Instant payments took center stage at the 2024 Catalyst Strategic Summit, and for good reason…the shift to immediate payment options through the FedNow® Service is quickly and dramatically remaking what payments look like for financial institutions across the country.
Erik Van Bramer, Senior Vice President with the Federal Reserve, provided an update on the importance of the FedNow Service and what makes it such a useful tool for credit unions. Launched in July 2023, the service was designed to meet the rising consumer demand for instant payment options. A few stats Van Bramer shared highlighted the need…
- 53% of consumers use digital wallets more often than “traditional” payment methods
- Two-thirds of U.S. businesses have made or received digital wallet payments
- 59,000+ jobs already offer same day pay
While person-to-person (P2P) payments via apps, similar to Venmo or Zelle, were a focus early in the development of the FedNow Service, over 300 separate use cases have been identified to date, with many more in development. Beyond P2P, instant payment options include bill pay, consumer retail purchases, “me-to-me” transfers between accounts, mobile wallet funding, business-to-business invoicing and on-demand payment, tax payments, business-to-consumer disbursements for refunds and payouts, same-day payroll, and much more.
Designed as a modern payment network, the FedNow Service offers several important advantages, including 24/7/365 availability, settlement in seconds and immediate funds availability – to name a few.
Glenn Wheeler, Catalyst’s Vice President of Payments Strategy and Product Innovation, offered background on how Catalyst has made it easy for credit unions to take advantage of the FedNow Service. In fact, Catalyst was a day one member of the FedNow pilot program in 2021 and the first financial institution to go live with the FedNow service in the Federal Reserve Bank’s 11th District with Pima FCU.
Adoption of the FedNow Service is heating up. According to the Wheeler, 8 of the top 10 U.S. banks are expected to be live by the end of 2024 along with a large number of tech and fintech companies including Robinhood, Plaid, Uber and Grubhub. In fact, over 1,000 financial institutions are already live on the FedNow platform after just over a year of availability, the fastest growth of any new payment platform.
In addition to learning the ins and outs of the FedNow Service, Catalyst welcomed the team from Origence to provide details on a powerful use case for instant payments – the instant funding of Tesla auto loans.
Neetu Bhagat, chief financial officer at Origence, explained that Origence is the largest credit union auto lending network, exceeding the volume of Toyota Financial Service, GM Financial, Ford Motor Credit, Chase Auto Finance and many others. This experience and volume helped Origence to become a lending partner for Tesla, available to finance Tesla purchases directly through the Tesla website.
Tesla values instant funding of auto loans, particularly at month-end and quarter close. By providing instant payment through Catalyst and FedNow, Origence is able to capture a greater share of Tesla auto loans for its members.
While Tesla is an exciting use case, Bhagat sees great potential in the broader direct lending space, particularly as the way consumers purchase vehicles, from cars and trucks to recreational vehicles, shifts and new manufacturers upend the traditional dealer-centric business model with direct-to-consumer selling.
Woven throughout Summit, the instant payment message was clear – change in how we pay isn’t just coming soon, it has arrived. Credit unions who integrate instant payments into their member offerings now have an opportunity to build a competitive advantage, and Catalyst is here to help develop and execute the strategies that will make instant payment an important part of their member experience. To learn more about Catalyst’s Suite of Faster Payments solutions, visit: www.catalystcorp.org/fast.