FedNow Launch Raises New Questions
South Bend, Indiana-based 1st Source Corp., with $8 billion in assets, just launched its pilot test of FedNow this week, and bank executives believe offering the service will be a competitive advantage once it rolls out.
“We think that being able to support our clients in the method they want to make payments is very important,” says Andrea Short, CEO of its subsidiary 1st Source Bank. “It’s where we see payments going, and wanting to be part of where we see the future with real-time payments and using the FedNow rails.” The bank will initially focus on adoption by commercial clients, she says.
So far, 57 financial institutions and service providers received the go-ahead to launch FedNow, the Federal Reserve’s instant payments system, later this month. On July 20, Bank Director will host a free webinar about FedNow. Click here to register.
Initially, FedNow will only be available to clients at those approved financial institutions, and customers will only be able to pay other clients within the FedNow network. Additionally, FedNow is not a customer-facing application, like Zelle or Venmo. Nevertheless, its imminent launch raises questions about the evolution of payments across the economy.
Instant payments could provide value to commercial clients seeking a real-time method to pay and be paid. But analysts from J.D. Power identify one potential barrier to prospective consumer adoption: their perception of its safety relative to other payment methods.
The market intelligence firm sees debit card use as a proxy for understanding potential consumer hang-ups with real-time payments, says Miles Tullo, managing director of banking and payments at J.D. Power. Many consumers don’t feel that it’s safe to use a debit card, with almost a third of non-users citing security concerns as the main reason they don’t use debit cards at the point of sale, more than any other reason.
Safeguarding against fraud, along with timely communication when there’s an incident, are the most important steps a bank can take to build trust with customers, the firm found.
“Folks who don't like to use debit will say, 'I'm not comfortable transacting directly from the account that holds most of my liquid assets,'” Tullo says. “Banks will have to convince the consumer that it's okay to do that.”
• Laura Alix, director of research at Bank Director