Overcoming the chicken and the egg dilemma: Catalyzing instant payments adoption
Instant payments provide an opportunity to bring economic benefits for all Americans, a principal driver of the Federal Reserve’s efforts to foster their adoption. However, as with the development of most new payment options, the industry faces the age-old chicken and egg problem: Consumers and businesses are generally inclined to delay adoption of a new payment option until they are certain that others have also adopted it. And financial institutions, service providers and fintech innovators also play a part in making adoption possible.
Overcoming this conundrum is key to unlocking instant payments’ benefits more quickly. This is why the Federal Reserve is focused on providing tools and resources to help the entire ecosystem of end users, financial institutions, fintechs and other service providers discover the benefits of instant payments, weigh possibilities, including innovative use cases, and prepare for adoption.
These multi-faceted resources include general education materials, webinars, assessment tools and opportunities for direct engagement with a community of key stakeholders.
A focus on education to drive the journey to instant payments
Broad adoption begins with broad understanding of instant payments. Broad adoption begins with broad understanding of instant payments. This understanding can be cultivated by education materials that:
- Encourage financial institutions and technology enablers to update their products and services to support instant payments;
- Highlight opportunities for stakeholders to develop technology and services that will facilitate compelling new instant payments use cases
- Stimulate demand by familiarizing end users with the benefits of instant payments.
The first step in our educational journey is the Federal Reserve’s instant payments education series. This series highlights several instant payments use cases and makes clear how instant payments can transform payment processes.
- How can faster payments benefit me? highlights key use cases, such as how a building contractor can accelerate shipment of needed materials using instant payments, or how a consumer can avoid late fees, the risk of account overdrafts, and damage to their credit score by transferring funds instantly.
- Why we write so many checks indicates how instant payments could transform the bill payment experience for billers and their customers alike, reducing manual handling and errors, and improving customer service.
- Instant payments: what could they mean for how we do business? discusses the potential for automating B2B transactions using an instant payments message type called Request for Payment (RfP).
- What’s trending in the world of faster and instant payments highlights faster payment systems and trends from around the world and explores why faster payments are gaining momentum in the United States.
- Instant payments offer many benefits for A2A transactions illustrates how customer experience can be enhanced by offering instant transfers between their accounts.
As the instant payments journey continues, readers can benefit from checking back frequently as the Federal Reserve continues to add new articles and materials. Specifically, these materials will focus on helping stakeholders explore the transformative opportunities instant payments can offer and providing resources to help them prepare for instant payments adoption. The journey will also drill down into topics such as innovative new use cases and key instant payment technologies.
Additionally, the Federal Reserve continues to provide a variety of resources, blog articles and up-to-date communications on the upcoming FedNowSMService and the progress it is making as it moves closer to its 2023 launch.
Those considering or interested in preparing for the FedNow Service and learning more about adoption should visit this site on a regular basis as these important FedNow Service announcements and related materials are being updated frequently.
A community that fosters collaboration and drives innovation
The Federal Reserve continues to collaborate with industry stakeholders on instant payments and the FedNow Service through the FedNow Community. By participating in the Community, stakeholders share their input on design, functionality and use-case enablement that will support innovation in instant payments.
The feedback received through the Community is helping to drive additional features that could be offered in subsequent releases. For example, additional functionality related to fraud prevention, error resolution, case management and support for person-to-person payments that use the alias of a receiver are under consideration for subsequent phases.
In addition, the ongoing dialogue and interaction among the community members helps to establish a robust ecosystem that drives awareness of industry trends and progress while encouraging market development of instant payment capabilities.
Those interested in joining the FedNow Community and engaging with the Federal Reserve on instant payments and the FedNow Service can sign up for the FedNow Community here.
Collaboration with key players drives market engagement and readiness
Another avenue for industry engagement and collaboration that the Federal Reserve has created is the FedNow Pilot Program. The pilot program includes three phases:
- Advisory: Participants provide guidance to service definition and roadmap, industry readiness approaches and overall strategy. In return they gain information to help their organizations plan and prepare for adoption.
- Testing: Participants access the FedNow customer test environment and perform a variety of test cases, provide feedback and identify issues for remediation.
- Closed-loop production: Participants use the FedNow production environment and send live transactions to other participants, participate in resiliency testing and validate the end-to-end payments flow including Federal Reserve ancillary systems in production.
The more than 120 organizations participating in the pilot program will help shape FedNow’s features and functions.Insights gained from the pilot will also help FedNow provide an overall user experience that accommodates the needs of a wide variety of financial institutions and service provider arrangements.
The Federal Reserve is also in the process of creating an “ecosystem participant” program, which will launch in 2021. This program may give organizations that provide payment-related systems and services for financial institutions and end users the opportunity to partner with financial institutions that are pilot participants and support them in the closed-loop testing and production phases of the program. Insights from this program will help inform FedNow Service functionality, but also be a resource to the participants and the broader ecosystem , and help drive innovation and eventual adoption.
The importance of sharing these tools and resources
Fostering the market-based development of innovative use cases and other instant payments capabilities is key to widespread adoption. Building awareness, increasing knowledge and offering the tools to support innovation should help drive instant payments adoption and overcome the chicken and egg dilemma. And that is why the Federal Reserve is committed to developing and sharing these tools and resources with the ecosystem as a whole.