What’s All the Buzz with Faster Payments?

In the last year, the Federal Reserve’s launch of faster payments has generated significant media coverage. Additionally, there has beennotable activity in the retail space regarding faster payments. What is this all about and where might faster payments be headed in the future?

Currently, there are two competing parties supporting faster payments in the U.S.: The Clearing House and the Federal Reserve. The Clearing House (TCH) introduced their Real Time Payments network in 2017 with about 460 financial institutions participating. The Federal Reserve launched FedNow in July of 2023 and as of last month announced they have 1,000 financial institutions participating. These two networks provide very similar services to the banking community, but in both cases, participants must be financial institutions. The launch and on-boarding of banks to FedNow has created a buzz in the payments space but there is nothing live with retailers at this time.

For general background, there are two major types of services that are provided with both networks: initiation services and receiving services. According to data presented by the Faster Payments Council, approximately 70-80% of U.S. financial institutions can receive faster payments from one of the two networks. A smaller percentage (30-40%) of banks can initiate payments. What does this mean for MAG Members? Most large retailers will be able to send and receive payments from their banks (and vendors) via faster payments for more general payments because these payments are being pushed to the retailer’s bank account, but they generally will not be able to initiate the payment at the point of sale. Retail point of sale payments is not possible since the financial institutions are not supporting it.

What is the delay in the request for payment (RFP) functionality? This is largely a prioritization and functionality question for the financial institutions. The biggest concern in setting up the RFP is how financial institutions will handle fraud with their customers given that real-time payments are final upon sending. U.S. consumers have been protected against fraud on their debit and credit cards by regulation on dispute handling, therefore, for RFP there will need to be some rules set up on dispute handling. Both TCH and the Federal Reserve have not taken a stand on the dispute rule-making process, leaving a big open hole in the ability or desire for financial institutions to implement the RFP. Both TCH and Federal Reserve are sponsors of the MAG, and the MAG continues to work very closely with those two organizations, in conjunction with the Faster Payments Council, to deliver the necessary rules and functionality to support the RFP functionality.

What can merchants do to help drive some of the RFP functionality and move it forward in the industry?

Stay informed by reading the MAG’s Payments News and other blogs in the payments space. Also, if you missed the November MAG webinar “What New with Faster Payments in 2024” – please watch it on the MAG Learning Center.
Ask your processors for updates on their functionality and explore use cases with them.
Stay engaged with the MAG. The Advocacy and Collaboration Committees provide monthly updates on the latest payments hot topics. The MAG Innovation Spotlight offers monthly presentations on new innovative idea presentations from our sponsors. You can sign up to attend these presentations by emailing Carrie Pottorff. Finally, attend Payments MAGnified in February to get updates on everything payments, including a Pay by Bank Small Group discussion.
One final note is that the Faster Payments Community of Practice (COP) is currently on pause until there is movement in the industry on the RFP functionality. Watch for a MAGMail in the future if the COP is restarted.

Innovation in payments is never fast or easy but faster payments is moving forward and is an area that every MAG member and sponsor needs to keep a finger on the pulse.