Will Earned Wage Access Unlock FedNow Sender Adoption?

One year on, FedNow and instant payments are seeing a groundswell of interest and intention to speed up funds paid out to individuals. Taking stock of the July 2023 launch of the central bank’s instant payment rail, Jill Capicchioni, product director of payments at NCR Voyix, said a use case that has emerged in “overwhelming” fashion across FedNow and The Clearing House’s RTP network is earned wage access (EWA).

“I don’t think that we, or anyone else, really anticipated that as a primary use case,” she told PYMNTS during the “What’s Now in Payments” series discussing the first anniversary of the FedNow® Service. Conventional wisdom held that instant payments and FedNow would be used as a replacement of traditional ACH and wire transactions.

Despite the fact that those transactions impact consumers, “I don’t think the consumers are really aware, especially with earned wage access, that what’s driving that technology is the FedNow network.” Instead, she said, consumers are focused on the financial institution (FI) that can support and offer instant payments capabilities. EWA may not be the killer use case, she said, but it can and likely will boost awareness of instant payouts. Larger firms have already seen the benefits of instant payments, avoiding some of the fees tied to push-to-card transactions.

In the meantime, she said, “we’ve seen a pretty fast [initial] uptick, but that uptick seems to have slowed.”

Competitive Pricing, and Discounts, Loom

And against that backdrop, she said, the Federal Reserve has an opportunity to conduct more consumer education.

“Consumers in the U.S. say they want faster payments,” said Capicchioni, “but they do not understand all the difference between all the different payment methods that are out there.”

The central bank also has the chance, said Capicchioni, to think about the instant payments rails from a business standpoint, in order to push adoption well beyond the current roster of 700 banks that have connected to FedNow. That 700-bank tally, she said, is a strong start but is not enough to change consumer behavior on a grand scale.

The Fed, she said, has “consciously priced” the payment system to be in line with the cost of an ACH payment. But in doing so there’s less of an incentive for banks to make the leap into using instant payments. Offering a discount can help incentivize FIs, she said. New rules and regulations, she added, can do much to make consumers more comfortable with speedier payments, and the banks, too.

Asked by PYMNTS about the challenges banks face in becoming not just recipients but senders too, she said there are indirect costs tied to FedNow, especially for smaller banks. Community banks and credit unions “already have a lot on their plate,” said Capicchioni. “They’re challenged with minimal staff” and resources.

In addition, “many of the financial institutions that I’ve talked to about the network are leery, having lived through a lot of the fraud that has been experienced, especially with the Zelle Network and, with Zelle existing as a near-real-time network.” FIs are concerned that once FedNow reaches ubiquity and more financial institutions join the network, the rails and the banks will become a prime target for fraud.

As these issues are addressed, said Capicchioni — and perhaps even if there is a top-down mandate — we’ll see industries transformed, where real estate settlement can be done on a round-the-clock basis, and buyer/supplier relationships and cash flow are improved, too.

Looking ahead, she said, if the Fed “wants to pique more interest, they are going to have to do more with pricing, with rules and regulation and step things up a bit to help combat the potential fraud opportunity.”

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