Real-time processing isn't just about speed — it's about availability. The expectation that new transaction rails will operate outside of traditional business hours is a main part of the appeal for resource-strapped financial institutions.
In Hawaii, where it's six hours behind New York and three behind Los Angeles, the cutoff for daily business is much earlier than it is for other locales. That made HawaiiUSA Federal Credit Union an early adopter of the FedNow instant settlement rail. The credit union participated in FedNow's pilot and plans to go live immediately when FedNow launches in July.
HawaiiUSA's embrace of real-time payments demonstrates that there are two levels of speed that come from networks like FedNow and The Clearing House's RTP Network. In addition to processing payments instantly, the networks also process payments at all times — nights, weekends, holidays — so time zones are no longer a constraint for doing business.
"We're in the last time zone. We're behind everyone in the country and maybe the world," said Scott Young, vice president of payment operations at the Honolulu-based HawaiiUSA Federal Credit Union, which has 132,000 members.
"It's near the end of the day for you and we're just getting started on our day. A lot of times in the afternoon, the banks on the mainland are already closed, or we could be closed when they're open," Young said during an interview last week. "That's a big problem for us. Real-time payment puts us on a level playing field."
HawaiiUSA does not have a relationship with The Clearing House, but it does work with the Federal Reserve, so for now it's focused on
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HawaiiUSA is starting with bill payments, which Young says is probably the best example of how real-time payments can be used in the short-term — enabling people to pay bills at a set time to avoid overdrafts. The credit union will also add B2B payments.
Financial institutions are also developing their roadmaps for receiving vs sending real-time payments. HawaiIUSA is starting with receiving or collecting payments in real time, given the easier management requirements for receiving funds, according to Young. Bank Independent, a community bank in Alabama that will also be live on FedNow at launch, is also starting with receiving funds.
"The main reason for that is to build an overall payment and money movement strategy ahead of broadening use cases," said Kelly Burdette, senior vice president of digital and products at Bank Independent, a $2.5 billion-asset bank based in Florence, Alabama.
Bank Independent already supports other real-time payment options including the RTP network and the bank-supported Zelle transfer network. It's offering primarily transfers and bill payment, though it plans to add request-for-payment in the near future, as well as more business payment use cases. Request-for-payment connects bill presentment to real-time processing for recurring payments such as utility bills. The RTP network offers RfP, and the capability is in FedNow's pipeline. "We're also interested in using RTP to speed account opening and funding, and making payroll work faster," Burdette said.
FedNow, which is set to go live about six years after the RTP network launched, is partly designed to lower costs for real-time payments. While the transaction fees for FedNow and RTP are similar, there are expenses associated with deploying either network and managing issues such as
In an attempt to manage deployment expenses, HawaiiUSA and BankIndependent are working through a Jack Henry product that connects to their core processing systems and performs many of the tasks required to speed payment processing.
"A lot of us don't have the same resources where you can do a lot of things inhouse," Young said. "We have to partner with third parties or our service providers to have a lot of the things that larger banks take for granted."
About 40 of Jack Henry's clients are part of an early adopter program for FedNow. The institutions use JHA PayCenter, the financial technology company's payments hub. The hub enables banks and credit unions to connect to FedNow or other real-time networks in about one or two months.
There are about 1,700 credit unions and banks that run their core processing systems on Jack Henry, which could boost real-time pay adoption, as would support from clients of FIS and Fiserv, which also provide connections to real-time payment rails.
"We're thinking in terms of small institutions and small businesses; there's a chance to get payroll and other bills out quickly," said Tede Forman, president of payment solutions for Jack Henry.
About 370 financial institutions are live on the RTP network, and FedNow will be available to more than 9,000 financial institutions. While it's expected to take some time for institutions to adopt FedNow, pressure will build to support real-time payments as volume expands.
"Instant settlement is the standard that every financial institution, including credit unions, should move toward, and rapidly, " said Dennis Dollar, a credit union consultant.
As regulations governing overdraft fees and fees for late credit card payments advance, it will be difficult to comply while using outdated batch systems, which can cause delays, Dollar said.
"Instant settlement by 2025, if not sooner, will be as essential as mobile apps and interactive teller machines," Dollar said. "It will be a part of doing business as a financial institution and competing in today's market."
