3 tips to secure buy-in for FedNow adoption in 2024

FedNow is here. And since the Federal Reserve announced its plans to develop the government-backed instant payments service in 2019, there’s been a steady drumbeat of interest. Just as consistent, though: some reluctance from banks uncertain of the upside.

For bank leaders still trying to secure internal buy-in, it’s critical to go into every conversation with the right talking points. Here, we’ll share three tips to help you illustrate the potential value of FedNow.

1. Focus on the value to existing customers (beyond instant settlements)

FedNow will deliver instant and irrevocable payment settlements. And for many banks, that’s synonymous with added risk, from hard-to-catch payment errors to fraudulent transactions.

Any bank considering FedNow will need a strategy to mitigate these risks (and FedNow has many existing and upcoming features to help). But focusing on risk alone ignores the significant customer opportunities the service introduces.

By spelling out FedNow’s customer value, you can win over skeptical stakeholders more easily. FedNow will benefit commercial banking customers in particular, and not just in the form of instant settlements. Each FedNow transaction uses the ISO 20022 messaging standard, which lets banks…

• Quickly screen transactions. Banks on both sides of a transaction can receive rich data about everything from basic payment information (like the amount, method, and currency) to details about the parties involved (e.g., names, mailing addresses, and account numbers) and optional text entries (such as an invoice number or transaction purpose). This feature makes it easy for banks to quickly verify transactions and confidently debit and credit each party’s account.
• Process multiple payments at once. ISO 20022 expands the amount of information sent with each message. So if there’s a group of related transactions – maybe a payroll disbursement for 50 employees or a batch of home insurance claim payouts – then the data can be relayed as a single message. This way, banks can clear and settle multiple transactions at once.

ISO 20022 underpins FedNow’s core functionality as an instant payment service. But more than that, it makes payment data instantly usable anywhere commercial banking customers need it.

For instance, a bank using FedNow can…

• Create a dashboard in its mobile banking app to help business owners visualize their cash flow in real-time.
• Connect to third-party business management software to embed instant payments in a digital invoice.
• Integrate with rent payment portals so businesses can pay their rent on time.

We’ve only listed a few use cases for FedNow. There are many more, from requests for payment (RFPs) to QR-code-initiated transactions. We recommend spending time with the FedNow Explorer tool to understand the full range of use cases.

2. Explain how FedNow can help attract new customers

So far, I’ve focused on FedNow’s value to commercial banking customers. But the reality is that FedNow-powered instant payments hold promise for virtually every customer segment – and the service’s capabilities could help banks win over new customers.

When you advocate for FedNow adoption, I suggest emphasizing how the service could make your bank attractive to…

• Gig workers. FedNow is always available, so a rideshare driver working on a bank holiday (like Christmas or New Year’s Day) can instantly deposit their earnings into their checking account.
• Small businesses. FedNow lets business owners receive immediate payment for goods and services to maintain a healthy cash flow.
• People with low or no credit. Banks can support “Pay by Bank” options on e-commerce platforms (something Bank of America already does) to make payments more accessible for people without credit cards.

Of course, adopting FedNow alone won’t draw in these customers. You’ll need a sound marketing strategy to communicate the value of instant payments in simple terms. People shouldn’t need much convincing, though: 70 percent of consumers say that faster payments boost satisfaction, and the banks that deliver it will be able to win their business.

3. Highlight the advantage of FedNow’s government backing

For some banks, it’s tough to understand the value of FedNow when The Clearing House’s Real Time Payments (RTP) platform already exists. And with 65% of deposit accounts connected to RTP, the instant payments market may seem to have a clear winner.

But there’s a catch. RTP is owned and operated by the country’s biggest banks – a potential red flag for many small and midsize banks. Even if these smaller institutions want instant payments, they may not want to use a system their competitors run.

When making the case for adoption, cast FedNow as a valuable alternative to RTP and other services. Because FedNow is a government-run service, banks can trust that it will operate with every participant’s best interest in mind. And in the long run, the Fed’s involvement could help FedNow grow faster than RTP and other instant payment services.

Moreover, FedNow’s government backing will likely position the service as a stepping stone for banking innovation. Because banks using FedNow share a common payments “language,” they can easily and securely relay standardized data between themselves and third-party services – paving the way for a future of open banking.

Early FedNow adopters will deliver more value faster

There’s already a lot of interest in FedNow: about 470 banks and credit unions have joined the FedNow network as of early February 2024. That’s up from the 57 organizations that were certified to offer FedNow when it first launched in July 2023.

Still, there are more than 9,000 banks and credit unions in the U.S. As the network of FedNow adopters grows, so will the service’s value to banks and customers.

FedNow is still a new service, but it’s poised to transform the payments landscape for businesses and consumers. The question is whether banks will seek to capitalize on its value early – or wait for competitors to make the first move.

We predict that banks that quickly embrace this new instant payments service will boost customer satisfaction across every banking division – and attract new business in a time of stiff competition, particularly for new deposits. The laggards may struggle to prove their value.

Leo Mattiazzi is a Partner and Executive Vice President, and David Ritter is Director of Financial Services Strategy at CI&T, a global digital specialist.