By: Jon Budd, CEO, Juniper Payments, a PSCU Company

Just last week, the Federal Reserve launched the FedNow^SM Service, a new interoperable domestic instant payments network that enables businesses and individuals (accountholders) to send and receive instant payments in real-time, 24/7/365, through participating financial institutions. (We shared more about instant payments basics in the first part of this blog series.) FedNow represents the first new payment rail in the U.S. in 40 years. Needless to say, the ways in which we receive information, shop and conduct banking are vastly different today. The adoption of instant payments will bring our collective payments infrastructure up to speed with consumer expectations and the progress of numerous other countries regarding instant clearing and settlement transactions.

As the U.S. financial system moves through the initial phase of implementing FedNow, credit unions can learn from the experiences of existing instant payment systems used by central banks worldwide. For example, the United Kingdom launched the Faster Payments Service in 2008, and Sweden's Swish system was launched in 2012, both of which have already proven successful. In Europe, open banking enables individuals to keep the same account number even when switching between banks, similar to how a customer can keep the same phone number when switching from AT&T to Verizon. Brazil's PIX system allows users to send payments using only a recipient's phone number, eliminating the need for a bank account number or other identifying information. In many Latin American countries, instant payments have largely replaced credit cards as the primary payment mechanism, and it’s common to use QR codes to complete an instant transaction.

These worldwide examples demonstrate the potential for successful implementation of advanced instant payment technologies, which FedNow makes accessible to financial institutions of all sizes in the U.S. We expect this will be a significant change that most credit unions will eventually adopt – just as they have progressed from over-the-counter transactions to ATMs to mobile check deposits. While fast payment capabilities already exist, such as same-day ACH and mobile apps that move money between two people, these methods have some challenges, such as settlement risk and delays in accessing funds. (For more on existing electronic payment options, read the second part of this blog series.) The FedNow service aims to address these issues. The future of payments is one in which funds move from the sender's financial institution to the recipient's as soon as the money moves from party A to party B.

With the launch of FedNow, credit unions have the power to participate more efficiently and directly in faster, real-time payment innovations that prioritize the user experience. By leveraging FedNow to offer innovative instant payment services, credit unions can better serve their members by providing a fast, convenient experience and greater financial flexibility for making time-sensitive payments in a variety of everyday transaction scenarios.

Promising Use Cases

As the launch of FedNow accelerates the adoption of instant payments in the U.S., it will expand the practical, everyday applications for moving money faster. FedNow can benefit the user experience by enabling faster payments in the following use cases:

• Person-to-Person (P2P): These payments are made by individuals to friends, family members or other individuals for various purposes. Some everyday examples include payments for services like dog walking and babysitting, as well as reimbursement for shared expenses, like splitting the cost of a meal or paying a roommate for shared rent and utilities. Currently, many consumers rely on P2P payment accounts, such as CashApp, Venmo and Zelle, to complete these types of transactions.
• Business-to-Business (B2B): This type of transaction occurs between businesses, such as one business paying another for inventory, rent or services. Instant B2B payments are particularly useful for businesses that need to make time-sensitive payments to their suppliers.
• Business-to-Consumer (B2C): These payments are made by a business to an individual. For instance, a vendor can refund a customer instantly for an incorrect order. Another example is earned wage access or immediate payroll for hourly workers, allowing them to be paid as soon as they finish their shifts. Faster payments are desirable for insurance claims, with some insurance companies providing instant payouts to customers who make claims for disaster situations.
• Account-to-Account (A2A): This refers to the movement of funds from one account to another, typically owned by the same customer, within the same or a different financial institution. For instance, transferring money from a bank account to a brokerage account. Accountholders can also use instant payments for funding or defunding stored value accounts.

Financial institutions that utilize FedNow's emerging payment infrastructure to provide instant payment solutions to their customers will gain a competitive advantage over those that don't. By taking advantage of these new capabilities to enhance user experience and facilitate faster, easier access to funds, credit unions can stay ahead of the curve in adopting FedNow and offering the benefits of instant payments to their members.

The Expectation of Instant

Members are increasingly using digital payment options and expecting instant payment capabilities – and credit unions must respond by providing innovative tools and services to remain competitive, especially with the launch of FedNow. According to a 2022 Credit Union Innovation study, 61% of millennials say they are “very” or “extremely” interested in utilizing real-time payments capabilities. The top motivators of interest are ease and convenience of use, as well as instant availability of funds. Offering real-time payments can improve satisfaction and loyalty among current members. The study found that 56% of credit unions say real-time payments boost new member acquisition and 50% say they meet demands from existing members. By leveraging FedNow to offer positive, enhanced instant payments experiences, credit unions can increase member satisfaction and retention and drive revenue growth.

To stay competitive and provide better service to individual and business customers as FedNow gains momentum and consumer expectations evolve, credit unions can provide a more comprehensive set of services with a FedNow-enabled instant payments offering. Although there is no mandate for this, credit unions can opt to start out by choosing to participate in these capabilities as receivers only, which would allow them to receive payroll and government transactions. Juniper Payments, a PSCU company, is a FedNow-certified fintech service provider which offers access to the FedNow Service and flexible solutions to help credit unions achieve their instant payments goals. This is made possible via its own proprietary solution, JuniFunds, which uses APIs to offer the most compatible workflow possible.

Harnessing the power of FedNow, new instant payment capabilities provide credit unions with a convenient and fast way for members to send and receive funds. This helps credit unions meet members' expectations of faster, seamless digital experiences. By understanding the importance of instant payments to members and providing innovative solutions for a range of practical use cases, credit unions can secure their position as important players in the instant payments landscape of the future.

Jon Budd is the CEO of Juniper Payments, LLC. Jon has been with the company for 20 years and has helped grow it into the leading third-party SaaS provider for the wholesale banking and credit union market, and now downstream to community financial institutions. Over the years, he has been involved with every aspect of the company and its market. This includes a focus on services, product development and leveraging economies of scale to help empower clients with top-tier technology and payment systems.