FedNow Service gaining more digital payment adoption
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FinTech Automation announced last week that it became the newest service provider supporting live transactions on the Federal Reserve’s instant payment rail — the FedNow Service.
The decision came in part because U.S. businesses and consumers are rapidly adopting digital, faster and instant payment services, according to studies recently released by Federal Reserve Financial Services.
Officials said digital wallet use saw especially strong growth in 2023. They determined efficiency-focused businesses increased their use by 31% over the prior year, and convenience-minded consumers experienced a 32% increase.
Federal Reserve Financial Services explained these changes, particularly consumers’ use of digital wallets and online banking, are leading to increases in instant and faster payment use cases such as bill payment, mobile wallet funding and defunding, account-to-account transfers and immediate payroll for employees.
“The growing demand for faster and instant payment services suggests that tools like the FedNow Service will continue to play a crucial role in helping financial institutions meet their customers’ needs,” said Mark Gould, chief payments executive for Federal Reserve Financial Services.
“The strong growth we’re seeing in the FedNow Service, which has grown to over 700 participants since launching last summer, shows how financial institutions are stepping forward to meet this change in customer expectations,” Gould continued in a news release.
Overall, according to the studies, 86% of businesses and 74% of consumers said they used faster or instant payments in 2023, and most (74% of businesses and 79% of consumers) reported looking to their financial institution to provide these services.
“Workers can now get paid immediately, helping them avoid late fees and better meet a variety of obligations,” said Shonda Clay, executive vice president for Federal Reserve Financial Services. “At the same time, employers are seeing the benefit of improved employee satisfaction and retention as a result of same-day pay. This is an example of how investments in enhanced payment infrastructure are helping institutions and their technology partners innovate new services for their consumer and business customers.”
Other key findings from the surveys include:
—Younger consumers are leading the move to digital, faster and instant payments. More than half of Generation Z (ages 18-25) and millennials (26-41) now use digital wallets, and 80% of these younger consumers say it is important to be able to make payments by mobile device.
—One in four (25%) consumers are challenged by the slow speed of payments and prefer to have better options for instant money movement to help manage personal finances.
—Businesses are using faster/instant payments because it helps them reduce cost (48%), provides flexibility to pay and be paid as customers prefer (39%), and 35% also appreciate the 24/7 nature of instant payment services.
—Businesses say key use cases that benefit from instant payments include business-to-business (92%), business-to-person (71%) and account-to-account (40%). Many businesses also believe instant payments will be useful for digital wallet funding/defunding (50%) and earned wage access (25%).
And with those developments in mind, FinTech Automation joined a lineup of service providers facilitating transaction activity for financial institutions on the service.
“One of our main goals has been to help banks, credit unions, and ODFIs launch real time payment and embedded finance solutions,” FinTech Automation founder and CEO David Joon Park said in another news release. “The ability to facilitate secure instant payments through the FedNow Service will be a real game changer for these financial institutions. Using our platform, clients will have the ability to deploy this enabling technology quickly without having to touch lines of code.”
To support transaction activities for financial institutions participating in the FedNow Service, FinTech Automation indicated it completed a multi-step customer testing and certification program.
The FedNow Service network includes a diverse range of financial institutions and service providers across the U.S.
“As a service provider of the FedNow Service, FinTech Automation plays a critical role in supporting instant payment capabilities for a diverse range of financial institutions across the country,” said Nick Stanescu, executive vice president and chief executive of the FedNow Service. “This widespread reach brings us that much closer to our shared vision of a modern payment experience for all.”
Officials added that financial institutions and service providers will continue to onboard throughout 2024 and beyond, helping the FedNow Service build a strong instant payments infrastructure across the U.S.