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Real-time payments: FedNow
Now is the time to accelerate your strategy beyond transactions
The mid-2023 launch of FedNow has been a watershed in the evolution and adoption of real-time payments in the US, heralding a new phase of growth within the payments industry.
2023: A milestone year for real-time payments
Real-time payments in the United States saw unprecedented growth in 2023, driven in part by the rollout of FedNow in July, which is experiencing rapid uptake among financial institutions. Over 600 firms are using FedNow in various use-case scenarios at the start of February 2024, a 1,600% increase from the 35 institutions that were onboarded at launch six months earlier.
Real-time payments and dollar value continued to climb at a rapid clip last year. For example, The Clearing House reported that its RTP network handled 74 million transactions with a dollar value of $39 billion in the fourth quarter of 2023, an increase of 48% and 70%, respectively, from the fourth quarter of 2022.
Key use cases fueling real-time payments adoption
We are not surprised by that kind of growth. Cashless and electronic payments are expected to more than double globally between 2020 and 2030, according to PwC’s Payments 2025 and Beyond report.
The most common use cases for real-time payments in 2023 included peer-to-peer transactions, payroll for employees and bill payments for utilities, insurance and higher education. It is that kind of service that we have been anticipating businesses and consumers would gravitate to (see the Unlocking ROI with FedNow section here).
Benefits
For banking and financial institutions
Reduced costs (interbank settlement fees/late fees)
Better risk management
Efficient payment processing/settlement
For customers
Ability to transact and have funds available instantly
Real-time cash flow management
Enhanced fraud/cyber security operations
Strategic insights for 2024
The evolution of real-time payments is poised to continue, driven by changing consumer behavior and technological advancements. However, banks face several challenges, including regulatory alignment, technical infrastructure upgrades and return on investment (ROI). For example, in February, the Federal Trade Commission reported $8.8 billion lost in fraud last year by American consumers. An estimated $1.6 billion of that occurred during bank transfers and payments, double the $762 million lost in 2021.
Addressing these challenges requires a nuanced approach:
- Responding to market demand to achieve ROI
- Regulatory alignment
- Technical infrastructure enhancement
- Transaction management for 24/7 operations
Responding to market demand to achieve ROI
Banks should zero in on creating value-added services that resonate with customer needs for immediacy and flexibility. Innovating around real-time payment solutions, such as Request for Pay (RfP) and integrating real-time payments into broader financial service offerings, can unlock new revenue streams. Additionally, leveraging analytics to offer tailored advice and services and ensuring robust security features can enhance customer trust and loyalty thereby boosting transaction volumes and profitability. Staying agile and responsive to market shifts and customer expectations will be key to securing a competitive advantage and maximizing ROI.
Regulatory alignment
With FedNow shaking up the real-time payments scene, US banks are entering an era of enhanced regulations, including new Consumer Financial Protection Bureau rules and Federal Reserve guidelines. Engaging with regulatory authorities and joining groups, like the Faster Payments Council, can help banks stay in step with regulatory change and remain involved in discussions that involve important operational updates, such as for cybersecurity and privacy standards.
Technical infrastructure enhancement
Upgrading technical infrastructure is crucial for supporting real-time payments, including investing in scalable systems, enhancing cybersecurity measures and integrating advanced analytics for fraud detection. Currently, infrastructure components such as fraud and core systems are optimized for batch processing and will require additional updates to support real-time processing. Banks that are planning a comprehensive upgrade to their systems can still take part in the payments revolution today by considering partnerships with fintech firms to implement solutions with out-of-the-box capabilities.
Transaction management for 24/7 operations
With the surge in around-the-clock transactions through real-time payments, banks must establish robust processes and controls to efficiently manage the growing volume. Implementing sophisticated forecasting and real-time monitoring tools will be crucial for maintaining optimal liquidity and ensuring transactions are settled without delay. Additionally, forging partnerships with other financial institutions for liquidity sharing can provide a safety net during peak transaction periods, effectively addressing the challenges of continuous, high-volume processing.
By embracing a step-by-step strategy for updating their payment infrastructure, banks can maximize returns and sidestep disruptions. The roadmap below shows why a well-thought-out plan is crucial for moving towards real-time payments. This approach aims at helping banks stay ahead, ensuring they not only meet the demands of today but lead the charge into tomorrow's financial landscape.
Real-time Payments Adoption Journey
Banks are at various points in the journey to considering new Real-time Payment offerings such as TCH-RTP and FedNow. PwC can help at any stage of the consideration process to help companies expedite adoption.
- What payments challenges do our customers face?
- What are the shifting customer expectations? (e.g., more real time)
- What are the trends in the market to address customer needs?
- What are the technology trends impacting payment ecosystems?
- Where do we stand against our competitors in the market?
- What capabilities do our competitors offer that we don’t
- How can we enhance our current payment offerings to stay ahead of disruption?
- What is our target state customer journey?
- What services do we want to enable for our customers?
- What are our target state business features?
- What requirements are needed to enable our target state?
- What systems need to be enhanced, replaced, or added to support our target state business requirements?
- What resources and skill sets do we need to have in place to operate in target state?
- What is our strategy for building and implementation of our target state vision (agile vs. waterfall)?
- What experienced 3rd party vendors should we engage?
- What resources and technology do we need for implementation, Go-Live, and Post Go-Live?
- What is the development strategy, how can we leverage 3rd parties for implementation?
- How will we map the appropriate integrations?
- How should we handle any defects that arise during each of the testing phases?
- What does our feedback loop for changes to scope/target state look like?
- What is our transition plan across our people, processes, and technologies?
- What metrics should we track to measure success?
- What training do we need to create for our teams on how to use new systems/processes?
*PwC has extensive experience assisting Financial Institutions with addressing/executing on considerations above
How PwC can help
With our deep payments expertise, PwC can support clients through every phase of real-time payments modernization. We can help accelerate the speed to market and execute a comprehensive real-time payments adoption strategy.
Market landscape and opportunity assessment
FedNow Service readiness assessment
Business case
Payment solution stack mapping across
Customer journeys
Business process and system capabilities
FedNow payments capabilities
Modern technical architecture
Data architecture
Infrastructure architecture
Roadmap for target state
Vendor assessment
Implementation planning
Risk and control assessments
Payments engineering
Financial crimes / AML solutions
Quality engineering and E2E testing
Scalable and automated non-functional tests
System integration support
PwC’s extensive experience across payments and technology projects for the largest institutions in the world can be leveraged to help guide your implementation of the FedNow Service.
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