Insights from Catalyst

In keeping with our current blog series, we will discuss use cases and information to help you further develop your credit union’s faster payments strategy. By the end of this blog, you should also have a deeper understanding of market activity and trends. 

There are many initiatives underway to utilize the FedNow Service. For simplicity’s sake, we’ll group them by category: 

• Account-to-Account (A2A/P2P)
• Business-to-Consumer (B2C)
• Consumer-to-Business (C2B)
• Business-to-Business (B2B) 
• Government Sponsored Enterprises (city/local, state, federal)

Now, let’s explore these use case categories more closely.

Account-to-Account (A2A/P2P)

There is no doubt that A2A/P2P will increase as institutions onboard the FedNow Service, but right now there are significantly more “receive only” institutions. Many member-facing online banking and mobile vendors are preparing to add the FedNow Service to their payments offering alongside ACH and debit. These transactions will increase as the system drives to ubiquity.

Business-to-Consumer (B2C)

Current B2C senders are from brokerage accounts, ride-share/delivery service contractors, insurance proceeds and sports gambling. As more of the large banks come onto the FedNow Service, more originators will begin sending these types of transactions. 

In an upcoming blog, we'll delve into Request for Payment (RFP), which offers a variety of use cases of its own. Although many of our credit unions receive items on their first day, we anticipate an increase in B2C transactions from major billers soon as well.

For instance, companies providing streaming services, internet connectivity, and similar subscriptions plan to shift a portion of their customer payments to the FedNow Service. This move aims to reduce their billing expenses and enhance immediate cash flow. Billers are particularly looking to convert customers who often incur ACH NSF fees, those who rely on costlier debit card payments for recurring bills, and traditional check users to the FedNow Service.

Consumer-to-Business (C2B)

While some C2B payments bleed into the A2A/P2P category, the complexion changes when sending for “business” purposes. These could include rent/mortgage payments, health and beauty services, home maintenance (lawn care, plumbers/electrical), garage sales and more. Additionally, QR codes are being used in C2B pilot programs for point-of-sale (POS) transactions today and we’re seeing numerous industry initiatives to drive standardization for the consumer. Thus, we expect to see more retail activity utilizing instant payments. 

Business-to-Business (B2B)

B2B payments are all over the map today. While many are still made in check form – cash, wires, cards, and ACH are also being used. The FedNow Service offers the ability to send much more than just dollars, including details like invoice breakdowns and discounting.

As with biller scenarios for C2B, businesses want transparency when payments are requested and made; and the assurance of immediate good funds before releasing goods and services. This can make credit unions essential in supporting their small and medium-sized businesses.

Government Sponsored Enterprises (GSEs)

Finally, there are many use cases for city, state and federal government sponsored enterprises. There are multiple programs underway to use the FedNow Service, especially for vendor payments and other types of transfers between entities. The U.S. Treasury supports over 1,000 GSE’s and is beginning to use the FedNow Service. We may see some consumer/business transactions generated by the government soon. We expect these to be one-off transactions like emergencies, local/regional disasters and stimulus payments.

Catalyst actively supports the FedNow instant payments rail through its involvement in various work groups. We are dedicated to keeping credit unions informed of the enhancements and changes as they develop, which is why we invite you to join us at our upcoming webinar, "FedNow Service Essentials," on September 5 at 1 p.m. CT. For details on partnering with Catalyst for the FedNow Service, visit catalystcorp.org/fast.