With the Federal Reserve’s announcement last week that more than 110 financial institutions and processors have signed up for a pilot of the FedNow real-time payments service, third-party service providers are working to smooth the way for small banks that might otherwise be left on the sidelines.
“We’re filling the niche for mid-size and smaller institutions,” says a spokesman for Juniper Payments, a Wichita, Kan.-based company that transmits files for automated clearing house and wire transfers. The company, one of about a dozen service providers on the Fed’s pilot list, already offers real-time processing via The Clearing House Payments Co. LLC’s network, launched in 2017, and through the Fed’s FedWire Funds Service and its own On-We Junifunds Network for wires.
The importance of real-time service for smaller institutions goes beyond fast settlement times to include such factors as pinpointing the bank’s cash movement at given times throughout the day, the spokesman says. “The only way to see what their cash position is to process in real time,” he says. “It’s a natural flow of immediate gratification and wanting to know where they are at any point during the day.”
By serving about 3,500 client institutions, he adds, Juniper can offer economies of scale that will apply to FedNow service. “We have direct connections to the Fed,” he says, so “all transactions go to the Fed.”
The Fed’s development of FedNow in the midst of already-operating services such as TCH’s RTP network reflects what Juniper sees as a consensus among community banks and credit unions that a competing service from the nation’s central bank is needed, the spokesman says. “We told the Fed what we’re hearing from our clients, that they’d like the Fed to come out with something more fair for everyone,” he says.
TCH has denied its RTP service would discriminate on pricing or service in favor of large institutions, and RTP has attracted some smaller banks among the 95 that have signed up so far. Of the 24 big banks that own the company, seven have enlisted in the FedNow pilot.