By Shailesh Kotwal
There is no debating that one of the most dynamic financial services topics today is how banks can process payments securely in just moments for businesses and consumers. During a recent appearance before Congress, Federal Reserve Board Chairman Jerome Powell reiterated that FedNow — the Fed’s instant payment service — is expected to go live in 2023.
For the last several years, the Fed has been hard at work to provide another option for banks to process safe and immediate payments for businesses and consumers. Pilots are underway to ensure FedNow will work smoothly upon launch. This progress is a positive sign for businesses and consumers. They’re now poised to have convenient access to two services that provide immediate payment processing and settlement 24 hours a day, 365 days a year.
At U.S. Bank, we’re focused on continuing to help our customers send and receive payments instantly today on The Clearing House’s RTP Network, while also supporting the development of FedNow. Come 2023, we’ll be ready to process payments on both RTP and FedNow seamlessly, whichever works best for our customers.
The great progress we have experienced in recent years with RTP will only help FedNow be more successful. RTP volume has steadily increased, going up 35 percent year over year. But FedNow should particularly benefit from the use cases that have been established for businesses to utilize instant payments that drive efficiencies and improve customer experience. Here are some of the instant payment use cases that are already transforming payment experiences across our economy.
- Merchant funding: In the past, small businesses would often wait days to receive funds from electronic payment sales. With real-time payments, small businesses have funds from sales in their bank account the same day, including sales made on nights and weekends.
- Payroll: Biweekly payroll has been common for decades. But those days may be fleeting. Real-time payments enable money to be immediately available to employees after a shift. We also envision real-time payments being used to for incentive pay, seasonal worker pay and to pay an employee who leaves the company.
- Request-for-Payment (RfP): RfP allows consumers to have their various bills sent directly to them via their bank’s app. Consumers can pay their bill at any time of day or week and get confirmation that the payment has gone through, instantly. Businesses save money by reducing paper bills and improved visibility into when they will receive funds.
- Auto industry: When a consumer takes out an auto loan, the dealership often waits days to have access to the funds from the sale. With real-time payments, we’re now delivering the funds immediately after the consumer is approved for the loan, even on nights and weekends. We also worked with Driveway.com to enable consumers who sell their vehicle on the platform to be paid before their car leaves their driveway.
We are only scratching the surface of how transformative instant payments can be in our daily lives. I am confident that use cases will continue to accelerate throughout 2022 as companies — big, small and everything in between — will work to make their payments processes as simple as the real-time peer-to-peer payments their employees and customers already enjoy and now expect from businesses.
As I look towards the future of payments, I am excited that much of the groundwork will be laid for banks to hit the ground running when FedNow is live. This optionality will allow businesses to choose which payment rail works best for their systems and provide consumers with more safe and instant payment experiences throughout their daily lives.
Kotwal is vice chair of payment services at U.S. Bank, fifth-largest bank in the United States with operations in North America and Europe.