payables experience is still burdensome, and optimizing cash flow comes down to “timing” wire transactions at the right moment to suppliers, he said.
Instant payments through debit, embedded in emails and corporate servers with data-rich components, can improve the recurring dynamics between buyers and suppliers. Paying with a click of a button can add real value to B2B payments, he said. Government use cases will also find success, as all recipients of government disbursements, whether businesses or consumers, want their money as soon as possible.
One “wise” strategy, Olson said, may lie with the Fed creating a FedNow “network” that accesses all banks and uses open banking and the aggregator model (Plaid and others) to move toward ubiquity.
“The Federal Reserve would provide that ubiquitous access to all FI accounts in their network, allowing for the very elegant enrollment of payment credentials,” Olson said. “And along with that, all of the compliance requirements and very tight and clear chain of liability definition” would take shape. The result would be a “pay by bank” model with broad reach and scope.
“It’s been incredible what they’ve been able to achieve,” he said of the Federal Reserve and FedNow, “but solving for a net new use case and value proposition can only occur once that network is established and is efficient and can be optimized.”
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