The Federal Reserve now offers a real-time payment option.
Universal access to next-generation real-time payment (RTP) systems is becoming a contentious issue in the US, as the Federal Reserve Banks’ FedNow system prepares to deliver major changes to the US payments market.
Jerry Norton, head of Strategy for the UK financial services business at IT consultancy CGI, suggests that FedNow is a response to concerns that privately run RTPs in the US didn’t provide fair and equal access for all. The Clearing House, a payment company owned by 25 of the world’s largest banks, was deemed by some not to be in the market’s broader interests. Community banks were reluctant to adopt The Clearing House’s system, but with FedNow, they can now offer their customers real-time payments.
“The issue for any payment system is one of access, ubiquity of use and interoperability, and those that fail tend to fail for one of those reasons,” says Norton. “The Fed is duty bound to act in the interests of the payment system users—consumers, corporates and also other banks in the US.”
Real-time payments aren’t just about access; it is also about addressing the customer experience. Zviki Ben-Ishay, CEO of digital customer experience start-up Lightico, says thousands of community banks are lagging behind in providing seamless payment transactions for customers.
“Most of their current solutions fail to streamline the customer journey, leaving customers feeling underserviced and annoyed at time-consuming processes and a lack of trust,” he says. Ben-Ishay says technology has the potential to transform clunky, traditional processes with digital interactions that offer real-time capabilities. “It is solutions like these that will help all players in the banking industry keep up with evolving customer expectations.”
Norton says real-time payments are a wake-up call for the US payments market. “The effect it will have is huge. For the very large banks, there are technology and business-process issues. But for the 9,000 smaller community banks and credit unions, it is a revolution because it’s 24/7. We know from other markets that this is a major challenge for participants.