Independent Banker - July 2023 - 20

PORTFOLIO
and creating additional confusion
about what FedNow is and what
FedNow isn't, " Mitchum says. " We
were hearing from our banks with
questions on how they should talk
to their customers, and ICBA pulled
together some FAQs. I expect that to
continue as consumers become more
aware about FedNow happening in
their financial institutions. "
" When people think of new payment
capabilities today, they naturally
think of the end-user experience and
apps, not underlying technology or
networks, " summarizes Nick Denning,
senior vice president of payments
industry relations at ICBA Bancard.
" It's easy to mistake instant wallet
transfers for instant bank transfer
payments, but they are very different. "
The FedNow difference
So, what sets FedNow apart? At a high
level, three key attributes differentiate
it from app-based solutions:
1. FedNow is a payments rail.
Perhaps the most straightforward
way to distinguish FedNow from
app-based solutions is to consider
it as a complement to existing
payments rails: ACH, check, credit
and debit cards, RTP and wire. In
short, FedNow offers a backbone for
payments to flow.
QUICK STAT
90%
of organizations will have
introduced at least one of the two
instant payments rails in the U.S.,
FedNow and RTP, by 2025.
Source: 2023 Faster Payments Barometer,
U.S. Faster Payments Council
Instant payments timing:
funds availability vs. money movement
Payments apps and digital wallets rely on payments rails to
facilitate the actual movement of money. So, while they may
indicate immediate funds availability to their customers, that
notification only signals that the app is making the money
available-in some cases in a pre-funded way-but not that it has
actually moved from one account to another.
" With most P2P apps, people are exchanging funds between
their app-based wallets. Much of this movement occurs in real
time, " explains Nick Denning, senior vice president of payments
industry relations at ICBA Bancard. " However, these wallets are
linked to users' bank accounts behind the scenes, and on an
ongoing basis, there is movement of funds between wallets and
the bank accounts for funding purposes. "
By leveraging FedNow or RTP as the rails behind the transaction,
the money moves, clears and settles instantly.
" FedNow is the underlying plumbing, and all of the other
things that ride on top and connect to it are money movement
solutions, like P2P apps. FedNow facilitates transactions between
participating banks and those transactions clear and settle
instantly, " Denning concludes.
To draw a parallel, Denning
likens payments rails, including
FedNow, to the operating systems
iOS and Android. In this scenario, the
underlying operating system fuels the
functionality of the mobile device, just
as the payments rail enables money
movement. Carrying the analogy
further, Zelle, Venmo and others act
like the apps that are deployed on
mobile devices, using the operating
system infrastructure to perform
distinct tasks.
" The operating system would be
the network level [ACH, card, RTP,
FedNow], and then all of the apps
[Zelle, Venmo, etc.] are riding on top of
that operating system, " Denning says.
2. FedNow does not offer a
customer-facing solution.
As the background payments rail,
FedNow will integrate with existing
customer-facing offerings, such as a
bank's own digital or mobile app or
new solutions designed around new
experiences or use cases.
" FedNow does not have a user
interface that bank operations staff
or their customers will be using, "
Denning says. " It will be imperative
for the bank to integrate its payment
channels with its digital capabilities
to expose FedNow to its customers
and to its employees. "
Third-party providers, like core
processors and fintechs, are offering
solutions that can address a bank's
user interface needs. To aid in
that effort, the Federal Reserve
has established a service provider
showcase on the FedNow Explorer
20 // ICBA Independent Banker // July 2023
Independent Banker - July 2023

Table of Contents for the Digital Edition of Independent Banker - July 2023
