FedNow Will Be Challenging for Community Banks to Implement


In March, Ken Montgomery, the first Vice President of the Federal Reserve Bank of Boston and FedNow Program Executive stated: “With the [July] launch drawing near, we urge financial institutions and their industry partners to move full steam ahead with preparations to join the FedNow Service.” While the summer deployment is likely to have a few hiccups—and may even get delayed if the history of major technology introductions is any indicator—banks that aren’t at least making plans for enabling “receive,” are going to have a rude awakening.

RTP has been around since 2017 and uptake has been paltry, but most industry experts believe that the floodgates will open with the release of FedNow. Systemically important banks are all in line and giddy to serve up the next coming of payments and this is good news for 80% or so of the depositors in the U.S.

Community banks, on the other hand, are not attacking instant payments with the same fervor. Some have been playing the waiting game and have not implemented RTP to see what the competitive FedNow service will look like. That’s fair enough to some extent as there are no plans for RTP and FedNow to be interoperable. But it’s April, and FIs that don’t have clearly laid out plans to get in the instant payments game are going to be in reaction mode to maintain their deposit base. This will be particularly apparent for those in the gig economy who will work their delivery shifts, do their freelance work, drop off their passengers, and expect to see their money right then and there.

The gig economy allows us to do anything from anywhere, and small communities love their food deliveries as much as those in the big city. A worker for one of the delivery services typically does it as a side hustle. They put their hours in, clock off, head home, jump on Xbox and around July of this year, they’re going to expect to see their shift wages in their account roughly 20 seconds following the end of that shift. And guess what’s going to happen if their bank doesn’t support instant payments? They’re going to find another bank in about the time it takes to fill in an online account opening—and rest assured banks with full instant-payments capabilities will be eagerly waiting in the wings.

Community banks need to partner now with technology providers—and even other banks—to make sure they’re equipped for the summer unveiling. A wait and see approach is no longer prudent, and at a minimum, these banks need to be shoring up communications to their depositors that an instant payments offering is imminent.

Overview by Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research.


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