Jason Campbell  00:03

Welcome to the Treasury Update Podcast Coffee Break Sessions presented by Strategic Treasurer covering foundational topics and core treasury issues in about the same amount of time it takes you to drink your cup of coffee. I’ll be your host Jason Campbell, business development leader as Strategic Treasurer. Welcome back to another episode of the Coffee Break Session. I’ll be your host Jason Campbell, business development leader here at Strategic Treasurer and joining with me today is Paul Galloway, senior advisor at Strategic Treasurer. Paul, welcome aboard. So glad to have you on again.

Paul Galloway  00:34

Yeah, thanks, Jason. Appreciate it.

Jason Campbell  00:36

You know, we’ve done a couple of topics already around payments and talking about ACHs and it’s a great conversation with Craig Jeffery, our managing partner. And I’m really excited about going these next couple episodes with you and and today what I’d really like to talk about is a little bit more, and we’re going to hear more about it now. I think it’s because we’re getting closer to the timeline for it to kind of be a part of our everyday lives is FedNow. So Paul, if you don’t mind, let’s go and just go dive in right to this topic. And let’s talk about, if you could walk our audience through a little bit of explaining what is, what is FedNow exactly?

Paul Galloway  01:09

If FedNow is is soon to be rolled out, it’s a Federal Reserve developed instant payment infrastructure. It allows for payments to occur by any sized financial institution. So both businesses and individuals will be able to send and receive payments in real time. This is year round, 24 hours a day. The initial launch is expected to take place sometime in July this year. And it’s going to focus on core clearing and transaction settlements. There are expectations that there’ll be other further rollouts as they continue to develop this platform.

Jason Campbell  01:54

So I know that you know one of the things as I think you and I have discussed previously on another podcast was talking about you know, everything is about speed, right? It’s how fast right? How fast can I get this money from point A to point B? How fast can I receive money from point A to point B? And just hearing that now as we are going to see FedNow kind of rollout this summer, hopefully, you know, and just kind of sit back and watch it kind of see how this how this goes. Going through thinking about, you know, the the instantaneous payment cycle here, how does this service differ from traditional quote unquote, faster payment processing?

Paul Galloway  02:31

What I think makes this a big deal is is the Fed is stepping in and saying, Hey, we need faster payments, and we’re going to provide a secure payment infrastructure to do that. It’s going to be 24/7 year round. Unlike real time payments, or RTP, FedNow will reach all financial institutions, while RTP currently reaches a smaller portion of financial institutions, somewhere around 61% of all all financial institutions or banking institutions that are out there.

Jason Campbell  03:07

So how long, I mean, has this been around for a while?  I mean, has it been something that’s been an option available to folks or is this FedNow just kind of opened up the gateway for it to be a little bit more like broader, casting of broader net?

Paul Galloway  03:21

So real time payments has been around for for a while now. Still relatively new in terms of payment rails, but it’s a consortium of financial institutions that came together to develop this platform. Unlike those financial institutions, FedNow has that capability to reach to reach all of them. So the small banks, you know, I live in Iowa, and we have tons of small towns in Iowa because we’re primarily an agriculture state. Although we do have other businesses, a large portion of our state is dedicated to agriculture. And there’s lots of small towns that support people in the rural locations in Iowa. And there’s these little mom and pop banks that are sprinkled throughout our state. Well, the small banks are going to be able to participate in this. It’s a big deal for these small financial institutions that haven’t had access to something like this. It is something that I think is a significant step forward. I think it’s just another evolution of the process to allow people to be able to send and receive funds in a real time fashion.

Jason Campbell  04:39

So I think it’s great to kind of bring up that point of everybody’s now a player on this on this field. And you know, and whether you know, the size of the banks or you know, the the business that’s been conducting, right, I think having that the ability to have those instant payments is really gonna be a game changer for for several banks to where now it’s they’re, they’re playing in the same space as others. So speaking of everything from being, you know, as you were talking about more domestically, let’s think about things on a broader range. Are instant payment, are instant payments supported outside the US, like in other central banks?

Paul Galloway  05:11

So when we think about instant payments in context of FedNow, FedNow is a US-only based system. They intend to roll out, like I mentioned earlier, they tend to roll out additional functionality, which may allow for additional applications. And when we think about governments, governments, there’s quite a few governments out there that are contemplating, you know, something that would be more of an instant payment, or central bank sponsoring things like this. So. So there are some systems that are in place out there in more developed locations, or more progressive locations where acceptance of payments like this are rolled out, I think what we’re going to see from a global footprint over time is the ability to go to international basis is is going to become something that is common.

Jason Campbell  06:09

So what are some considerations and benefits of the FedNow rollout, in your mind?

Paul Galloway  06:16

That’s a great question. So I think about, you know, businesses and individuals, you know, I think whether you are a business or an individual, I think you need to understand your cash position, you know, what you have for available liquidity. So, whether it’s me looking at my own financial position, or it’s a client that we’re advising, I think of it in the same context. I take a look at my cash position on a regular basis, I know what levers I have to pull to be able to raise liquidity in times of need, businesses need to do the same. And so it’s important for businesses to be able to have the tools in place to have that kind of visibility, you know, processes, procedures, systems that allow for visibility, allow for management, whether cash or liquidity, or the two together collectively. This is something that businesses, individuals have to have front of mind. The other thing that I think about is with a rollout, and we talked about international payments or payments across borders, the application of this is going to become something that is more common, I think this is good. This allows for the acceptance, payment, or receipt of cash in a more timely manner. I think it’s something that if you don’t have cross border payments, or if you don’t have an application for a non-bank financial, then it may fall flat. I’m not certain that’s going to be the case with FedNow given the RTP has been out for several years. I think we’re seeing an increased adoption rate of the use of real time payments, there are still limits in place on how much you can do with this type of activity. I think as adoption rates increase, and with the Fed coming in with their infrastructure, I expect that those limits will be raised. I also expect that the adoption rate will also increase. So when you think about benefits associated with an instant payment system like this real time, something that you can get now 24/7, you can make a payment on Saturday, you can receive a payment on Sunday, it doesn’t it doesn’t matter the time of day, it doesn’t matter the day of the week, that happens all the time when you utilize this kind of platform. So I think it’s it’s important to understand what that means. It also is a way for businesses to become really efficient and have control over their payables and receivables. It also will reduce the processing costs associated with making payments. The other thing that is kind of a benefit that is just kind of one that I’ve been thinking about is as an employee of an organization and we receive a periodic paycheck associated with working for these organizations. These types of platforms like FedNow will allow for employees to have access to their paycheck a lot sooner. So if pay day is today, and it’s the payment is made through FedNow, it happens right away. You have access to all of it, not just a portion of it. You don’t have to wait till end of day. You don’t have to wait for the bank to go through validation clearing process, because this infrastructure allows for all that to happen securely. Instantly. So that’s kind of a benefit that I like personally, to think that you know that the organization I’m affiliated with, Strategic Treasurer, is going to be able to make these kinds of payments through FedNow, if desired, and we all get a benefit from it.

Jason Campbell  10:20

Sounds great to me, Sign me up. I mean, who doesn’t like to be paid, like, right now, right? There’s no time like right now. So, well, Paul, thank you so much for joining me today. I really appreciate it. The great conversation around FedNow. Just really kind of understanding what it is, the benefits, and you know how this is going to change our lives overall. I really appreciate it. Thank you to our listeners for tuning in to this episode. Thank you very much. If you have any questions, comments, or any feedback you’d like to share, please send us a note at podcast@strategictreasure.com. Until next time, take care.

Announcer  10:55

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