glen.sarvady@154advisors.comglen.sarvady@154advisors.comLessons in connectivity

The U.S. isn’t the first country to pursue a real-time payments network. Most experts consider us to be behind the curve.

India (UPI) and Brazil (PIX) are frequently cited examples of initial adopters whose primary objective was to migrate predominantly cash-based economies to digital channels.

Despite significant differences in consumer behavior and banking infrastructure, these prior rollouts offer lessons in terms of connectivity and back-office support.

“Our journey started in late 2016 when our parent organization, VSoft, was part of the UPI launch in India,” says Abhishek Veeraghanta, founder/CEO at Pidgin, another FedNow initial adopter. “UPI gave us a template for what this could look like in other countries.”

Veeraghanta is part of a broad consensus that, given the extensive pilot process, FedNow’s official July 20 launch date was something of a nonevent.

Pidgin’s use of The Clearing House’s real-time network since 2019 also helped.

“We were already live on RTP, so we knew what a 24/7/365 approach required,” Veeraghanta says. “We’re laser-focused on faster payments, so this was a natural extension of what we were already doing.”

He sees FedNow as “democratizing for community financial institutions,” while also pointing to support considerations. 

“How do you handle the operational requirements of an undertaking like this? You need to look at the impact on five-employee shops and single-segment credit unions,” Veeraghanta says. “That’s what drove our approach.”

Gupta says Star One hasn’t had to add any staff to manage FedNow. That could be more challenging for a small shop, however.

“It depends on how hands-on you want to be,” says Veeraghanta, referring to Pidgin’s cloud deployment and outsourced operations management options. “We can even help with sweeps if given the instructions.”

Many credit union and service provider leaders agree that early movers were motivated more by  anticipated demand than a reaction to existing demand. However, Gupta says, “the demand to move money on our members’ time frame has always been there.”

Meaningful traction should build over the course of 2024. “There’s a lot of FOMO [fear of missing out], but there’s also an ongoing education process required,” says Veeraghanta.

Some of this momentum will materialize as more institutions move into send mode. Ganey sees most credit unions starting as receive-only users.

“It gets them on the platform, and gets the staff acclimated,” he says. “In 2024, you’ll see more of the shift toward send.”

Concerns about a critical mass of senders may well be overblown. “The top 15% of U.S. financial institutions cover 85% of demand deposit accounts,” Veeraghanta points out. “If they turn on send, we’ll have plenty of volume. And people need to get paid faster even if they can’t pay faster.”

Several of the largest banks have already enabled send for both RTP and FedNow. The promise of the U.S. Treasury sending government disbursements via FedNow will likely be a strong incentive for credit unions to activate receive-only capability at minimum.

No credit union wants members to see a “sorry, we can’t accept these incoming funds” message.

NEXT: What’s different now?