This past spring, the Federal Reserve made headlines when it announced it was ready to move forward with the creation of a real-time payments service, dubbed FedNow, aimed at supporting “near-instantaneous” transfer of funds, 24 hours a day, seven days a week. That’s good news for credit unions, according to Andrew Morris, senior counsel for research and policy at the National Association of Federally-Insured Credit Unions (NAFCU). During the service's design phase, NAFCU worked closely with the Fed, identifying key capabilities and priorities to make the new service “credit union-friendly.”
In a letter to the Fed, Morris noted the new system needed to be “cost-effective, operationally effective, and scalable for credit unions of all sizes.” The new system is poised to meet those goals, providing robust, scalable support to enable all credit unions of all sizes to make immediate transfers part of their offerings.
FedNow: 3 Big Benefits for Credit Unions
With the rollout imminent, the next question is, should credit unions embrace the FedNow service? And if so, why? Morris says the decision makes sense for most credit unions, especially those who want to remain competitive with other institutions. Three of the biggest benefits for credit unions are:
Customer satisfaction: Real-time, immediate availability of funds enables customers to access those funds when they want, without waiting. That type of flexibility is appealing to today’s banking customers who are more accustomed to instant gratification, thanks to the advent of mobile and online services.
Business growth: With more banking institutions expected to tap into the FedNow system, signing on now means credit unions will be ready to provide that higher level of customer satisfaction that will soon become a “must-have” from a consumer perspective.
Scalability: The FedNow system is comprehensive enough to handle the needs of the largest credit unions and flexible enough to “scale down” to the needs of smaller credit unions and their customers.
Fed Faster-Payments Platform's Key Impact
Knowing how FedNow could affect your customers and your ability to stay competitive is an important part of deciding whether to enrol in the service. But there are other considerations, as well. NAFCU has been working closely with the Fed since 2015 to identify the most critical ways FedNow could affect credit unions. Here are four of the most salient impacts:
Security: FedNow uses credit transfers, requiring every transfer to be authorized by the sender. The Fed believes this reduces fraud risk, but it’s important to note that every instant-transfer system confers some level of risk since transfers are immediate, with no chance to cancel or revoke transactions.
Pricing: FedNow hasn’t announced a fee schedule yet, but it will probably include both per-item fees and “subscription” fees. Credit unions need to decide if that fee structure is compatible with their budget.
Integration: For credit unions who currently use RTP, there’s no clear indication that the two systems will work together. It is a goal, however, and NAFCU expects additional guidance before FedNow rolls out.
Operations: FedNow supports master account reconciliation by setting opening and closing times to determine end-of-day balances. Those opening and closing times would not interrupt or interfere with 24/7/365 operability — a boon for consumers, but it does add to the complexity for balance management.
Want to find out more?
The Fed expects to roll out the FedNow service in 2024. As a loan officer, keeping abreast of ongoing developments in the FedNow program can help you provide up-to-the-minute guidance to your customers. To read more about the FedNow system and its potential impact on credit unions and the banking industry in general, check out this article at the NAFCU website.