Pub. 18 2021 Issue 2

Issue 2 • 2021 13 The attached graphic prepared by FRB Services demonstrates the simplicity of an instant payment from initiation to receipt. Evolution or Competitive Response? All legacy U.S. payments systems have measured money movement in terms of days, except for the wire transfer networks. Checks, ACH, and even card transactions have required one day or more between payment initiation and the availability of good funds to the recipient. The ACH network has made in-roads in recent years through the expansion of Same Day ACH Services. Meanwhile, non-bank solutions such as PayPal, Venmo (owned by PayPal), Square Cash and others have provided consumers and small businesses the capability to settle up or conduct commerce in real time. Members of Wespay have shared stories of declining balances and external transfers to these FinTech solutions that have eroded their customer relationships. Unlike Zelle, which uses preexisting payment networks, Instant Payments are newly established payment rails operating only between regulated financial institutions. The initial U.S. service, Real-time Payments (RTP), was introduced by The Clearing House in late 2017 and is now adopted by most of the big banks in the country. RTP uses push payments, credit transactions that operate 24x7x365, and the payments are irrevocable. The network uses an international standard for messaging, which provides an essential prerequisite for possible international expansion. In 2019, the Federal Reserve announced its intent to build a competitive solution to RTP, called FedNow. The FedNow service is slated for implementation in 2023 and will include many of the same characteristics of the RTP service. Both Federal Reserve and The Clearing House worked extensively to align the messaging standards and optimize the compatibility of the two services. Both organizations realize that most U.S. financial institutions will not have the capability or resources to build multiple new payment services. The interoperability of the two services is a crucial objective of many in the payments industry. Credit: Graphic developed by Federal Reserve Services Note: graphic is also available at the following site: https://www.frbservices.org/binaries/content/ assets/crsocms/financial-services/fednow/instant- payments-education/anatomy-of-an-instant-payment- infographic.pdf n “INSTANT” PAYMENTS continued on page 14