A Decade in the Making, FedNow Pushes Faster Payments Forward

Faster payments have become a fundamental part of the global financial services landscape, enabling consumers and businesses to clear and settle payments in real time. Faster payment capabilities have increased payment system access and efficiency, opened the door to new use cases and opportunities, and catalyzed innovation throughout the ecosystem.

In the United States, The Clearing House and the Federal Reserve—supported by a diverse array of payment system stakeholders—have led the push toward ubiquitous faster payments. The Clearing House introduced its RTP network in 2017, and now the Fed has launched its FedNow Service. ICBA has proudly supported the Fed’s faster payments efforts since they kicked off more than a decade ago and continues to support community banks as they evaluate faster payments adoption.

ICBA and the Federal Reserve: Partners on the Path to Faster Payments

ICBA has been a consistent advocate for community bank access and choice throughout the Fed’s payments improvement journey. When the Fed announced its payments improvement initiative in 2012, community bankers quickly recognized the benefits of developing a faster, more efficient, and safer payment system. ICBA and community bankers across the country also appreciated the Fed’s unique ability to create a level playing field for community banks, which asked ICBA to support the agency’s leadership role in convening the industry to chart a path forward.

The Fed began seeking formal input on the need to improve payment system speed and efficiency in a 2013 public consultation paper. In response, ICBA supported a future Fed role in faster payments and hosted a series of meetings with community bankers and trade groups to outline requirements for a faster payments system.

In 2015, the Federal Reserve released its foundational “Strategies for Improving the U.S. Payment System” paper, which outlined desired outcomes, strategies, and tactics—including two task forces—for improving the U.S. payment system. ICBA, along with a substantial coalition of community banks, actively participated in the Fed’s Faster Payments and Secure Payments task forces, urging the Fed to introduce its own faster payments service.

After the task forces finished their work, the Fed sought public comment on further actions it could take to support faster payments. Channeling ongoing community bank support, ICBA made a strong case for the Fed to build and operate its own faster payments service to maximize access, increase competition, and promote ubiquity. ICBA amplified its support for a Fed faster payments service by bringing its message to Capitol Hill while launching grassroots and advertising campaigns.

In 2020, the Fed committed to building the FedNow Service, its first major new payments system in four decades. When the Fed issued a call for participants to join a pilot program and subsequently seek certification to operate, community banks came out in force. Now, more than a decade since work began, ICBA is proud to see continued commitment and support from community banks as the FedNow Service rolls out.

Adoption and Interoperability: Next Steps on the Path

The FedNow Service’s launch is a milestone in the Fed’s payments improvement journey, but it does not mark the end of the path. In the near term, ICBA urges community banks to focus on faster payments adoption. Community banks may want to:

· Evaluate customer demand and use cases for faster payments.

· Understand the similarities and differences between the FedNow Service and the RTP network.

· Develop a strategic plan for providing faster payments products and services to meet customer needs.

· Start or continue conversations with service providers and core processors about implementing faster payments capabilities.

ICBA maintains a growing library of faster payments strategy and education resources on its website and via ICBA Bancard’s instant payments resource center.

ICBA will continue to support community banks as they assess opportunities and next steps related to faster payments implementation and ongoing operations. ICBA also looks forward to maintaining its active engagement with the Fed, The Clearing House, and other industry groups to support ongoing development and evolution of broadly inclusive, safe, secure, and efficient faster payments that help community banks remain competitive.

In the longer term, ICBA urges the Fed and TCH to think about how to bring interoperability to faster payments in the United States. While competition among providers brings many benefits to market participants, it also risks creating inefficiencies by introducing fragmentation and customer confusion. Both the RTP network and the FedNow Service use industry-standard ISO 20022 messaging, which paves the way for the networks to interoperate.

The RTP network and the FedNow Service collectively enable a world of possibilities for community banks to innovate and support their customers with next-generation products and services. ICBA and community bankers stand ready to make the most of this unique moment.

Scott Anchin is ICBA vice president of operational risk and payments policy.