Word around the hive is there’s a new “queen bee” in town, and I’m here to tell you that it’s true! (Although, someone might want to break it to Beyoncé.)
There is a new payments rail buzzing about — called The FedNow® Service. This new instant payment rail is a game-changer in the payments world, and it could mean big things for your credit union! So, what do you say? Are you ready to take a trip with me on the long awaited (and now, readily available) instant payment rail? Let’s go!
The FedNow® Service:
The FedNow® Service is a new payment rail for transferring immediate or instant funds, similar to faster payments via same day ACH or credit cards. This new payment rail, like ACH and other payment rails, has the capabilities to send credit transfers and/or receive credit transfers, which are sweet capabilities your credit union can offer to your members. It’s your choice if you want to just receive, just send or do both!
No matter what you choose, though, just make sure you work with your service provider to establish a point of connection — whether through a corporate credit union, your core processor or the Fed directly — to set up the proper connectivity based on your institution’s needs. Also, similar to ACH transactions, your credit union has the option to choose where they would like to settle their instant payments via the FedNow® Service, whether directly to the credit union’s Fed account or with a correspondent, such as Vizo Financial.
It's also worth mentioning that the FedNow® Service is tied to the Federal Reserve, our country’s central bank, so the payment rail only works throughout the United States at this point in time. This means that instant payments via the FedNow® Service can’t be used to send or receive credit payments for individuals overseas or to businesses that operate outside of U.S. borders. Now, whether the FedNow® Service will go international in the future remains to be seen — but you can be certain Vizo Financial will bee watching!
The FedNow® Service Use-Cases:
Some current and potential use-case examples include tax refunds, social security payments, commission payments, payroll, etc. These instant payments will only take a matter of seconds with the FedNow® Service. That is a huge selling point for your individual and business members, especially for those highly anticipated payments.
Additionally, your members can pay their bills and mortgage payments on the date they’re due, without worrying about late fees or penalties. They can also pay their babysitters, hairdressers, etc. instantly through the FedNow® Service. So, bee-fore you decide whether or not your credit union would like to utilize the FedNow® Service, make sure to consider these sweet benefits for your members!
Vizo Financial and The FedNow® Service:
I’m happy to share that Vizo Financial recently completed our testing and certification through the Federal Reserve, along with our payment provider, to be a correspondent provider. That means we’re able to provide any credit union (including yours!) a connection to access the FedNow® Service for receiving and/or settling instant payments, with send capabilities coming later. Even if your credit union doesn’t utilize our core provider, we can still act as a settlement agency for your credit union.
Misinformation About The FedNow® Service:
The FedNow® Service is new, which means there is a lot of misinformation out there. I want to clear some of that up.
One rumor circling the hive is that the FedNow® Service is just a way for the government to track your finances. I want to be clear: that’s not true. The FedNow® Service is certainly not a way for the government to track your money, spending, savings, etc. It’s true that the service is run by the Federal Reserve, but it’s simply a new payment rail to transfer funds instantly. As such, the same rules apply as they would to other rails. AKA, the government cannot monitor or interfere with your accounts. And, as I mentioned earlier, they are not able to take money from your account, because the FedNow® Service is a credit push payment rail. So, rest easy, your members’ money is firmly in their control with the FedNow® Service.
Another piece of misinformation out there is that the FedNow® Service is just like other instant payment apps, but that’s certainly not true either. While, for the member, the process seems similar to the Zelles and Venmos of the world, the FedNow® Service is an instant payment rail, not an application or overlay service. Zelle and Venmo are simply the apps that bring real-time payments to consumers. They don’t represent the new instant payment rail, which is what the FedNow® Service is.
For this reason, your credit union and, by association, your members can’t access the FedNow® Service by simply downloading an app for the FedNow® Service. You must be connected to the service through a service provider in order to make the FedNow® Service available to your credit union and your credit union members. Service providers can include the credit union’s online banking provider and also mobile banking provider.
The FedNow® Service is a product of the Federal Reserve, our central bank, which means it can be utilized 24/7/365. For this same reason, it could also be a future resource for sending or receiving credit payments from the government – like those tax refunds use cases I talked about before!
Well, there you have it – all the FedNow® Service buzz and must-know information for your credit union and your members. I hope you’re even more excited for the FedNow® Service and instant payments because it really provides un-bee-lievable benefits for your credit union and your members.
If you have any questions, feel free to reach out to your corporate account manager at firstname.lastname@example.org! You can also attend our 2023 Payments Conference, as there will be a session dedicated to the FedNow® Service.
Andi Crockett is the product manager of EFT at Vizo Financial. Her role involves developing and implementing EFT services — including ACH for Business, ACH Contingency, ACH Receipt and Returns, ACH Originations, ACH Settlement, Domestic and International Wires and Foreign Check Collection — for credit unions. She also participates in planning efforts for business development, works with members and clients to manage implementation expectations and manages relationships with vendors. Andi is also an active member of the Diversity, Equity and Inclusion (DEI) Champions team at Vizo Financial.