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The Skinny on the New Instant Payments Rails

In this episode of The Purposeful Banker, Alex Habet welcomes Debbie Smart to talk about how payments innovation is a game changer for financial institutions serving commercial and small business customers.







Related Links

[Event] 2023 CONNECT

[White Paper] Instant Payments: What to Know and Where to Start

[Blog] Accounting System Integration: The Next Must-Have for Commercial Banks

[Blog] Instant Payments: Just Another Payment Rail or Innovation Accelerant?

[Report] 2023 State of Commercial Banking


Alex Habet

Hi, and welcome to The Purposeful Banker, the leading commercial banking podcast, brought to you by Q2 PrecisionLender, where we discuss the big topics on the minds of today's best bankers. I'm your host, Alex Habet. So welcome back.

If you've been listening to the show for a while, you know that for the past couple of years, we've broadened the relationship management conversation pretty significantly, at least in my opinion. So we started sharing our worldview in more expansive ways that bankers can serve their clients. And a lot of that has been centered around treasury management, which is going through its own evolution in plain sight. There's a lot of components that go into that, but as we explore and inject new capabilities in our products as a company, a lot of this really starts to come to life for us, and you're going to start to see it manifest or you have started seeing it manifest across the board in the various channels that we communicate with our prospects and our clients as a company.

This year's State of Commercial Banking analysis, for example, expanded beyond the traditional credit and relationship lanes. It included a new focus in additional areas such as digital banking for the bank's business clients, as well as new things coming online for payments as a whole. But, admittedly, this is a space that's a bit new for many of those who listen to this show. So we're on a mission to expand that dialogue wherever we can. So back to State of Commercial Banking for a moment.

In a survey within the publication, the majority of banks projected that instant payments will have the greatest impact to the future of their relationships. Currently, there is low adoption in B2B payments on the commercial side, and that's really due primarily to lack of critical capabilities that limits potential use cases. But apparently that's about to change. To learn more about this, we invited our resident expert in the space, Debbie Smart. Debbie, I'd like to welcome you for the first time to The Purposeful Banker show. Welcome.

Debbie Smart

Thanks so much, Alex. I'm excited to be here and I'm looking forward to talking with you about this today.

Alex Habet

So Debbie, for those of you in the audience who don't know Debbie, she co-authored the State of Commercial Banking report alongside Gita Thollesson. And hopefully you caught the webinar that was delivered in January 2023. Now, ordinarily Debbie is known within our walls as someone who's crisscrossing the country, going from event to event and spreading the message, specifically in this space. And one of the cool things is we got to catch up in Vegas a couple of weeks back at NACHA. Debbie will also be speaking in mid-May at CONNECT 23. So if you're in the Austin area, be sure to go and catch that.

But really what I was hoping to do by having you come on the show, Debbie, here today, was providing some perspective on that digital transformation and that payments innovation that you spend day in and day out talking about in the field. So we've heard, and we've talked about a little bit on the show in the past about things like the impacts of around-the-clock settlement and being able to attach information, for example, to transactions, but help the audience at least understand what are the magnitudes of these changes. But before we dig in a little bit further into each of those, how would you, I guess, in an elevator ride, explain what the potential here is for the change?

Debbie Smart

Yeah. Yeah. So the potential is huge for a number of different reasons, and I'll do my best to not get too far down into the weeds and keep this to an elevator talk. When you think about payments, I know that a lot of the audience, that's an area that they spend less time in, but your commercial customers today utilize payment options that the financial institutions provide with things like ACH origination, and we're all pretty familiar with that now. It's become a ubiquitous thing. So people know about direct deposit, payroll, or direct payments. So they use ACH, they use wire. ACH is a great thing to contrast and compare. The ACH network started in the early '70s. There was a regional ACH network in California that started in '72, and then NACHA, the National Automated Clearinghouse Association, launched in '74.

And although there was a lot of growth in the '80s and '90s, it didn't really become commonplace and ubiquitous, if you will, until the early 2000s. And there were a number of things that drove that. So this is like that. This is the first time we've had new payment rails in the United States. Now, the first instant payment rail was launched in 2017 by The Clearing House, but it had been almost 45 years since the ACH rails were introduced. So the new rails, all kinds of opportunity, new capabilities with those rails, but innovation happening on top of that, products being built on top of that, those things have to happen for it to move forward. And so the opportunity is big, especially with certain use cases that we have not been able to support for customers in the best way using the existing rails.

Alex Habet

So to throw an analogy at you, the way you're describing it feels like it's almost there's a fundamental change or a revolution in the operating system of pavements, and you alluded to the things that get built on top of that are really what make it come alive. So we're going at that fundamental replacement level that's going to have a huge downstream effect on everything that's built on top. And then of course, adoption should follow accordingly.

It's also interesting just how you're laying out the payment rails that everyone's used to using today and are still common. So a stat I found interesting was, and just because I still find myself writing checks for my own personal life occasionally, and as I was reading the report to make that direct connection, an interesting point of reference was in 2004, B2B payments were 81% handled through checks, and now last year it was down to 33%. But what was really interesting was that almost 20 percentage points of that drop happened in just the last couple of years. So I feel like this is a big deal that we should all be talking about because this is a staple that's quickly moving to the back. And is that going to happen also with the ACH as a fast follow with things like real-time payments coming on as well? Or should I be thinking about these as completely separate independent phenomena?

Debbie Smart

So good questions in there. Let me address what I think you asked. First of all, let's talk about the decline that happened just in the last couple of years, because you're right, check volume in the B2B space was declining, but then I think when it hit 2013, 2014, it started to level out. It leveled out at about 50%. And we can talk in a moment about why there are still so many checks written in the B2B space because even though it's dropped down to 33%, that's still a lot. One-third of all B2B payments are still made with a check. So to me, that's still a really big number.

But what happened is it finally came down to 42% pre-COVID, and then once COVID hit and people couldn't go to the office, issuing checks became difficult because a lot of business checks have to be co-signed. Two people have to sign that check to make that payment. And since they weren't in the office, it was more difficult to sign that check. And so we heard stories of people like meeting in parks to get together to sign the check.

So that pushed more use of electronic, but there's an interesting component there. So even though check volume decreased from 42% to 33% during COVID and moved over to utilizing ACH, a lot of ACH payments, the remittance information—the invoice information about what the payment was for—even though the capability is there for that to travel with the ACH transactions, that's not getting the use that had been intended when that was created. And we can talk about that, but here's the stat that I find mind-boggling: 78% of the time when a business pays another business via ACH, the invoice information or remittance information does not go with the ACH transaction in an addenda record. It goes in an email or U.S. mail 78% of the time. That's a challenge for businesses because if I receive a payment, if I receive an ACH payment in my bank account, but I have no idea what it's for, then I can't go in my receivable system and post it. I can't credit the payer for the payment that was made.

Alex Habet

Wow. Yeah, no, that's fascinating. And so just to circle back real quick on the whole check declining. You're right, a third is still a lot. But I think what you would agree is that what happened during COVID, it forced people to get uncomfortable with it. And so do you think that these legacy payment forms, and I would maybe bucket ACH there, if you're thinking really long term, do you think there's still going to be a place for them long term?

Debbie Smart

That's a great question. So personally, yes. When you think about the instant payment networks, the instant payment rails, really think about them residing alongside the other payment options, like check, ACH, wire, card. So one of the things we can do ... instant payments or real-time payments stood up in other countries before they were in the United States. And so we have some history that we can look at to see what happened with those payments and with their other rails. There are a lot of applications that fit really well. In fact, for ACH, direct deposit payroll for someone who's paid every two weeks or twice a month, that works really well. It's inexpensive for businesses to do. It's something they've been doing for a long time, and there's really no reason for that to be pulled out. It's almost like the use cases that haven't been handled as well as they could be for the end users with the existing payment rails, those are the things that we see moving over. So it's almost like finding the right rail for the case.

And let me give you a couple of stats that I found fascinating. So SEPA launched in the U.K. in 2008. I recently, I think it was last year, I was at a Faster Payments Council meeting and there was a panel of people from different geographies talking about what had happened with instant payments or real-time payments in their geographies and how it impacted other rails. So this is what the gentleman from the U.K. said. Their low-value payments, which would be ACH, are still record high. Their high-value payments, which would be wire, are still record high. Where they saw the biggest dent as far as the impact of instant payments, it got cash out of the system, especially with consumers.

And, of course, COVID helped with that, too. COVID helped a lot with getting cash out of the system, but it got cash out of the system and it got checks out of the system. And so what I really anticipate is definitely seeing a dent in the check volume, and especially again in the commercial space, in the B2B space, and even in B2C, businesses paying consumers, because there are still times that checks get issued for that, for those types of transactions in different cases. So I think, yes, I think it'll be side by side with the other rails, and the use cases that are the best fit for the new instant payment rails, that's where we're going to see innovation and new products that ride on top of those rails. That that's where we're going to see the growth.

Alex Habet

Gotcha. So we shouldn't be thinking about this necessarily as a replacement. It should be just more like an expansion of tools that are available. And now there's better fits or there will be better fits for certain things, but things like payroll cannot, they could still be done more cost-effectively in a more traditional sense, right?

Debbie Smart

Yeah, absolutely. Absolutely. And one other thing to think about with commercial payments. Now this is an area that is going to be interesting to watch over time. Wire transfers today, they have higher limits, much higher limits than the instant payment rails. Right now, The Clearing House, the limit is a million dollars. And when FedNow launches in July, the other instant payment rail, this is going to start with a $500,000 limit. So in the commercial space, there are a lot of transactions that are significantly larger than that. So a wire works really well for those payments.

And then also, today people can send wires internationally. Now there's a lot of work being done. When The Clearing House stood up the RTP network with real-time payments or instant payments, they thought about: how is this going to be moved from being domestic to international? So it's using ISO 20022 message set, and I don't want to get down in the weeds there, but it's a format that is being used for SWIFT. It's a format that is globally accepted, and both the RTP network from The Clearing House and the FedNow network from the Fed are using ISO messages. So they're poised to be beyond being domestic, moving into international. So down the road, there could be impact on wire transfers. Again, it'll depend on what can happen with limits and what happens with international payments.

Alex Habet

That's really interesting. Yeah, because we don't really talk too much, at least in this context, about international, what the implications are. And you'd think, well, it gets tricky when you start moving across borders and different jurisdictions. But let's dig in a little bit on, is it appropriate to call it real-time payments or instant payments? I just want to make ...

Debbie Smart

That's a really great question.

Alex Habet

Which one of the two?

Debbie Smart

So what seems to be happening, when The Clearing House launched the RTP network, the term "real-time payments" is a generic term, right? A real-time payment is a generic thing. But a lot of folks, when you say the term "real-time payment," they think about The Clearing House. And so what we're seeing happening in the industry, and it's still getting sorted out, but what seems to be happening is the term "instant payments" is becoming the favored choice to mean generically one of these instant real-time payments. But instant payments tends to be the one that is what people are using to describe a payment, whether it's going to go across The Clearing House network or the FedNow Network, because we've got two networks. FedNow's launching in July. And that's one of the things that has really created a heightened awareness. A lot of financial institutions that were hesitant to start doing real-time payments or instant payments with The Clearing House have been waiting for the FedNow system to launch. And the Fed has been out there doing town halls, doing webinars, all types of things to promote what's happening in the space. And so there is a lot of attention being paid to this right now, which is really, really fostering growth.

So what we're seeing is people are referring to them as real-time payments and instant payments. But what has started to happen is the term "real-time payments," even though that's a generic term, oftentimes causes people to think about the RTP network, specifically The Clearing House network. And, of course, we've got the FedNow network launching in July, and so the jury's still out. But what seems to be happening is the term "instant payments" is landing to be the choice, the most common choice to describe instant payments on either rail.

Alex Habet

Right. So Debbie, would you mind, help our listeners understand the difference between instant payment rails and the more traditional types of payment rails like ACH in terms of, I guess, the user experience side of it. Or what's the better way to think about this, I guess broadly speaking?

Debbie Smart

Yeah, that's a great question. So broadly speaking, let's first talk about the capabilities that exist with instant payments and how they are different from some of the other payment rails, and contrasting them to ACH is a great thing. So first of all, they're credit push only, meaning I can send you a payment, a company can send another company a payment, but unlike ACH, people can't take money from my account or debit my account. Because in ACH, we have both credit push and debit pull. Now, that's not true for things like wire, but we'll keep this just to comparing ACH and instant payments for now. So it's credit push only.

But what's really, really cool about them, there are components that really ... The things that I think are going to revolutionize what happens in the commercial space are the messages that exist that don't exist in other rails today. And so I'll walk you through what those are. There is a thing called a Request for Pay. So what that means is if I'm a supplier, you've purchased goods from me, I can send you a Request for Payment. And with that Request for Payment, it's a non-obligatory ask for you to pay me. But what I can do is I can either include invoice details or a link to the invoice, a link to an image of the invoice that I'm asking you to pay. So by that, starting with the supplier, when you are going to pay, you know exactly what it is you're going to pay. As opposed to, let's contrast to back to that 78% stat: 78% of the time when a business pays another business through ACH, the invoice details or remittance information doesn't go with the ACH transaction, even though the capability exists. It goes in the U.S. mail or email. OK?

Well, that puts the onus on the payer. As the payer, if you pay me via ACH, it's your responsibility if you're going to include that invoice information to figure out how to get it in there. And for smaller businesses, it can be more complex. There's a number of reasons that has not been used the way the industry had hoped for it to be used because the industry was really trying to solve some of those pain points for businesses, keeping that information together.    

So in this case, the supplier, recipient of the funds, is starting it. They can start with this request for pay, send the invoice information to you. Then if you have a question about what you're being asked to pay, you can send back a request for information. And that goes back across the network. So it's like a conversational transaction. So the Request for Pay happens, then the Request for Information, if there's a question that needs to be asked, can happen before it's paid. Then once I'm satisfied with it, I can go through my approval process and my organization, go ahead and do that payment, send the credit push. It goes from my financial institution to the supplier's financial institution. So the Request for Pay and Request for Information are both new. Those are new pieces of the instant payment rails that don't exist with the other payment rails.    

And then, once the receiver, the supplier, gets the payment in their account, they go ahead and post it in the receivable system, and they know what they're being paid for because that invoice information started out in the Request for Pay and stayed attached throughout the life cycle. And then the last thing that's really cool is once it's posted in the receivable system, they can send a receipt confirmation. So that's another thing that's new. In the ACH world, it's no news is good news. We just assume if we send an ACH transaction, it's there. And in the wire world, what happens a lot is our commercial customers, when they send a wire, they ask us for the Fed reference number, often called an IMAD number, but they want that because it's the closest thing ... It doesn't tell them that the payment actually made it all the way to the destination, but it tells them that it made it into the Fed's network, the Fed system. And that's the closest thing they have to a confirmation that their wire went out. But in instant payments, I can have a confirmation that we're done. The payment was received, posted in my receivable system, we're done. So it's beautiful.    

And, in fact, one other thing I want to comment on this. So the term "instant payments" or "real-time payments," those terms really focus on the immediacy of the payment. But in the B2B space, really in the commercial space overall, the holy grail is the rich messaging. It's the data. It's the ability to have that data stay with the payment. In B2B payments, they're very often partial payments for different reasons. There could be a piece of the shipment that didn't show up or something was damaged. And so that makes it even harder when they get this payment, especially the ACH example I gave earlier. They get this payment in their account and it doesn't match anything that they've invoiced for because it's a partial payment. And so until they can figure out what it's for, again, they can't post the payment. So that is one of the most beautiful pieces is being able to keep that data with the payment transaction throughout the flow, and then the questions and answers that go back and forth can all be kept with it, as well. So it's all part of the history of that transaction.

Alex Habet

Yeah, look, I appreciate you highlighting that because even I just learned right now as we're recording this show, I assumed this is just like a one-time attachment of information. I had no idea you could have this communication going back and forth through the actual network itself, including ultimately what is a read receipt, I guess, or a payment receipt of the actual transaction closing, which is fascinating. And so now knowing this, and you labeled it as the holy grail, I think, of this whole thing. If you're a banker out there listening to this, that's the piece to really dig into and have that conversation with your clients about ways that this could actually improve day-to-day operational life for their business.    

So Debbie, how does ERP integration come into play with all this stuff?

Debbie Smart

That's a really good question because that's another area where we are seeing huge demand from commercial customers of their financial institutions. And let's level set with this a couple of things. So first of all, ERP stands for enterprise resource planning, and an ERP system at a company is really a place for them to have a central source of data for all kinds of tools that are used to run their businesses. So this could be inventory management, procurement, human resources, accounting systems. So in the world of treasury cash management, it's really the accounting systems, but we also commonly hear them called ERP systems. Again, just the folks that we work with in our place as bankers, they're in their accounting systems, and again, oftentimes they're called ERP systems. So we can say ERP system, but really what it is accounting system integration.    

So you have a certain type of business customer, like the middle market, high-end small business middle market customers. Those customers login to digital banking, they login to their digital commercial banking, to get information to create transactions. And they spend a big portion of their time in their banking system to do things they need to do from a financial perspective, transaction perspective, reporting perspective. Larger corporations, larger customers don't ever want to login to online banking. They live and breathe in their ERP system or their accounting system. And so what they do today, we actually call this swivel chair. Seriously, that's a term. I'll do a wire or an ACH transaction in my ERP system and then—even if my bank's system has upload capabilities so I'm not rekeying, I can take the information, download it from my accounting system and upload it—I'm literally swiveling to the other computer. And so I'm moving it from this monitor to this monitor, same computer, but moving from one monitor to the other, looking at them.    

They have a lot of banking relationships, these corporations, and so one of the things they have been asking the industry for a long time is the ability to be in their ERP system or their accounting system and have it talk to the bank, have it do those parts.

So technology is finally to a point where we're really able to accommodate that in a way that works for business customers. And so ERP integration is the ability for us to have our commercial customers do what they do in their ERP or accounting system. And when I say do what they do, again, transaction initiation, reporting of incoming account activity, things that are posting to their accounts, payments, those types of things. And then it flows to the financial institution and then goes on its way. So everything happens that would've happened in digital banking, but as an end user, as a commercial customer, I'm not having to login to do that.    

Another interesting trend we're seeing, though, is I mentioned middle market and small business customers tend to login and are good with that. And it's the larger corporations that really want to avoid that. We're seeing this come down market, down market to middle market companies. More and more accounting systems are providing the capabilities necessary to be able to integrate with the financial institutions. And so between the technology that the financial institutions have and then the capabilities that the accounting systems have, we're seeing this move down market with both financial institutions and business customers. So it's leveling the playing field to where financial institutions of all sizes can provide these tools to their business customers, and it's leveling the playing field as far as the size of business that can take advantage of these capabilities.

Alex Habet

Yeah. And ultimately, we're just meeting them where they are, right? Through these integrations.

Debbie Smart

Exactly. Exactly. We're meeting them where they are. Yeah, absolutely.

Alex Habet

So I guess to round out our little conversation here, and I suspect this is not going to be the last time that we're going to talk about this, but you had mentioned in the past that adoption is still low. And I think you even mentioned it earlier in the show. That adoption of things like instant payments is still low. Is that really attributed because we only have one of the two rails live? And you'd said that some are waiting to see how FedNow changes the game. Is that the primary driver?

Debbie Smart

Not necessarily. So the announcement of FedNow has definitely helped, again, with awareness, people really understanding what are the instant payment rails and what can they do for you. And I want to be careful when I say adoption is low because in a lot of use cases, primarily like consumer use cases and gig economy payroll use cases, The Clearing House on the RTP network, their first quarter '23, they had 52 million transactions. So not insignificant. And it's been growing by 10% to 15% per quarter. And they touched today, they have the ability to reach approximately 65% of all DDA accounts in the United States. So there's traction there, things that are happening there. But the things that I talked about, the Request for Pay, the Request for Information, those are new capabilities. So the network can handle those flows, but until software providers, solution providers build user experiences on top of that, for an end user to be able to create a Request for Pay, receive a Request for Pay, they're not going to be able to utilize those capabilities.    

And today, well, let's talk about at the end of the year 2022, there were only five financial institutions in the United States that had the Request for Pay generally available. Now, there were another 15 that were in either pilot, doing pilots within it, within their financial institution or getting certified with The Clearing House. So we definitely expect to see growth. And we're launching a product this year that allows for the Request for Pay and Request for Information. So arguably, that would enable another 450 financial institutions. Not everybody that uses digital banking with us is going to take advantage of those capabilities, but it'll be there. So those tools need to exist for the end users to be able to create the Request for Pay, Request for Information. That's one of the reasons we're not seeing rapid adoption in those areas yet. The tools to use those message types just don't exist yet.    

And one other area, when we talked about ERP integration, ERPs today, the accounting systems support ACH and wire, and check and card, but they don't yet support instant payments. And so in a perfect world, all that automation that I was describing, that streamlining that we can do, really needs to have the instant payment capabilities and the accounting system or ERP system capabilities all be in sync to be able to do that. And that's going to take time. That's going to take time for those capabilities to be built out.

Alex Habet

How long would you estimate? It's OK if it's a total SWAG guess here, but how long do you think until it becomes a liability, that particular financial institution hasn't adopted these? Assuming these technologies are widely available to lay on top of these new payment rails, how far off can they push the decision to adopt this before it actually becomes a liability? Would you estimate?

Debbie Smart

I'll do my best, and I'm going to give you a couple of things to ponder, things for the audience to ponder. Now, these examples I'm going to give you aren't specific to commercial payments, but they're specific to people utilizing the rails. On The Clearing House network today, there are a little over 300 financial institutions, only 30, approximately 30 of those financial institutions have send capabilities, which means they can send a credit push. And then also, if you do Request for Payment or Request for Information, you've got to be able to do send capabilities because if someone sends a Request for Payment, it isn't going to do a lot of good presenting that to someone if they can't do a credit push.    

So I'm going to contrast that with receive only. The other 270 financial institutions that are currently on the RTP network are doing receive only. And when FedNow launches in July, there are approximately 120 financial institutions that have been in the Fed pilot, many of them are starting with receive only. I bring that up because just the ability to receive those credit pushes alone, let me tell you how powerful that is. We have a financial institution customer at Q2 that I've been watching their volumes. It's been intriguing to me. They decided to sign up with receive only on The Clearing House network, and they did that in January of 2021. The first month, just by turning it on, doing nothing but enabling it, they had 3,500 transactions posted to their account holders. And just to give you an idea of financial institution, that's about a $9 billion financial institution, OK? So regional institution. The end of the year 2022, they had 28,000 transactions hit account holders. And again, they did nothing but enable it.    

So I'll tell you the use cases that they're seeing right now. One of them is when somebody wants to move money from their Venmo account to their bank account. Now, personally, Alex, when Venmo came out with that capability of do you want to move money to your bank account right now for a fee? I thought, who would use that? Because I won't. I'll move money from Venmo to my bank account and I'll take the two-day option, which by the way is ACH and it's free, right? Well, there's a lot of people that think differently than me. Huge volume of those transactions are people doing that. They're moving money from Venmo to their bank account. So as more and more consumers want to do that type of thing, they're going to think about if their bank doesn't provide that capability.    

And then here's another one that I think is even more important to think about. So Paychex, the payroll processing company, does a lot of payroll things for many, many companies across the United States. They were one of the early adopters of RTP, getting on the RTP network for instant payroll, often also called earn wage access. And it really started up in the gig economy like an Uber driver getting paid tonight for what they did today. And we're also seeing it in entry-level jobs. McDonald's is advertising, "Hey, we'll pay you tonight for what you earn today." So in those cases, those transactions are going over the RTP network to get that instant pay.    

So Paychex happens to bank with PNC, and what they are telling their customers, what they're saying to their customers is, "Oh, your employees' financial institutions won't allow them to accept these instant payments, these instant payroll payments? Well have them open an account at PNC because PNC does." So therein lies the answer why banks should be considering doing this now.    

As far as when it really is going to be problematic, I feel like financial institutions have a couple of years. And I'll give you an example of something. We have customers today who had instant payments on their roadmap for 2023. Those same customers are having corporate customers pound on their doors begging for ERP integration, accounting system integration that we talked about earlier. So a lot of those financial institutions, when they're looking at just what they can do and what their budget is and what their roadmap is, have realized ERP integration is really important right now. So we've had some table the instant payments initiative to 2024 because they really need to tackle the ERP integration in 2023. And that makes sense.    

I guess I would say it's not too late, but you are late already if you're not doing things on the RTP network. And again, I mean, we mentioned that certain financial institutions have been waiting for the Fed, and I want to stay out of the weeds, but I think an important thing that I want to throw out is that originally financial institutions who wanted to jump into this early got on The Clearing House, the RTP network, and others said, we're going to wait for FedNow. Now a big question in the industry is, which network should I be on? What should I do? My answer is both. You need to be on both networks. And the biggest reason is, if I want to send you money, Alex, and my financial institution is on the RTP network and your financial institution is on the FedNow network, I can't send you money.    

Now, the good news is the financial institutions need a service provider. We call them gateway providers, connectivity providers, but it's basically a third-party service provider that provides the connectivity to those two networks. All of those providers are connecting to both networks, and they're really working to help financial institutions have some interoperability, if you will, by routing to the specific networks.    

So with FedNow launching, I know this is a really long answer to your question, but with FedNow launching in July and, again, the financial institutions that are hopping on that, I think banks need to try and get on at least receive only as soon as possible. And I think that if they're not doing something in the instant payment space by 2025-ish, they're going to start lagging behind.

Alex Habet

Yeah. Well, there's your takeaway. If you're listening and you're finding yourself in that latter bucket, who should they contact Debbie to learn more about this stuff?

Debbie Smart

That is a great question. So Q2 is definitely happy to answer questions. I'm happy to help answer questions. Another thing that financial institutions can take advantage of, the Fed and The Clearing House both have a tremendous amount of information out there and available, readiness guides, things you need to be thinking about. Again, they're doing town halls. And as a matter of fact, we are going to be doing a webinar in June, June 22nd, I'm pretty sure is the date, we're going to have a panel with somebody from the Fed and somebody from The Clearing House. And what we're really going to be doing is tackling a lot of these questions, like should I do receive only? And should I be on both networks? And what about fraud? And what about operations? Which are topics that we didn't go into and we don't want to. Those could be sessions on their own. So that's something to look for is that webinar for readiness information. And again, take advantage of what The Clearing House and Fed have out there and available.

Alex Habet

Excellent. Debbie, on behalf of the audience and me, we want to thank you very much for coming on the show and just helping us understand how all this stuff works and what the implications are. And like I said, I really hope that you'll agree to come on the show again, as things progress and new things come online and news articles become prominent, we would love to hear your take because one of the best, most elegant explanations of this stuff comes directly from you. So I truly appreciate it.

Debbie Smart

Thank you so much. I really enjoyed having this conversation with you today, and I hope it helped.

Alex Habet

Oh, I'm sure it did. Thanks again, Debbie.

Debbie Smart

Thanks, Alex.

Alex Habet

All right. That's it for this week's episode of The Purposeful Banker. If you want to catch more episodes, please subscribe to the show wherever you like to listen to podcasts, including Apple, Spotify, Stitcher, and iHeartRadio. And if you have a moment to spare, let us know what you think in the comments. You can also head over to to learn more about the company behind the content. Until next time, this is Alex Habet, and you've been listening to The Purposeful Banker.