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Creating equity in instant payments with the FedNow Service

Instant payments have emerged as a vital tool for individuals and businesses to conduct seamless financial transactions. However, the widespread adoption of instant payments must be accompanied by a focus on equity and accessibility. Recognizing this need, the Federal Reserve has introduced the FedNowSM Service, which aims to provide expanded reach and equitable access to instant payment capabilities. We will explore the importance of equity in instant payments, discuss the benefits of the FedNow Service and look ahead to the role of Digital Payments Solutions in shaping the future of financial inclusion.

What are instant payments? 

Instant payments clear and settle in real time. Funds are immediately available to the payee and are more secure because they are immediate and irrevocable. As a result, they are fast becoming the preferred norm for businesses and consumers. In a recent report from the Federal Reserve, 83% of businesses and 75% of consumers are already using instant payments, while 66% of businesses and 61% of consumers say they are likely to use instant payments more often in the future. By adopting instant payment options, businesses can improve cash flow and money management. Financial institutions can provide enhanced flexibility to better serve their customers as payment methods evolve and as individuals increasingly shift to online and mobile payment options.

What is the FedNow Service? 

Launched in July 2023, the FedNow Service provides payment services that are accessible to virtually all U.S. depository institutions –– enabling both individuals and businesses to make instant payments for various needs. By leveraging its existing payment infrastructure, featuring more than 10,000 depository institutions, the Federal Reserve provides safe and efficient settlement services for instant payments across the United States. 

Prior to the FedNow Service, many financial institutions used the Real-Time Payment (RTP) Network, which greatly helped to grow the digital payments ecosystem. With the launch of the FedNow Service, smaller financial institutions and credit unions are now able to provide instant payments for their businesses and individual customers.

Addressing the digital divide   

Unfortunately, even in 2023, there is still a digital divide in the U.S. The FCC reports that 19 million U.S. citizens still lack access to consistent Internet service. When it comes to participating in the digital economy, underserved and rural communities, low-income individuals and small businesses have historically faced the biggest barriers to entry. Addressing this disparity is crucial for fostering financial inclusion and reducing the existing digital divide.

By leveraging a real-time gross settlement (RTGS) system, the FedNow Service provides individuals and businesses with the ability to send and receive payments instantaneously, 24/7, 365 days a year. With this inclusive and secure infrastructure, the FedNow Service has the potential to bridge the gap between various segments of society, promoting financial inclusion and leveling the playing field for participants in the digital economy.

Key benefits of the FedNow Service:

  • Accessibility: With the FedNow Service, financial institutions of every size across the U.S. can provide safe, efficient payment services, including smaller banks and credit unions. This helps ensure that all participants have equal access to instant payment capabilities. Democratization of instant payments fosters competition, innovation and financial inclusion.
  • Instant payments: The FedNow Service enables individuals and businesses to make and receive irrevocable payments instantly around the clock, eliminating the need for lengthy settlement times associated with traditional payment systems. This speed and efficiency empower users to manage their finances more effectively and respond to urgent financial needs promptly.
  • Enhanced security: The FedNow Service is built on robust security protocols, ensuring the safe and secure transmission of sensitive financial information. This instills confidence in users and fosters trust in the instant payments ecosystem, further encouraging adoption among individuals and businesses.
  • Lower costs: FedNow transaction costs are significantly lower than the cost of existing non-instant payment solutions. For example, printing and mailing a check can cost some organizations up to $20 per check

Several entities — including government organizations, payroll processors, insurance companies and small businesses — realize the need to tap into instant payments, so FedNow volume is predicted to climb rapidly. Those who use financial institutions that do not offer instant payments may opt to find another financial institution that does.

The role of instant digital payments 
The rise of instant payments presents an opportunity to promote financial inclusion and bridge the digital divide. Looking ahead, payment solutions have a crucial role to play in advancing financial inclusion and supporting the equitable use of instant payments. Collaborative efforts between the Federal Reserve, financial institutions and new innovations in digital payments are essential to ensure that the benefits of instant payments are accessible to all, empowering underserved communities and fostering economic growth.

As such, Conduent is the first business process solutions company to integrate with the FedNow Service. As an integration point in our Digital Integrated Payments Hub, Conduent is able to provide another means of instant, digital payments to those who may not have had access to them before. By coupling our expertise in business processes and digital payments with the FedNow Service, Conduent continues to lead the market with a comprehensive suite of solutions and services that provide all our clients and their customers with a fast, secure and efficient way to send and receive payments. To learn more, visit our Digital Integrated Payments Hub.

About the Author

Kathy Mertes joined Conduent in early 2022 as Executive Leader of Conduent’s Digital Payments Strategy and Solution. In keeping with Conduent’s corporate strategy, she is shaping the transformational role that payments can bring to Conduent’s enterprise suite of solutions by removing payment friction in a comprehensive, innovative fashion. In her nearly 30 years in the industry, Kathy has coupled her banking expertise with client needs in a wide range of industries from government, corporate, healthcare and beyond –– spanning credit card fraud prevention, innovating consumer payments at a top National University, leading product and operational responsibilities for money markets and asset management accounts at a brokerage firm. Most recently, Kathy has led key strategic teams at BNY Mellon Treasury Services. Kathy has been a featured speaker at various key industry events such as NACHA and IBTTA and is pleased to provide leadership as a member of The Clearing House (TCH) Corporate Advisory Group.

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