More than 1,700 financial institutions have joined FedNow—the U.S. Federal Reserve’s instant payments system—in the just over three years since its launch. But, a substantial number of financial institutions have yet to make the move.
Starting in January, FedNow will offer financial discounts tied to participation, potentially changing the calculus for some banks and credit unions.
Institutions could receive a minimum discount of $5,000 for enabling FedNow receive capabilities. Those that also enroll in and participate in other Federal Reserve programs, including the FedACH receipt discount program, could receive roughly $20,000 in statement credits.
The incentives are larger for financial institutions that enable FedNow’s send functionality. The maximum discount is $20,000, rising to as much as $80,000 for organizations that also participate in the FedACH receipt discount program.
“It’s an effort to continue to spur adoption of FedNow through discounts,” said Ben Danner, Senior Debit Analyst at Javelin Strategy & Research. “FedNow is enabled at about 20% of financial institutions right now, but a majority of those are only enabling the receive capability.”
“Enabling send has generally been a bit more difficult in part due to operational expense and IT requirements to enable it, as well as perceived fraud risk of enabling customers to send money instantly,” he said. “That difference between receive and send requirements is why there are richer discounts for enabling send.”
Finding the Functionality
The lack of full send-and-receive capabilities remains a hinderance on real-time payments, particularly across consumer use cases. Other segments have been quicker to adopt the technology.
To date, one of the most important applications for instant payments has been in commercial payments, including interbank transfers and business-to-business payments. Real-time payments are also increasingly being used for one-time disbursements such as disaster relief and insurance payments.
Gig economy and creator payouts represent another area of growth, where faster access to funds can have implications for worker retention.
The Mainstream Inflection Point
For all that activity, real-time payments have yet to reach a mainstream inflection point in the U.S.
Existing payment methods remain deeply entrenched, while infrastructure requirements and fraud concerns add to the barriers financial institutions face when adopting new systems.
FedNow’s discounts put a new variable into that equation. The question now is whether financial incentives are enough to move institutions that have so far remained on the sidelines.
