Planning to adopt FedNow? Ask these questions.

The origin of computerized real-time payments can be traced back to Japan in 1973 with the introduction of the Zengin System. Nearly 50 years later, the global market for real-time payments was valued at $17.57 billion, with a projected compound annual growth rate of 35.5 percent, according to data from Grand View Research. America's financial institutions and financial technology companies are feeling this momentum acutely with the July 2023 launch of the FedNow Service for instant payments..While over 500 financial institutions have signed on with the FedNow Service, in addition to the U.S. Department of the Treasury's Bureau of the Fiscal Service, a larger question looms: What will FedNow adoption look like for the rest of the country's financial institutions? And more importantly, what will it look like for your financial institution?.Examine your organization with as much objectivity and self-awareness as possible. This starts with understanding your purpose and the reasons why your organization wants to connect to FedNow. Stakeholders should also consider their readiness to connect to the service and make the necessary operational adjustments to support real-time payments. Here are some questions to help you jumpstart the self-assessment. .Define your goals.Consider your reasons for adopting FedNow. "Because we can" or "So we don't get left behind by our competitors" are valid reasons, but dig deeper. Consider the following questions to guide you:.Do you want to grow assets?Do you want to retain account holders?Do you want to drive revenue?Do you want to attract a new segment of consumers or businesses?.Truly understanding why and how participating in FedNow will benefit your institution and its account holders will help your team strategize more effectively. Look for the positive outcomes associated with adopting FedNow and ways that your organization can use the network to enhance its product capabilities and its brand..Evaluate your account holder base.It's tempting to immediately focus on how FedNow can help expand your reach and grow market share. However, think about your existing account holders first. How can this new payment capability serve their needs? .Does your institution primarily serve an industry or vertical, such as vehicle dealerships, Realtors, construction companies or farmers? Conduct a survey to learn how instant payments might help your account holders. Consider conducting in-person interviews to learn about individual needs and use cases. The following questions can help fuel the dialogue and shed light on where faster payments hold the most potential for your institution's account holder base. .How often do they experience frustration with delayed payments?How frequently would they use instant payments? What is the estimated size of a typical transaction for which they would use instant payments?Would they like to receive instant payments or send instant payments as well?Would they be using instant payments with businesses or consumers?Would they usually transact with the same parties each time or with new parties?.Map your strategy.There are multiple ways for your institution to participate in the FedNow Service network:.Only receiving paymentsSending and receiving paymentsFacilitating requests for payment (RFP). .The easiest way to participate is by adopting the first option, only receiving payments. This option limits your exposure to fraud and allows you to develop and familiarize your team on the operational procedures for instant payments. After your institution has integrated FedNow into your daily operations and your comfort level grows, your institution may choose to also support sending real-time payments and facilitating RFPs. Participation types can be changed at any time, so if an institution wants to only receive payments initially, they can later expand to send and receive payments for example. .The Federal Reserve's FedNow Customer Readiness Guide can provide a deeper understanding of the system and the various ways your organization can engage with the FedNow service, including the technical requirements of getting connected. .Start conversations with your vendors.Even the largest banks rely on vendors to help them deliver a smooth customer experience. Community banks will also need the support and expertise of vendors to make adopting FedNow a success. .Consider creating a working document that outlines the different internal and external systems that will be affected by your adoption of a 24/7/365 instant payment environment. This will allow your team to note the opportunities, dependencies and conflicts that may arise as you prepare to connect and transact. .Innovate, iterate, learn & repeat.New technologies always come with a learning curve and the key to success is adopting a policy of constant learning and iteration. Of course, you need to establish guardrails that protect your institution and your account holders from fraud and risk. When your team is equipped to explore and unlock innovative instant payment use cases with the FedNow Service, everyone wins. .The FedNow Service is poised to change how Americans move billions of dollars through the banking system. There's no reason for your institution or its account holders to miss out on this opportunity. .Abhishek Veeraghanta is founder and CEO of Pidgin, a fintech which offers a secure real-time payments platform.