In the mid-70s, the pizza chain Domino’s grew at an astonishing pace, thanks in part to a 30-minute delivery guarantee that set the company apart from competitors. Today, consumers still demand quick, reliable service—expecting one-day delivery of packages and meals ready in the time it takes to move from the drive-through intercom to the pickup window. The “need for speed” has also entered the financial arena with payment apps that move funds from one account to another and online payments that can be scheduled for overnight settlement. The July 2023 launch of FedNow, the Federal Reserve’s new instant payment service, provided a new opportunity for more credit unions to offer a competitive, increasingly popular service to members—real-time, instant payments. The demand for real-time payments is growing throughout the world, with 79 countries offering at least one instant payment service compared to 14 countries eight years ago. In the U.S., the momentum is growing among financial institutions of all sizes. The Federal Reserve announced that FedNow had reached a new milestone with 108 participating organizations sending and receiving on the network as of early October; however, some credit unions and smaller financial institutions have been hesitant to pursue instant payments due to liquidity management challenges. “FedNow is attractive to credit unions because funds flow through the Federal Reserve Bank system, and the combination of a liquidity management tool and 24-hour/365-day access to the master account streamlines the process and does not require prefunding,” said NAFCU’s Senior Counsel for Research and Policy Andrew Morris, NCCO. “Common concerns include potential fraud risk and uncertainty regarding member demand, but the Fed has alluded that upgrades will include additional tools to manage fraud and future directory functionality to improve the payment experience.” There were 13 credit unions that were identified by the Fed as early adopters that were ready and certified to use the system when FedNow launched. Results from NAFCU’s 2023 Report on Credit Unions indicate that 38% of credit unions are considering joining in a receive-only capacity and 31% are considering joining with both send and receive capabilities. Among respondents, those with $1 billion or more in total assets were more likely to consider becoming a FedNow participant. “ FedNow is attractive to credit unions because funds flow through the Federal Reserve Bank system, and the combination of a liquidity management tool and 24-hour/365day access to the master account streamlines the process and does not require prefunding. ” ANDREW MORRIS, SENIOR COUNSEL FOR RESEARCH AND POLICY, NAFCU 19 THE NAFCU JOURNAL November–December 2023
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