Instant payments is increasingly becoming an expectation for consumers, making preparations for FedNow an even higher priority. ICBA Bancard and a FedNow pilot participant discuss the coming future of payments.
By Colleen Morrison
FedNow will be ready to go live in mid-2023, which means that the time for detailed project plans has arrived for community banks.
“It takes preparation to have proper processes and procedures in place, to ensure systems are compatible, marketing is ready and more,” says David Long, executive vice president of correspondent banking at Bryant Bank, a $2.6 billion-asset community bank in Tuscaloosa, Ala., and a FedNow pilot participant. “Now’s the time to look at those things, because this evolution doesn’t happen overnight.”
This newfound sense of urgency stems from growing customer needs, says Nick Denning, ICBA Bancard senior vice president of payments industry relations. “The Fed and others in industry have released compelling research demonstrating demand and current expectations, and they are projected to increase significantly over the next few years,” he says. “Customers will start shopping for instant payments providers if their needs aren’t being met, so the time to act is now.”
“We have to be open to the opportunities for all parties in the payments journey—consumer, business, provider, bank and beyond—to benefit from that payment happening quicker.”
—David Long, Bryant Bank
Increased competition means that instant payments are becoming more mainstream.
Nick Denning: In today’s Great Resignation economy, “Now hiring” signs are starting to say, “Hiring—work today, get paid today.” How much of a differentiator is that going to be for the employer if they can support real-time earned wage access? And how much of a differentiator is that going to be for banks if they can support both solutions for their businesses and for the prospective employees?
David Long: That’s true, and if you want to find out if your customers are looking for immediate payments, just walk over to your drive-thru window or teller line and ask, “Do you or your children have a Venmo or PayPal account?” I would say nine out of 10 will say, “Yes.” There’s your study of why we need to be in the game.
The FedNow pilot has helped to prepare the system to address diverse use cases.
Denning: It’s important to note how early on the Fed brought in the pilot participants; this is a much longer pilot program than the average. It has allowed participants to truly help shape and inform the service that will be launched in the market next year.
Long: From the very beginning, this pilot experience was markedly different than any other industry project I’ve been a part of. Collaborating, communicating and giving feedback makes the whole building process and end product better. We have to be open to the opportunities for all parties in the payments journey—consumer, business, provider, bank and beyond—to benefit from that payment happening quicker.
While every community bank is different, instant payments speak to a range of customer experiences and needs.
Long: Each community bank needs to prepare its own plan for instant payments. There can be four community banks on four corners of Main Street, and all four may have different business strategies. That’s true of an instant payments strategy as well. You have to determine how it will help you serve your consumers, businesses or both.
Denning: The industry is in the throes of transforming digitally, and instant payments and FedNow will enable digital transformation in a whole new way. It’s a great time to evaluate the customer experience, what challenges they are facing in their daily lives, and where community banks can add value, because digital transformation and instant payments will certainly intersect over the next five-year period.
ICBA Bancard’s FedNow webinar series
To be ready for FedNow’s launch, education for both customers and staff will be critical.
“This is the first time the Fed has created a new rail in 40 years, and we have to educate on why,” says David Long, executive vice president of correspondent banking at Bryant Bank in Tuscaloosa, Ala. “We’ve got to have a plan and determine how to educate both internally and with our customer base.”
With that in mind, ICBA Bancard has developed a webinar series to help community banks prepare for FedNow. “Ramping Up for the FedNow Launch” includes four segments to support planning:
- Delay No More: Creating Your FedNow Plan
- FedNow Features, A Deep Dive
- Lessons Learned From Community Banks Implementing Instant Payments
- Preparing for 2023 and Q&A with a Fed expert
Complimentary recordings of each session are available to ICBA members on Bancard’s website.
“As community banks prepare for FedNow, define your strategy by talking to employees, customers and providers,” advises Nick Denning, ICBA Bancard senior vice president of payments industry relations. “The more you engage others and the more you talk about FedNow, the more you will be able to inform your path forward, making sure you’re uncovering any blind spots.”
Colleen Morrison is a writer in Maryland.