Accelerating the transition to real-time payments with FedNow

Many financial institutions – including banks, businesses, and payment providers – have questions about what the upcoming July launch of the FedNow service means for the future of real-time payments in the US. As a participant in the FedNow pilot programme, ACI Worldwide shares unique insight into the current real-time payments landscape and what changes are in store. 

The Federal Reserve recently announced plans to launch FedNow, a new instant payments infrastructure that allows financial institutions to provide safe and efficient real-time payment (RTP) services, in July 2023. FedNow aims to revolutionise the payments landscape in the US, especially for financial institutions, businesses, and payment providers. FedNow will leverage service providers like ACI to connect financial institutions and payment processors to the Federal Reserve’s infrastructure. Although The Clearing House RTP network has been operational for some years, because this will be the first system of its kind from the Fed, many people have questions about what it will mean for the US economy. 

ACI Worldwide, the global provider of real-time electronic payment and banking solutions, was selected as a pilot programme and an early testing participant supporting FedNow’s development. This level of access to FedNow leaves ACI uniquely positioned to provide expert insights on real-time payments trends and the expected impact of the FedNow launch. 

What instant payments mean for global economies 

According to ACI Worldwide’s 2023 Prime Time for Real-Time report, the countries where real-time instant payments (real-time payments or RTPs) have been implemented have experienced a boost to their economic growth as a result of greater capital availability, which otherwise would be trapped in inefficient payment systems. RTPs improve market efficiencies by allowing the transfer of money between parties within seconds, rather than days. The ability to transfer capital at these speeds has major implications for businesses as well as consumers – according to the report, RTPs in North America are expected to grow from 3.9 billion in 2022 to 13 billion by 2027. 

That said, North America lags behind much smaller economies when it comes to RTP adoption, a delay supported in part by banks’ interest in maintaining well-functioning albeit dated systems. This bias can be partially attributed to a misunderstanding of the role of RTPs versus digital card payments; rather than being a competing system, RTPs and card payments each have a role to play in the evolving payments ecosystem. As such, RTPs represent a strong opportunity for financial sectors. While North America currently accounts for just 2% of all real-time payments globally, it has the potential to develop into an extremely high-growth region in the future. 

FedNow marks an inflection point for RTPs

FedNow is expected to greatly accelerate the transition to RTPs globally by enabling financial institutions, businesses, and payment providers to offer faster and more efficient payment services. FedNow will also expand RTP access to smaller banks and feature new services, such as Request for Pay (RfP), from day one. The service, which is set to launch in July, will provide instant payments 24 hours a day, seven days a week, 365 days a year, with settlement finality. 

The launch of FedNow is expected to make instant payments technology accessible to a wider audience, including smaller community banks, thereby increasing equitable access for all businesses and individuals. By reducing overall payment processing costs for banks and other non-bank financial institutions, FedNow will promote greater competition in the payments market and encourage innovation in the development of new payment solutions. 

Moreover, by providing individuals with instant access to paychecks and other electronic fund transfers for improved cash flow management, FedNow will help to support financial inclusion and reduce the burden of financial stress on low-income households. 

For businesses, the benefits of FedNow are equally significant. By optimising liquidity management and cash flow forecasting, businesses can better manage operational expenses and maintain positive vendor relationships. The use of rich data, including non-value message types and RfP messages, will enable businesses to streamline their payment processes and enhance overall financial management. 

FedNow will also conform to the new ISO 20022 standard, enabling participants to send and receive rich data and promoting instant payment security through the development of industry-wide standards for disputing fraudulent transfers and the use of payments authentication. 

The path forward for RTPs 

The launch of FedNow is a significant step forward in the transition to real-time payments globally. ACI Worldwide is excited to play an active role in this transformation, and we are committed to helping financial institutions, businesses, and payment providers onboard quickly and securely to the new service. 

ACI have launched our ACI Real-Time Payments cloud that provides a single API to both TCH Real-Time Payments and FedNow Instant Payments. However, we have taken the initiative beyond a normal processing and connectivity solution, and have included our award-winning, AI-based fraud protections and scoring services into every payment we process. It means that ACI’s financial institution customers will see fraud protection services applied to every payment sent or received from TCH RTP or FedNow. 

The launch of FedNow is set to have a significant impact on the payments landscape in the US and beyond. As financial institutions, businesses, and payment providers prepare for the rollout of FedNow, they will need to invest in the necessary infrastructure and educate their customers on the benefits of real-time payments. ACI Worldwide is committed to helping these stakeholders navigate the transition to real-time payments and unlock the full potential of this exciting new payment service. 

About Craig Ramsey 

Craig has over 35 years' experience working with banks on their payments and banking needs. He’s been with ACI for over 20 years, providing specialist consulting, and he leads the product management for solutions to wholesale and real-time banking customers. Through various initiatives, Craig helps customers leverage the power of ACI’s solutions to ensure their business needs are met. Craig serves on the US Faster Payments Council Advisory Board. 

About ACI Worldwide 

ACI Worldwide is a global leader in mission-critical, real-time payments software. Our proven, secure, and scalable software solutions enable leading corporations, fintechs, and financial disruptors to process and manage digital payments, power omni-commerce payments, present and process bill payments, and manage fraud and risk. We combine our global footprint with a local presence to drive the real-time digital transformation of payments and commerce.