New rails, new payment opportunities

“On-demand,” “immediate,” and “at your fingertips” can all be used to describe what consumers expect in today’s digital-first world. Accelerated by the pandemic, consumers can have a meal or groceries delivered, then settle in to watch an entire season of commercial-free TV or hear their favorite singer’s newest album at the click of a button.

While this culture of immediacy has permeated almost all facets of life, it has been slow to translate to traditional banking, where it still can take days for account-to-account money transfers or transactions to post.

What has slowed down financial institutions? Although instant payments have existed for about a decade, the technology has not been readily available or accessible to credit unions—with much of it coming at a high cost or requiring additional resources.

However, spurred by innovation, a spirit of open banking infrastructure, and access to APIs, the ability to adopt and deploy this technology is rapidly evolving. As instant payments become an accessible reality, now is the time to explore how new payment rails can help grow your credit union and serve your members.

Simplify and expedite

More consumers are turning to new, simpler, and what they perceive as “faster” ways to bank and pay. Younger consumers, in particular, are increasingly less inclined to conduct business within the traditional payment systems, which can be seen as cumbersome or outdated.

According to PSCU’s 2022 Eye on Payments study, the number of members reporting a mobile wallet as their preferred way to pay has tripled since 2018. When asked which payment methods they would be likely to use in the next six months, more than half of respondents said a person-to-person payment account such as Venmo, Zelle, or PayPal.

Few consumers know that these apps and services, which give the impression of immediate payments, actually rely on traditional banking rails to complete transactions. In fact, the payment rail component, or the “how,” is often not on a consumer’s radar at all. End users just want to know when their money will transfer, how quickly they can spend it, and whether it is secure.

With new payment rails taking center stage and offering a faster way to send and receive funds, the “hidden and how” portion of a transaction is ripe for change and more transparency. The Clearing House introduced real-time payments several years ago, and FedNow, the Federal Reserve’s much-anticipated version of “instant payments,” is launching this summer.

Through these rails, credit unions will have access to instant payments that can be sent and received 24/7, 365 days a year. Not only will these new payment rails provide greater speed and control for both consumers and businesses, they will also enable the transfer of “good funds” (credit only) from one account to another account at any participating financial institution within seconds. The “good funds” are money that can be withdrawn or spent immediately upon receipt; no memo post, not pending—that money is ready for spending.

Partnering to prepare for the future

Instant payments are exciting and scary at the same time. The funds transferred are final and irrevocable, similar to a wire transfer. Nevertheless, instant payments are coming, and credit unions need to be prepared to implement streamlined, faster wire transfers and ACH capabilities with enhanced operational efficiencies. This will reduce in-house manual processes and meet the immediacy expectations of today’s consumers and businesses.

Developing a comprehensive instant payments strategy and understanding all its use cases may seem daunting. However, your credit union does not have to do it alone—you can find a trusted fintech partner or solution provider to help. When identifying a partner to assist with adopting instant payments, here are some important considerations:

• Customize your approach. Find a trusted partner to help identify the right solutions that build a digital bridge for optimizing your credit union’s payments journey. Every credit union is unique, so seek a partner that helps meet your desired payment objectives and outcomes. Feel free to take it in phases or stages based on what makes the most sense for your membership. Most participants plan to start with “receive only,” then move on to “send,” then “request for payment (RFP).”
• Maximize efficiencies by streamlining processes. Bring in a partner to help deploy a payment solution that enables seamless transaction flows from origination to delivery. The ideal partner should have a cloud-based, scalable, and customizable solution that automates, integrates, and streamlines outbound and inbound wire processes.
• Find a partner who knows the space. When looking for the right technology provider, select a fintech with significant knowledge of the systems and tools required, as well as existing connectivity to the Federal Reserve and The Clearing House to make the instant payments process easier. Ideally, your partner should also have FedLine connections, offering your credit union the benefit of unattended send and receive capabilities. Juniper Payments, a PSCU company, is a fintech service provider that meets these requirements and is positioned to help your credit union reach your instant payments goals.

With new rails and instant payments, major industry changes and opportunities are on the horizon. Is your credit union prepared to take advantage of these emerging payment rails to better serve your members?

JON BUDD is CEO at Juniper Payments, a PSCU company.