Most community banks are either in the process of implementing FedNow or have talked about the timeframe for implementation.  FNBB has many dozens of customer FIs in flight with the settlement of FedNow flowing through their FNBB correspondent account.  It’s encouraging to see these FIs moving forward with a faster payments strategy, but it’s also true that the vast majority of all FIs rolling out FedNow are doing so as Receive Only.  Why is this?  Overwhelmingly, the answer is lack of demand, meaning that none or few customers are asking to be the sender of a FedNow push credit transaction.

In the absence of any stated demand, is it unreasonable for an FI to hold off on implementing send capability?  Perhaps not, but I believe the thought process on waiting for send is not considering a key element of the future of faster payments: the option for business customers, regardless of their size, to use the Request For Pay (RFP) feature of FedNow.  RFP is just like it says, it is a request from an individual or business for an individual or business to send a FedNow push credit.  This occurs when one friend asks another for their portion of a lunch bill.  Or when a local plumber or electrician completes a job and requests the homeowner to pay their bill via FedNow.  The Request For Pay option represents an opportunity for a community bank to market to each and every business in their service area, customer or not, to use FedNow for collecting for goods and services delivered.

Consider that it is expensive for a business to submit an invoice and get it paid. According to research conducted by Adobe, the cost can be $15 to $40 depending on various factors. Even if we used the low end of $15, this is a significant cost to any business, especially ones with high volumes of low value invoices.  You have to factor in the delay in receiving payment, returned deposited checks and fraud.  Now consider the FedNow Request For Pay. Your business can forward any invoice related data along with the request.  Their customer receives an RFP on their phone or computer and sees that this is from the company that has performed the service.  They are happy to make the instant payment.  Only problem is …they can’t use FedNow because that requires the institution to be a sending FedNow FI, and they didn’t sign up for that!

Consider that some portion of your business customer’s customers are also your customers.  So a business sending out RFPs where you have not enabled send is defeating the whole purpose of FedNow, enabling real-time, instant payments that are irrevocable.  About that irrevocable part, consider that for your business customers, this means instant deposits to their account, representing immediate cash flow.  No returns or chargebacks. Just clean, trackable payments that tie back to the original invoices used to initiate the RFPs.  Regardless of what you charge for a FedNow RFP and receipt of payment, it is unlikely that it would be anywhere near $15 to $40, so it represents a cost savings to the business.  Yet, it can also represent a significant source of non-interest fee income if you price the service appropriate to its value to the business.

If I were a community bank, I would enable Send and then send my business development officers to visit every business customer with a pitch for using RFPs to invoice and collect for its services.  I would further target any business customers that currently do not bank with my institution and use the FedNow RFP as an enticement to move their account.

Stop waiting for your customers to “ask” for FedNow push credits and get busy with empowering your business customers to move aggressively with Request For Pay push notifications. Then educate your customers on the options you are providing for enabling them to respond to those RFPs with a FedNow push credit that is powered by your institution.  If you have already started down the path of implementing FedNow as Receive only, switch over to enable both Receive and Send. If you are already active on FedNow Receive, contact your FedNow service provider and add Send.  Then engage your marketing team to have a program targeting business customers that is ready to roll out coinciding with the availability of Send.

Are there other use cases for FedNow?  Of course!  Those will organically occur once you have the service up and running.  Your retail clients may or may not agree to pay for the option to push a credit via FedNow, but your business customers will certainly pay for instant cash flow availability with finality…that at the same time is cheaper than their current method of invoicing and collections.  FNBB has options to power both Receive and Send of FedNow, in addition to serving as your settlement agent.  If you need assistance or have questions on how to get the FedNow Send ball rolling, contact us at fasterpayments@bankers-bank.com.  Don’t wait until some other FI starts taking your best, most profitable business customers to get on the FedNow Send bandwagon!

The views expressed in this blog are for informational purposes. All information shared should be independently evaluated as to its applicability or efficacy.  FNBB does not endorse, recommend or promote any specific service or company that may be named or implied in any blog post.