THE PAYMENTS INDUSTRY LEADERS FORUM ™

Credit unions of all sizes are beginning to explore partnerships, technical resources, and new operational strategies to embrace instant payments, including through the FedNow Service, and make faster transaction options available to their members. When FedNow launched in July 2023, 35 financial institutions had signed on, but as of the beginning of this year, 400 financial institutions have signed on to the new service.

This begs the question: what will FedNow adoption look like for the rest of the nation’s credit unions? And how can they smoothly transition to a real-time payments landscape?

What Are Your Long-Term Goals?

As adoption of faster payments continues to grow, consumer expectations will certainly evolve, as will use cases. This is why taking a short-term approach to payments innovation, such as upgrading systems simply to comply with changing regulations or new standard messaging formats like ISO 20022, can lead to missed opportunities. Instead, it’s important that credit unions approach instant payments with their longer-term goals and objectives in mind, as well as who their members are.

To maximize the benefits of real-time payments and FedNow, it’s worth starting this journey with a moment of reflection. Evaluate your credit union’s current operations and review the member experience with as much objectivity as possible. Hone in on the purpose and the reasons why your credit union wants to connect to FedNow. Which types of instant payment services do you want to offer, and to which of your members?

Real-time payments can support a plethora of use cases and enhanced product capabilities, but it’s best to take a phased approach and consider which services will benefit your membership the most. Stakeholders should also consider their credit union’s readiness to connect to the service and what operational adjustments will be necessary to facilitate real-time payments.

What’s Driving Your Purpose?

Real-time payments present a ton of potential value – from compelling use cases for members to cost savings for credit unions. This can make determining where to start seem daunting. Oftentimes, organizations are acting out of fear of being left behind or missing out on the latest developments in the payments space. “Because other financial institutions are doing it,” or “So we don’t get left behind” are valid reasons, but dig deeper.

Zoom out and look at your credit union’s strategic goals, and then, reflect on how faster payments can help you achieve those objectives. Consider the following questions to help your organization hone in on its purpose for connecting to FedNow:

1.     Do you want to grow assets? Revenue? Deposits?

2.     Do you want to retain members?

3.     Do you want to attract a new segment of members or businesses?

4.     Do you want to cut costs? In the back office? What about other operational costs?

Understanding why and how participating in the FedNow Service will benefit your credit union is the first step to empowering your team to strategize effectively. Identify the positive impacts of embracing FedNow and the specific ways that your credit union can use the network to enhance its product and service offerings, and ultimately, its brand.

Who Do You Serve?

While it can be tempting to focus on how FedNow can help expand your credit union’s reach and market share, it’s important to think about your existing members first. How can new payment capabilities serve their needs in ways that conventional payment methods cannot?

Consider your credit union’s membership demographics. Does your credit union serve any specific industries or verticals, such as vehicle dealerships, realtors, construction companies, gig workers, or farmers? For example, if your credit union has a large population of gig workers as members, focus on the use cases that make the most sense for this population segment, like instant access to wages. In some cases, it may be worth conducting surveys, focus group sessions or in-person interviews to discover how instant payments can help different member segments.

To fuel the dialogue and shed light on where faster payments present the most potential for members, credit union leaders can use the following questions as prompts:

1. How often do members experience frustration with delayed payments?

2. How frequently would members use instant payments?

3. What is the size of a typical transaction for which they would likely use instant payments?

4. Would they like to receive instant payments or send instant payments? Or both?

5. Would they be using instant payments to primarily transact with businesses or consumers?

How Will You Participate?

There are multiple ways for your credit union to participate in the FedNow Service network: they can just receive funds, send and receive funds, support Requests for Payment (RFP) and conduct liquidity management transfers.

For credit unions looking for the quickest and easiest route to connect to FedNow, receiving payments only is a good place to start. This option limits exposure to fraud and allows your credit union to train and familiarize your team with the operational procedures for instant payments. As the team becomes comfortable with the new operational processes and workflows, credit unions can choose to also support sending real-time payments and facilitating RFPs. Participation types can be changed at any time, so if a credit union wants to only receive payments initially, they can expand to send and receive payments, as well as support RFPs, once ready.

Don’t Take the Journey Alone.

Even the largest credit unions rely on technology vendors to help them deliver a smooth member experience. If your institution is exploring a future with FedNow, start the conversation with vendors and strategic payment partners today. As the payments space evolves and FedNow continues to gain traction, your credit union’s tech stack, as well as its internal systems and processes, will have to evolve with it. The right partner can help guide your organization and ensure a smooth transition to a 24/7/365 instant payment environment.

When credit unions are equipped to explore and unlock innovative instant payment use cases with the FedNow Service, everyone wins. The institutions that capitalize on faster payments sooner rather than later will gain a competitive advantage that’s difficult to match, especially now that FedNow has transformed how Americans move billions of dollars through the banking system. There’s no reason for your credit union (or your members) to miss out on this opportunity.