2023 will be a year of transformation for financial services, marked by a new addition to the world of instant payments, Bernadette Ksepkavice president and associate director of product management for the FedNow SM service program, PYMNTS said in a recent interview.
“Financial institutions and their service providers will be able to use the FedNow service as a springboard to deliver innovative payment services to their customers,” Ksepka said. “[FedNow is] will be a game-changer for financial institutions. These financial institutions will be able to expand their presence in the payments market. »
Specifically, the Federal Reserve Banks are developing the FedNow service to facilitate instant payment services by financial institutions (FIs) of any size or location in the United States, 24/7. Institutions participating in the service will be able to send and receive instant payments at any time, and recipients will have access to funds immediately.
See also: EU plans instant payments regulation in 2022, US plans FedNow for 2023
Among the most anticipated features once the FedNow service goes live is Request for Payment (RFP), Ksepka said. Payment Request will allow businesses, consumers, and government agencies to send messages requesting funds from another party through the FedNow service.
The FedNow service and its payment request function will benefit the end user and enable FIs to create greater value for their customers, while providing FinTechs with a new platform for payment innovation. .
The digital equivalent of an invoice
When the FedNow service launches next year, payment request will be one of the key features, according to Ksepka. It will enable FIs and other service providers to create instant bill payment services, so business customers can easily send electronic bills and receive instant bill payments that can improve their cash management.
The recipient’s FI will present the payment request to the customer via their mobile app or website with a push notification.
“Payment Request gives businesses that have always relied on paper or electronic invoicing — which is time-consuming and overhead-intensive — the ability to request payments immediately,” Ksepka said. “It’s the digital equivalent of receiving a paper bill in the mail through your financial institution’s secure channels.”
Consumers pay more than 15 billion bills a year, and most of that volume currently goes through biller websites, not banks or credit unions. With the FedNow service and its payment request feature, banks will be able to bring more of that business in-house, so to speak, Ksepka said.
Related: FedNow Pilot Brings New Features and Use Cases for Instant Payments 23 and Beyond
For businesses themselves, reducing paper invoices will provide a major cost saving benefit. The data that accompanies the RFP message (which includes all the details that traditionally accompany an invoice) can be used to automate accounting and reconciliation processes.
Payment Request also offers payers more flexibility and control than existing payment methods, such as automated recurring payments or ad-hoc check payments.
“The payer can choose the exact time of payment and the amount they wish to pay at that time in full or partial transactions,” Ksepka said. “Once the recipient approves this RFP, payment is made immediately” whether they chose to pay now or at a later date.
In terms of mechanics, the transaction is carried out via a credit transaction through the FedNow service, and the status of the payment is transparent to all parties – the payer and the beneficiary will know if the payment was successful within seconds.
One of the most compelling use cases for tenders is paying bills, but there are others that should be of interest to both FIs and FinTechs.
Enterprise vendor (AP) accounts and point-of-sale transactions, where merchants could use a QR code to initiate a payment, are two other major opportunities, Ksepka said.
Outside of business use cases, there are other household expenses and payments that could be better managed through bidding, including utility bills, subscriptions, and dues.
The healthcare industry is ripe for tenders, with electronic payments offering $3 per transaction in cost savings over manual transaction costs, Ksepka said. These can range from insurance payments to providers to patient co-payments.
Ksepka said some cash-heavy payments, such as rent collections, are also good candidates for tenders. Owners would like to avoid the risk of insufficient funds and avoid carrying large sums of cash, and tenders can reduce these risks.
Looking ahead, Ksepka noted that FIs will need to make the necessary investments in technology infrastructure to enable instant payments and properly present payment instructions to customers, along with timestamps and other details. She cited the industry’s desire to create a consistent end-to-end customer experience balanced with opportunities for innovation.
“All of this has to be based on a solid customer experience,” she said. For FIs, the adoption of instant payments eliminates the approximately two days required to settle payments and provides the speed demanded by all end users.
Federal Reserve Banks are working closely with FIs and the broader ecosystem to provide relevant best practices that will be made available to guide businesses and service providers as they build their solutions.