The Fed's approach for developing FedNow by involving institutions and service providers was excellent. The standard ISO messaging format and the way the Fed built the FedNow will make it platform or product agnostic. Many community banks are at the mercy of their core banking platform vendor for adoption of FedNow. Such vendors and the Fed are offering attractive discounts to onboard with FedNow before the end of 2023, even if it is receive only. I do think FedNow will take off once it achieves critical mass, where most institutions have adopted. It will be more efficient to use FedNow over legacy Fed ACH and wire platforms. Many FinTechs who offer instant payment services are not FDIC insured, nor do they pay interest on the balance in your wallet. As electronic invoicing processes evolve, businesses will see the most benefit from FedNow.
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Matt Johnson
CFO
Premier Bank
Omaha, NE
Posts reflect my personal opinion and do not represent any organization in which I am affiliated.
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Original Message:
Sent: 07-24-2023 16:03
From: Rob Blackwell
Subject: Tuesday Topic: The Arrival of FedNow
The Federal Reserve officially launched FedNow last Thursday. The long-awaited service, which enables 24/7/365 real-time clearing and settlement of payments, its meant to lay the foundation for the next step in the evolution of the U.S. financial services industry.
While the initial rollout includes 35 banks and credit unions that can use it directly, and 16 service providers that can use it on behalf of banks, many analysts expect the number of users to increase steadily over time.
However, widespread adoption is by no means guaranteed. System upgrades and changes to back-end processes will be required to manage reconciliation in an always-on operating environment. Institutions will need to consider how instant settlement may affect liquidity. And, as is the case with any new digital payment service, fraud risks will be high.
Read this e-book to learn more about the operational challenges facing small and midsize banks and these answers from the Independent Community Bankers of America to commonly asked questions about FedNow. Additionally, you can check out the Bank Policy Institute's launch-related questions for the Federal Reserve here.
You can also check out our podcast with Brooking's Aaron Klein last week. He was very skeptical about the future of FedNow, even though he is a longtime supporter of real-time payments.
Will FedNow take off? Does your institution have plans to implement it? If so, on what timeline? What do you see as the biggest challenge with a transition to instant payments?
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Rob Blackwell
Chief Content Officer and Head of External Affairs
IntraFi
Arlington, VA
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