Saturday , April 17, 2021

A Pilot Is Coming for FedNow, But Some Question the Fed’s Deliberate Pace

The announcement from the Federal Reserve late Monday of a pilot for the FedNow real-time payments service may represent an important stage in the development of a service not expected to go live until 2023 at the earliest. But observers caution rival services have already made headway with key market participants.

“Financial institutions are moving forward with other real-time payment plans due to the extended timeline of FedNow,” Erika Baumann, senior wholesale banking analyst at Aite Group, in an email message. The Fed first announced its intention to develop FedNow in August last year, and this summer reaffirmed its timeline for the project.

In its latest move, the Fed has invited financial institutions and service providers among the 700 members of its FedNow Community of entities supporting the real-time service to participate in a pilot. It is looking for “expressions of interest” by Nov. 16.

“We have a strong foundation with our initial service design and are now in the next phase of development designing enhanced features and functionality,” said Nick Stanescu, senior vice president and FedNow business executive with responsibility for product management, in a statement released with Monday’s announcement.

The pilot, for which the Fed will be soliciting participants over the next few weeks, will consist of three phases: advisory, testing, and closed-loop production. Further details, such as a start and end date for the pilot, were not immediately available. “The announcement of the pilot, and recruitment of participation, is a strong signal back to the market that work is progressing. However, there is noticeable ambiguity of timing and details about the pilot,” notes Baumann.

“Many pilot program details have yet to be announced,” says a spokesperson for the FedNow project.

A range of competing real-time services is already available, including The Clearing House Payments Co. LLC’s Real Time Payments facility, push-payment services from Visa Inc. and Mastercard Inc., and the Zelle peer-to-peer payment network, which is backed by some of the largest banks in the country. “The pace of payments innovation is moving so quickly that the targeted 2023-2024 timeline [for FedNow] is lagging behind expectations,” Baumann says.

In a survey of more than 100 community banks and credit unions undertaken by Aite Group during the second quarter, 10% said they would wait for FedNow even though they had originally intended to move ahead with another service. Twenty-four percent indicated they would add FedNow to rival services, while 35% said they did not intend to use FedNow. The remainder either didn’t know what their plans were or gave another response. The Aite report was released Tuesday.

“In recent market research I have done, financial institutions are moving forward with other real-time payment plans due to the extended timeline of FedNow,” says Baumann, who co-authored the Aite report.

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