The Federal Reserve’s FedNow® Service launched in July 2023, enabling eligible U.S. depository institutions of various sizes to build and deliver instant payment solutions for the people they serve.

Today, hundreds of institutions are on the network, and the number is growing daily. Many credit unions have already implemented the service to gain a competitive edge and improve member experience.

Participating in the FedNow Service provides other benefits to credit unions, too.

“Instant payments are helpful to us as a smaller financial institution because they reduce the buildup of interbank obligations,” says Scott Young, vice president of payment operations at HawaiiUSA Federal Credit Union in Honolulu. “With transactions settling in seconds, we can scrutinize our operating expenses and identify cost-saving opportunities.”

Instant payment use cases

The possibilities are endless, but there are several instant payment use cases that credit unions and other organizations say are especially relevant.

“We see a lot of demand right now for account-to-account transfers,” says Marcell King, chief commercial officer at Tyfone, a digital banking company and certified service provider of the FedNow Service. “When you think about instant payment rails, sending money between financial institutions is low friction, since you aren’t depending on any third parties for integration apart from your digital banking provider initiating those instant payments.”

Loan payments are another popular use case for instant payments.

“One of the biggest use cases we see is for loan payments,” says Kevin Olsen, senior vice president of innovation and strategy at Pidgin, a secure real-time payments platform and certified service provider of the FedNow Service. “We want to give financial institutions the ability to collect and process loan payments instantaneously, so it's beneficial for both sides.”

Earned wage access and payroll are also key instant payment use cases.

“Payroll is one we see for obvious reasons,” says Mark Majeske, senior vice president of faster payments at Alacriti, a fintech that’s certified to support payment processing for FedNow participants. “If you are a rideshare driver, for example, and can get paid at the end of your shift, it’s a great benefit if you need that money to pay your bills on time.”

Organizations see value in a variety of use cases and are looking ahead to those they might enable in the future.

“We’re targeting several specific use cases in the future as we expand from receive-only participation to send and receive: bill pay, instant disbursement for loan proceeds, sending and receiving paychecks, and the ability to send and receive requests for payment,” Young says.

Insurance and government transactions are also of interest to the industry. Notably, the U.S. Department of the Treasury was among the first early adopters of the FedNow Service.

Planning for FedNow Service adoption

While every organization’s path to instant payments is unique, early adopters agree that understanding the needs of members, assessing operations and technology, and working with the right partners are all important aspects of preparing for the service.

“Our biggest takeaways have been believing in the service, believing in our staff and making sure that we choose the right partners,” says Minal Gupta, senior vice president of operations at Star One Credit Union in Sunnyvale, Calif.

For more, visit FedNowExplorer.org.

The Federal Reserve Financial Services logo and “FedNow” are service marks of the Federal Reserve Banks. A list of marks related to financial services offered by the Federal Reserve Banks is available at FRBservices.org®.

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