As an early adopter of the Zelle peer-to-peer payment network four years ago, FirstBank in Lakewood, Colorado, showed it was eager to leap into the faster payments pool.
Now the $26 billion-asset bank, which has more than 100 branches in Colorado and Arizona, has moved to the deep end: It’s in the process of implementing The Clearing House RTP service, and it’s a pilot bank for the upcoming FedNow real-time settlement service.
Other regionals and smaller banks are likely to follow FirstBank's lead soon as the RTP network grows and the Federal Reserve aims for the launch of FedNow in 2023 — about a
"Some [banks] may be wondering why we want to connect to both faster payments services, but we want to provide that value to our customers and reach as many endpoints as we can," said Tony Cook, a senior vice president at FirstBank who oversees the bank's payments systems and operations. "I know there will be different value-add services that both provide and there will be different time frames [for service rollouts]."
Such an approach has given Cook and his technology team at FirstBank the opportunity to understand how operating rules, standards and routing specifications will play a role in how the faster payments rails unfold in the U.S.
"In doing RTP and FedNow at the same time, we found many similarities in terms of operating rules and specifications, and that minimizes the effort to a certain degree," Cook said during a presentation this week at the Chicago Payments Symposium hosted by the Federal Reserve Bank of Chicago. "It helps to use the same specs and move things along."
FirstBank’s grasp of this new technology will serve it well in the future, Cook suggested. "Our approach is similar to the Fed in that we are building a modern infrastructure to support the ever-changing needs of the system and evolving demands of our customers," he said.
The Clearing House launched its RTP service in late 2017 and has made incremental improvements since then, including bringing
Of the 100-plus institutions currently using RTP, 23 are credit unions and 85% have less than $30 billion of assets.
The Fed in 2019 announced formal plans to launch a faster payments network, giving itself a five-year window to establish it and bring banks of all sizes on board.
"One exciting thing is talking about upcoming use cases with our pilot banks, and the one thing we have known from the beginning is that we expect, and have planned for, the fact that use cases will evolve over time," Dan Baum, senior vice president of payments product for FedNow at the Federal Reserve Bank of Atlanta, said during his joint presentation with Cook.
As such, the Fed wants FedNow to be not only its initial foray into faster payments, but also the model for future services offered by the central bank, Baum said. Such services would be delivered through a series of application programming interfaces and could include bill pay, gig-economy payroll and P2P payments, he said.
FedNow developers have been in an "advisory phase" with the more than 120 banks that are participating in the pilot program for the service and are "well underway to shift into a test phase in the coming months," Baum said.
Live testing of the system is expected to start soon soon now that the Fed has decided on a payment messaging standard for FedNow:
Though initially viewed as a competitor to The Clearing House RTP, the Fed has said it's collaborating with TCH to make the systems compatible given that many banks could be using both networks in the future.
In addition, FedNow will adhere to the Monetary Control Act, which requires that aggregate revenues match costs over the long run and that the Fed board adopt pricing principles specifically to avoid unfair competition with the private sector.
"A benefit of being a second mover in this marketplace is to build our product and read the marketplace, and then react," Baum said. "It puts a burden on the development of our service, as it has to be flexible, modern and future-proof enough to respond to the changes in the marketplace over time."
FirstBank will take its time in adopting other capabilities available in RTP and, eventually, in FedNow. Mostly, the bank wants to be in a position to add services when the timing is right, Cook said. In that regard, the bank considers itself in a testing phase at the moment with RTP, though Cook expects to go live with the service soon.
"We won't have all of the features and functionalities right out of the gate, as we will have only the receive-payment capability with RTP, but we want to add payment origination and credit transfers in the near future," Cook noted.
"We may not be as early an adopter of RTP as we were with Zelle, but we want to be in position before the other use cases take off," Cook said. For instance, instant payroll payments and real-time bill payment could become popular. "For bill pay, we don't want to miss the boat when it is here."
For the Fed, the timing is good for FedNow to continue making progress as the country climbs out of a global pandemic that pushed digital payment technology to the forefront, said Mark Gould, chief payments executive with Federal Reserve Financial Services.
"There will be more demand from consumers for instant payments and services, and financial institutions are going to have to meet those demands because, frankly, consumers have more and more options for faster payments," Gould said during a keynote address at the symposium.
In that regard, FedNow and its future value-add services represent a survival kit of sorts for banks wanting to stay relevant, he said.
"[Consumers] will continue to have more options going forward than ever before to take their business elsewhere very easily in terms of speed and convenience," Gould said.
