Only a few weeks after launching in July, the FedNow Service promises to help transform payments, commerce and banking.
But as Dr. Jorge Jimenez, president of Juniper Payments, a PSCU company, told PYMNTS in an interview, one need not look all that far to see what a re-imagining of financial services might entail.
“All we have to do is see what other countries have been doing around the world,” he noted, where faster payments have been a hallmark, especially in Europe and Africa.
No matter how financial institutions (FIs) view the technological changes that are going to have to occur in the background, it will be critical to keep the consumer in focus, to understand the ways and means by which they want to pay.
The rise of Cash App, Venmo and Apple Pay, among other options, and mobile payments is signaling that there’s a paradigm shift in the works. The mobile device is front and center and is the preferred conduit for performing daily activities.
While these and other systems have traditionally been built on closed-loop systems that are provided to businesses and consumers, Jimenez remarked that “what we’re seeing with FedNow is that there’s now a banking-wide solution that all FIs can use regardless of size — whether they’re a big bank or a credit union. And that’s a big change.”
Tapping into that solution via FedNow means banks will move away from batch processing and banking holidays and toward automated and unattended processes to ensure that payments move faster — and more securely.
“Financial institutions are going to have to rethink how they ‘do’ payments,” said Jimenez.
That re-examination paves the way for open banking to take root here in the U.S. and provide financial solutions that, with permissioned data, can be personalized and deepen the relationship between FIs and their customers, he said.
He offered the example where FIs working in collaboration with providers such as PSCU/Juniper, can get the data they need to strengthen their fraud processes, reduce the human touch tied to transactions and ensure there are sufficient funds in a given account to enable those transactions.
There’s already some prologue to this change, as roughly 50% of FIs are already dialed into Fedwire, the real-time gross settlement system, and the mechanics and settlement of those transactions behave in much the same way as they would with FedNow, he said.
“All of the Fedwire, real-time payments and FedNow transactions should probably follow the same back-end work and automation,” said Jimenez.
Asked whether FedNow and instant payments would displace entire payment modalities — such as cash or checks — Jimenez was quick to note that checks are not going away, and ACH wire payments will grow too. It will take some time for FedNow to reach ubiquity, and there are simply some transactions — such as buying a car — that won’t take card payments.
But elsewhere, he said, we’ll see some changes in how FIs offer loans to consumers over the instant payment rails, and how the government disburses emergency aid to recipients, to name but two examples (and all of it can be done on the weekends too).
Looking ahead, he said, although instant payments and open banking in the U.S. will not be shaped entirely by government mandates, there may indeed be some mandates governing risk control and fraud prevention.
But change is inevitable, said Jimenez, who told PYMNTS: “There is, without a doubt, a movement in the industry toward a new instant payments world where everything works 24/7.”
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