Payments are an area of financial services that is rapidly evolving. Digital payment services and apps are incredibly popular, and if credit unions don’t take the time to learn about and implement these services, they could quickly fall behind, particularly as they try to attract younger members.

The Credit Union Connection Co-Founder/CEO Sarah Snell Cooke sat down with Finastra's Global Solutions and Payments Consultant Mihail Duta to discuss the growth of digital payments services in 2025. They also addressed FedNow and its development. Mihail even made some prognostications about how FedNow will grow and the direction in which credit unions and other financial institutions will take it in 2025.

Read the full transcript:

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Sarah Cooke 00:05

Hello and welcome everybody. I am your host Sarah Snell Cooke. We're here today, The Credit Union Connection with Mihal Duta, who is a director, Global Solutions Consultant and payments consultant for Finastra. Welcome.

Mihail Duta 00:42
Thank you. Great to be here.

Sarah Cooke 00:45

Excellent to have you. Obviously, payments is a huge, huge deal right now. I've been told before, if you're in the business of moving money, you're in a good place right now. So, lots of fun tech going on there and all kinds of different new things. Why don't you give me a little bit of background on Finastra and your role there?

Mihail Duta 01:03

Certainly. So, as I said, great to be with you today. Finastra is one of the largest FinTech companies in the world. We support banks, financial institutions, credit unions, both in the US and globally. So we have a global presence, as well as a very strong US presence. Particularly in payments, we offer products that help financial institutions and credit unions, of course, connect to multiple rails, as we call them, whether it's Fedwire, whether it's ACH, whether it's Swift, whether it's instant payments, we have the right solution for for all credit unions, yes.

Sarah Cooke 01:46
Excellent. Thank you. So with that context, we are now just a bit past the first year anniversary

of Fed Now, and the big question is, are credit unions using it?

Mihail Duta 01:59

So, it's great question. Usually, that's what we say when we don't have an answer right away, right? So, it is a good question. So, So yes, Fed Now has been around for a little bit over a year, right? A year and a few months, and actually, very recently, they announced that they've reached over 1000 participants. I was actually off by a couple of weeks. I anticipated 1000 participants before the end of the summer, so, well, I wasn't 100% right, but close. Now, many of those participants are credit unions. So there are credit unions that are participating in FedNow network. Now probably the follow up question is going to be, well, how many are sending and how many are receiving? Not to anticipate your next question.

Sarah Cooke 02:46
Great predictions here. You're better at this one than the last.

Mihail Duta 02:50

So, certainly, certainly most of the participants, as we know, credit unions, of course, have chosen to start their foray into instant payments, would receive only, which is very common. It's an easier approach, providing your members the ability to receive funds faster, an easier lift, if you will. So yes, this is true. There are about 30 to 40, maybe even 50, senders in the FedNow network at the moment, but the majority, obviously, we talked about 1000 participants. The majority are receiving I do, however, think we're going to see, and we are seeing a bit of a switch in that regard. Meaning, if you ask me, look at the future, look at 2025, I would say 2025 is the year of send. Okay, heard it here first, folks. 2025 is the year of send. So, yes, I think credit unions are getting ready for their partners, both payments and initiation channels, to really enable send and we're going to see, I believe, as a result, volumes also increase, because there's going to be a lot more send participants.

Sarah Cooke 03:56

Now I'm going to, I'm going to ask you a bit deeper, a bit more detailed with that prediction. So as you said, 50 total users, and even assuming half say are credit unions that are sending, I doubt it. But assuming, you know, where do you feel like that's going to go in 2025, what's, what's your actual number? Are you thinking 200? 1000? 2000? Where are we going?

Mihail Duta 04:18
In terms of senders, or in terms of participants? In terms of senders. I see, in terms of senders. So I would say that in terms of senders, it's not going to be an exact science. Obviously, we're probably going to be looking at probably 500 to even, 500 senders by probably the middle of the year, and maybe even up to 1000 by the end of the year. And I know those numbers may seem aggressive, there may be folks watching me right now and say, What is he saying? But I do believe that we are going to see an influx of participants that are, that are sending and I'll tell you why. There's a reason behind this. Many of those channels that I was referring to that the credit unions are using, where they allow their members to initiate transactions. They're really on the cusp of being ready and connected to all the providers to be able to enable instant payments for send which we didn't really have at scale in 2024 but I believe we will see that ramp up quite rapidly in, in 2025, so I said somewhere between 500 and 1000 senders. I would say, obviously, the timing of when this will happen, it's, it's going to vary, but I certainly think, as I said a few minutes ago, I think 2025 is going to be the year of send.

Sarah Cooke 05:38
Yes. Okay, and then, so I'll ask that other question. Then, what about the total users? Where do

you think those numbers are going?

Mihail Duta 05:45

Yeah, so Fed predictions are that by the end of calendar year, right now, they're going to reach probably 1200 participants. So, I believe that if we look at 2025, conservative estimates, are probably going to say maybe three to 4000, I think, probably might even close to 5000 participants. I think it's that popular, and I'll say why. Right now, many credit unions, or all credit unions and financial institutions, they're very busy with ISO ware right? We know we have that big date in March where Fedwire transfers move to ISO format. So that takes a lot of time and effort for a lot of institutions and credit unions. I think once we're past that, I think we're going to see a ramp up, not that there is not an interest right now, but we're going to see a ramp up, speed and interest into into Fed Now, in terms of both adoption, participation and enabling both send and receive.

Sarah Cooke 06:43

And then, so what's my next question? Now, my next question is, so what's those? I mean, with 1000 using it now, that is 10% of total financial institutions, approximately. Yes. What's holding the rest of the 90% back?

Mihail Duta 07:07

Each institution is a little bit different. I've spoken to credit unions who want to be first at the instant payment, you know, rail, if you will, right? They, they have a very forward look and, you know, looking at the future, we know it's here. We want to be able to offer this for our members as soon as possible. And we understand there's obviously, we have to be flexible when we do that, because whenever you're first at something, or among the first, there's going to be things that you haven't thought about, right? Then I've seen the, what I call fast followers, credit unions, that say, well, we don't really want to be first, but we want to be last. We want to follow the first group, right, which would be the second group. And then we have the ones that are really conservative, and they say, well, let's, let's, Fed Now have enough participation, work out the kinks, then we'll participate. So I think we're past the early adopters, obviously, 1000 participants. I think we're, we're way deep into the fast follower group. I think 2025, is going to be the rest, so, so, as far as what, what prevents, let's say, a credit union from being a member. Strategy aside, you need to have the right partner, meaning you need to make sure you have the right partner in terms of helping you enablingFed Now. Not every payment provider can, can offer that. Some can offer it better than others. Some may give you a quick solution for Fed Now, receive only, but that's it. You will never be able to enable send or request for payment with that solution. So I think finding the right partner, enabling your institution with the right partner, takes time. It's not, it's not a so, you know, a decision that a credit union makes lightly, which I understand. And I think it also depends on how you look at this, you look at this as a quick solution, or you looking at this as a baseline for the future, which I recommend that credit unions do. And what do I mean by that? When you modernize your payment solution to offer FedNow, don't just think of Fed Now. Obviously it's, it's the first sort of in line, right? Fed Now, receive, send. But how about bringing your other methods of payment onto the same platform? How about ACH? How about Fedwire? In some cases, how about Swift right, being able to consolidate and be efficient with your payment offering. So those decisions are not, are not decisions that are taken lightly and may take some time. I think that's why we see some of those folks really sort of not play a wait and see game, but taking maybe more time than we would anticipate in terms of making the decision and actually going down the FedNow path. Mm, hmm.

Sarah Cooke 09:48

And I believe early on too, there were some fraud concerns, like, how do I get my money back kind of thing, or, How do I make member hole, or whatever? You know, there's a lot of different pieces around that. Um, has any, has any of that like occurred with this first, the fast, not the best ones, the cutting edge folks that are on it already?

Mihail Duta 10:08

Yeah. So fraud is certainly a concern when it comes to any payment, but especially in terms of instant payments, It comes up a lot frankly. How do I handle fraud? We hear the expression all the time, faster payment, faster fraud. Well, I can tell you that, from what we know, in this first year, in a few months, fraud has been very, very low within the Fed Now network, and that's due to a number of reasons. First of all, Fed is doing some, some pretty innovative things around fraud, in terms of preventing fraud of course. There's multiple initiatives, some that are in place already, some that are coming to really look at fraud and prevent fraud from a network perspective. Then also, there's a lot of education that's out there in terms of, how do you prevent fraud at credit union level? And there are ways to do that. You can control who has access to FedNow. You can control the amounts that that you can process through Fed Now. Certainly, I've seen situations where credit unions start at very low amounts, which I, which I understand. And I'm talking about send here in particular, right? So well, the limit for the network is 500,000 maybe I want to start with $10,000 as a limit for transaction as one example. And then, of course, is the traditional, or the more traditional, I would say, the fraud providers that we integrate, we as payment providers, we integrate with, right, where every single Fed Now transactions go through a scan process. It's been, it's being looked at for fraud before it's being released to the network. So there are multiple ways to handle that. But I can tell you that in terms of fraud, for the first year, in a few months, it's been very, very low.

Sarah Cooke 11:44

Okay, and, so this is one of those things that can help credit unions remain relevant, which is super important for us at TheCredit Union Connection. So what are the dangers of not going forward with a Fed Now?

Mihail Duta 12:00

Another great question. And I actually, I, I get that question a lot, and actually preemptively answer that question. You don't want to be in a position where your competition already offers it. Make no mistake, Fed Now, it's here. It's here to stay. It's only going to grow. The longer you wait, the more behind you fall in offering your members all the capabilities that maybe other credit unions and other financial institutions are offering. You certainly don't want to wait to a point where members are knocking on your door and asking, can you offer FedNow? Because if you waited for that point, you're probably already behind, right? Yeah. So, so that that's, I think it's how you should look at instant payments in Fed Now in particular.

Sarah Cooke 12:45

Mm, hmm. And so as we're entering in year two, you've talked a little bit about this already, but what are going to be the trends, not just like the numbers of credit unions, but how do you see credit unions leveraging it? Because you mentioned bringing other payments across the plot, to the same platform.

Mihail Duta 13:04

Certainly. One thing that we've seen already with instant payments, and being with Finastra, I have the luxury of being able to reference instant payments around the globe, because we've implemented those in many other geographies, use cases are very interesting, and we've seen this with FedNow too, use cases, and the spectrum of use cases going to increase. So, this is not just two members paying each other, you know, through FedNow. This is a business to consumer opportunity. This is a consumer to business opportunity. So I think we're going to see more and more the spectrum of use cases go wider and wider in terms of how Fed Now is going to be used. I don't think it's going to be just, just a very specific use cases. I think we're going to see more and more use cases. Obviously the you know, we talked about daily payroll, which is like a common example with instant payments, right? The ability for somebody to be paid daily. We're talking about insurance payments, we're talking about title companies, for example, but definitely at a member level, whether it's a corporate member, whether it's a retail member, members will be able to leverage multiple use cases when it comes to Fed Now. I think that's going to be a trend where we're going to see the Fed Now being used for more and more situations that maybe we haven't thought about it before.

Sarah Cooke 14:23

And as a B to B Company, you know, it makes perfect sense to get those, you know, whatever. It'll help when you change the, exchange hands, money exchanges hands, that's when you are facilitating, you know, the, the business itself. So, yeah, I can definitely see really great potential there. So, as you may know, I always give my guests the final thoughts during this, this interview. So, how do you want to close it up for our credit union audience?

Mihail Duta 14:55

Great. Well, I would want to leave the audience with with a few with a few thoughts. So, certainly make no mistake, Fed Now, it's here. It's only going to grow, and I recommend that you, that you definitely onboard and become a participant sooner rather than later. You don't want to wait for your members to ask for it. Members may not necessarily know about Fed Now today, they'll certainly know about FedNow in the near future. But if you ask any member if they want their payments executed faster, or they want to receive their funds faster, guess what the answer is going to be, yes. So, final thought, definitely look at onboarding Fed Now. Make sure you choose the right partner, because you don't want to make a decision that's short term. You want to make a decision that's long term and helps you long term.

Sarah Cooke 15:43
Right. Yeah, it's not just a tool. It actually has a strategic business purpose. Thank you. Exactly. Thank you for joining us. Mihail. Appreciate it.

Mihail Duta 15:50
My pleasure anytime. Great to be here with you today.