Advances in technology have changed your customers’ expectations for speed and convenience. Today, consumers and businesses want to send and receive money in an instant, and they’re turning to alternative payment services that can do just that.
In fact, roughly four in five Americans already use mobile payment apps to make purchases and send money to friends and family. And nine in 10 businesses expect to be able to initiate and receive faster payments by 2023, according to a 2020 Federal Reserve Survey.
Your financial institution can keep pace with the competition and satisfy customers by using an instant payments platform — like the Federal Reserve’s upcoming FedNowSM Service or The Clearing House’s RTP® network — to provide the innovative payment services that individuals and businesses want.
Preparing for instant payments implementation will take some time. It’s important to take action now. Here are four initial steps to help you get ready for instant payments.
Step 1: Get to know instant payments
If you’re just getting started with instant payments, you can gain a deeper understanding of how they work and the opportunities they provide by visiting the FedNow website, which has a wealth of information on instant payments. Here you can explore the world of faster payments, evaluate instant payment opportunities and learn how you can embark on an instant payment transformation.
Once you have a baseline understanding of instants payments, you may feel ready to dig into the FedNow Service itself. The Prepare for FedNow section of the website covers topics such as the FedNow payment flow, participant options, ISO® 20022 message specifications, and more.
Step 2: Assess customer behavior
Even if your customers aren’t asking about instant payments directly, their behavior might give you a clue as to their interest in these types of products. For example, do you know how much money your customers have transferred from their accounts at your financial institution to an online payment provider like a digital wallet? Or how much of your small business customers’ account inflows are coming from these providers?
There are many ways to get a sense of your customer's payment behavior. If your financial institution is a FedACH® Services customer, a good place to start is to use the ACH Originated Entries Detail Report and the ACH Received Entries Detail Report available via the FedPayments Reporter Service for FedACH Services. These reports are available in print, Excel, and CSV file formats and can help you assess the destination and source of your customers’ money. You can gain an understanding of the current and future demand for instant payments with this information.
Step 3: Evaluate needs and opportunities
Once you have an understanding of the instant payments landscape and what your customers are signaling by their behavior, step three is to start thinking about the ways you can leverage instant payments.
For one, you can focus on improving the customer experience. Account-to-account instant transfers could make it easier for your consumer and business customers to move money, particularly to reload prepaid cards and transfer funds between accounts. In addition, notifications of payments received and payments sent can put customers’ minds at rest. And improving customer experience makes it easier to stay competitive and retain and attract customers.
Is there the potential to offer premium services? A bill presentment and bill pay service using instant payments may be very attractive, particularly to your small and midsize business customers who’ll then have the tools to transfer cash between accounts, send bills or invoices using request-for-payment capabilities, and streamline supplier payments and accounts payable/receivable reconciliation. A premium instant payroll option could also be attractive for them to pay gig workers and conserve cash flow.
And don’t forget: your financial institution can derive the same efficiencies and cash flow benefits as your business customers. For example, you might consider leveraging instant payments to reimburse employee expenses, disburse 401(k) loans or receive customer loan payments.
Step 4: Start conversations with key stakeholders
Launching a new product takes time and planning, and offering instant payments is no exception. As your financial institution prepares for instant payments, step four is also key. Sharing your ideas with internal stakeholders and external third-party vendors you’ll need to partner with will give you insights into additional opportunities, as well as what is feasible in the near and longer-term.
Consider talking to groups within your organization that have responsibilities beyond the payment product team — like brokerage arms, lending, and deposit account opening — to see how they could benefit from and support instant payments.
Getting your full organization involved and onboard — whether you’re a large or small organization — will help you, your employees, and your customers reap the benefits of instant payments.
In addition, it’s important to begin conversations with your service providers and vendors to find out whether they have plans to support instant payments. If so, do they plan to support your priority use cases? And does their timeline match yours?
Talk to your Federal Reserve Banks account executive
Federal Reserve Banks’ account executives can answer questions and support you on your journey with the FedNow Service. To find your account executive and other contacts, go to the Find Your Contacts section of FRB services.org® and enter your ABA number.
The information in this blog post is not all-encompassing, but it can help you get started. As your organization gets further along in its preparations, you’ll need to assess your systems and technology, talk with service providers, and more. For more information on preparing for instant payments, visit FedNow.org.