After a modest start, the
The number has
"We're seeing a spike in adoption," said Minal Gupta, senior vice president of operations at Star One Credit Union in Sunnyvale, California. "We see a lot of appetite for it."
The $9.9 billion-asset Star One was among the
Her advice to competitors: "If they don't get on this bandwagon now, they'll be left behind."
Star One President and CEO Gary Rodrigues said many small banks and credit unions were reluctant at first to join FedNow — and some still are — because instant payments present potential openings for fraudsters. But he said effective fraud mitigation tools accompany the program.
A key example is a "cool-off period." This kicks in when a new recipient or a new email address is added or the sender's credentials have been changed, providing the financial institution an alert and an opportunity to vet changes and either affirm the legitimacy of a transaction or send up a red flag to prevent fraud.
The Fed said benefits of instant payments cut across demographic groups. The speed and convenience attract younger consumers who are accustomed to such services, but it also appeals to other groups — such as retirees — who want immediate access to government benefit funds.
"The strong adoption and engagement" in recent months "reflects our collaboration with the industry … and this remains a priority as we pursue our shared mission of ubiquitous availability of instant payments," said Mark Gould, chief payments executive for Federal Reserve Financial Services.
Real-time payments and a potential central bank digital currency are different initiatives, but many bank customers get them mixed up. To promote acceptance of FedNow, banks must distinguish between these new technologies as well as dispel the myths and fears linked to CBDCs.
It can cost between $25,000 and $100,000 to get the FedNow system up and running through third-party providers.
FedNow's primary competitor in the instant payments space is the RTP network, which is operated by The Clearing House, a banking association and payments company owned by a conglomerate of the world's largest banks. It reported more than 400 users in 2023.
Marcell King, chief commercial officer for Portland, Oregon-based Tyfone, a digital banking company and certified provider of the FedNow service, said community financial institutions will compare the two to derive the greatest degree of value for their customer or member base.
In many cases, banks are choosing FedNow due to the operational simplicity of extending a new payment method within their current Federal Reserve relationship and Master Account, King said. In others, a financial institution may participate in both networks to ensure a broad level of coverage.
"From our perspective, the FedNow service could represent up to 1,500 financial institution participants by the end of 2024," King said. "Our optimistic projection is based upon current growth rates being maintained for the remainder of 2024."
Trey Maust, executive chairman of the Lewis & Clark Bancorp in Oregon City, Oregon, said his bank joined FedNow because of the relative simplicity and growing demand for instant payments. He said both the Fed offering and RTP are viable options, but the former is geared more toward smaller institutions.
The $392 million-asset Lewis & Clark is now using FedNow to receive payments and is in the process of setting up send capabilities — and ensuring it has ample fraud protection layers in place.
"Frankly, community banks like ours have limited resources and we can take on only a few projects in a given year, so simplicity is compelling," Maust said. "I think that simplicity and the demand that's out there will drive more and more adoption of FedNow."
