The introduction of the FedNow Service, the Federal Reserve’s real-time payment network, has wide-ranging implications for the payments landscape in the United States. In the course of its initial rollout over the last few years, the service’s use cases for businesses have seen strong uptake.
With huge uptake of consumer payment applications around the country, it’s almost a matter of course that expectations of instant, reliable payments would drift to the payments space. According to PYMNTS Intelligence, digital payments, automation, and virtual cards are now becoming the new cornerstones of B2B payments, with businesses realizing the critical role these innovations play in improving buyer-supplier relationships.
Small and medium-sized businesses (SMBs) are also jumping on: a staggering 66% of SMBs prefer instant payments, with 81% of freelancers and contractors reporting demand for real-time transactions: “Indeed, nearly half of SMBs that receive B2B payments warn that they are likely to sever ties with payers that fail to offer real-time payment options.”
Instant payment systems like FedNow also carry the potential to strengthen relationships with suppliers and customers. Additional research from PYMNTS Intelligence reveals that 84% of manufacturers and 76% of retailers that have adopted real-time B2B payments report stronger buyer-supplier relationships as a key benefit. In fact, 20% of manufacturers cited this as the most important reason to use real-time payments.
At its core, FedNow enables instant, secure payments that are processed and settled in real time, on a network that is available 24 hours a day, 365 days a year. The service is also much more user-friendly than traditional payment rails such as ACH, and offers a sense of speed and reliability that mirrors the functionality of popular consumer payment apps like Venmo or CashApp.
"The immediacy of FedNow lends itself to a much more interactive user experience," explains Martin Lindholm, Director of Technical Product Management at Narmi. “The user ends up interfacing with their bank more.
“In many ways, the speed is what shapes the experience,” said Lindholm. “The immediate confirmation that a payment was delivered makes it fundamentally different from something like ACH. That is something that customers have experienced with peer-to-peer payment networks, but it will now be accessible for a whole range of other payment categories, including business payments.”
This shift in user experience is not only intuitive, but crucial for businesses that rely on predictable cash flow. Payments are settled without the risk of funds being in transit or the complexities of reconciliation, offering a powerful immediate feedback loop for businesses.
Offering FedNow to businesses has the potential to create immediate impact for a bank. Take the example of New York-based Grasshopper Bank, which was built to serve the “innovation economy.” Branchless and fully online, Grasshopper Bank was an early adopter of FedNow, and offers the service to its more than 10,000 business customers throughout the country.
“We see FedNow as meeting customers where they are,” said Soham Sen, Director of Strategic Partnerships at Grasshopper Bank. “Businesses want to get paid on time, almost instantly, and that’s a major win we’re able to deliver to our businesses in a way that traditional payment rails were unable to do.”
“FedNow is a critical part of our payments strategy,” said Luther Liang, Director of Product at Grasshopper Bank. “Even savvy businesses don’t understand the differentiations between payment rails. They want to know: how fast is it going to get there? What’s my risk in making this payment? How much is it going to cost?
“You can get into a banker mindset around, ‘You should use ACH or wire,’” said Liang. “Customers don’t necessarily know the difference. So for us, building out this unified payments gateway is strategically aligned with where we want to go. That helps every single customer, and helps us win business.”
As more than 1000 financial institutions (FIs) join the FedNow network, the service’s potential continues to grow throughout the country, with many onboarding Receive capabilities before eventually implementing Send.
With the rate of adoption growing over time, it won’t be long before instant payments services like FedNow become table stakes within a financial institution’s offerings, where they’ll sit alongside ACH and wire options within a holistic, unified payments gateway. This simplification of payment methods allows businesses to choose the right payment rail for their needs, reducing latency and improving trust with their financial institution.
