Instant Payments in Action: What Credit Unions Need to Know
Instant Payment Basics
Instant payments are changing the way financial institutions move money, giving credit unions an opportunity to provide faster, more convenient service to members. While traditional payment rails have long been the standard, instant payments introduce a different approach that requires financial institutions (FIs) to think beyond speed alone. To successfully implement services, credit unions must understand how instant payments function, what participation options are available and how these services can strengthen the member experience.
Instant payments are designed to move funds instantaneously or in real time. Unlike traditional payment methods that can take one to three business days to process and settle, instant payments allow funds to be sent, received and/or settled within a matter of seconds. These payments are available 24 hours a day, seven days a week, 365 days a year, making service availability one of the most significant advantages for both institutions and account holders. For receiving institutions, this means systems and services must remain continuously available to accept incoming transactions. Financial institutions may choose to limit the hours in which they offer send services based on internal policies or risk tolerance, but incoming transactions can be received at any time. Since settlement occurs immediately, in tandem with a received or sent transaction, credit unions must ensure they have operational processes in place to support the settlement of instant payment services, whether that be through the FedNow Service or Real-Time Payments (RTP). With this, credit unions may look to incorporate correspondent relationships for settlement services for both the FedNow Service and RTP as a way to manage round-the-clock settlement activity.
Another important distinction is that instant payment rails operate as real-time, credit-push transactions that are irrevocable by nature. This means the sender authorizes the instant payment transaction and funds are moved directly to the account of the receiver. Unlike debit transactions that process today on traditional payment rails like ACH, instant payment rails do not offer the ability to debit or pull funds from another account. Once the payment is sent, it is irrevocable. While a return can be requested, it is simply that, a request for a return, and the receiving FI is not required to return funds. This can especially be the case in a fraud situation where it is more than likely that funds are no longer available at the time that the return request is received. However, the request for a return accomplishes two things: first, the return reports the fraud on the network to the network operator, and second, it lets the sending FI know that there is cause to review the account in which the payment was initiated or sent from. Strong member and staff education along with fraud and scam awareness is paramount when offering instant payment services.
Instant Payment Benefits
Security plays a central role in instant payment adoption. Because funds move immediately, institutions must place emphasis on fraud prevention and mitigation tools along with Strong Customer Authentication (SCA) methods. Multifactor authentication, tokenization and encryption all help to protect transactions and reduce risk. These safeguards often go beyond what members may see with more traditional payment methods, creating a strengthened framework for secure digital payments.
Transaction visibility in real-time is another benefit with instant payments processing. Many instant payment platforms provide reporting dashboards that allow institutions to monitor transaction activity as it happens. Credit unions can see when members are sending or receiving funds, identify trends and quickly detect anomalous behavior or rejected transactions. This level of transparency can improve internal operations while helping staff respond faster and with targeted intention to member inquiries.
Instant payments also improve convenience for members. Instead of waiting for funds to process during standard banking hours, members can complete transactions outside of normal or traditional banking hours. This can help reduce late payments, improve cash flow and create an improved digital banking experience. For credit unions, that convenience can become a valuable competitive advantage as members increasingly expect faster financial services without having to ask for them.
Payment Rails and Participation Types
Credit unions are able to select their financial institutions participation type for each payment rail or instant payment network. Some institutions begin receiving payments only, which allows them to accept incoming transactions without immediately offering send services. Other financial institutions may elect to enable both send and receive participation types, giving members greater access to the payment rail or network that they are participating in. Additional features such as request-for-payment capabilities can also expand how institutions use these systems, creating more flexibility for both business and consumers.
Two major instant payment networks currently exist within the United States. Those include the FedNow Service and RTP. The FedNow Service launched in July of 2023, making it just under three years old, and is operated by the Federal Reserve, while RTP launched in late 2017 through The Clearing House. Both networks support credit transfer limits of up to $10 million and are designed to help financial institutions deliver faster payments to members. While the networks differ slightly in structure, both are focused on improving payment speed, accessibility and efficiency. The FedNow Service settles through either the financial institution itself or a correspondent master account, while RTP uses a prefunded joint account structure, where the credit union can also choose to prefund their own joint account or elect to work with a Funding Agent such as Vizo Financial. Each instant payment network also offers fraud and mitigation tools for credit unions, with both payment rails also having the requirements for mandatory fraud reporting.
Preparing for the Future
Connections are one of the most important starting considerations for credit unions evaluating instant payments. Application programming interfaces, or APIs, can simplify implementation by allowing payment systems to connect directly with core platforms, which facilitates straight through processing (STP). This creates a seamless experience for credit union staff and members while reducing manual processing and operational burden for the credit union. As adoption continues to grow, institutions that build a strong foundation now may be better positioned to meet future member expectations.
Instant payments are no longer a future concept. They are quickly becoming part of everyday banking. For credit unions, understanding the operational, security and strategic implications of instant payments can help ensure credit unions are prepared to deliver faster and efficient service to members.
Andi Crockett is the director of payments product managers at Vizo Financial. Her role involves developing and implementing EFT services — including Instant Payments, ACH for Business, ACH Contingency, ACH Receipt & Returns, ACH Originations, ACH Settlement, Domestic, International and Third-Party Wires and Foreign Check and Currency Services — for credit unions. She is also an Accredited ACH Professional (AAP) and Accredited Faster Payments Professional (AFPP).