Operations
31 March 2023
FedNow could usher in growth of instant payments in the US
Retailers will have a new payment method to offer when the Federal Reserve launches its service for direct, real-time transactions in July.

Retailers will have a new payment method to offer when the Federal Reserve launches its service for direct, real-time transactions in July.

Merchants will have a new payment method to introduce later this year. Notably, a new startup isn't behind this fintech feature. Rather, it's the Federal Reserve.
FedNow is a new service that allows for instant payments, which transfer money directly between accounts. Set to launch in July, FedNow could usher in more U.S. adoption of instant payments, which allow people to send payments in seconds, at any time of day. It's a move by the Federal Reserve to provide a new form of infrastructure for payments that move at the pace of an increasingly mobile and real-time economy.
According to a new report from ACI Worldwide, global real-time payments grew 63.2% year-over-year in 2022 to 195 billion. India, Brazil and China are the leaders in this area.
“Most countries are recognizing that a true digital economy requires a true digital payment method and FedNow is the Federal Reserve’s answer to that, very much in keeping with models that have been seen across the world,” said Craig Ramsey, global head of real-time payments and banking at ACI Worldwide, which was a pilot partner for the FedNow service.
Ramsey was speaking to The Current from the spring meeting of the Faster Payments Council, which has retail members including Walmart and Kroger. It underscores how merchants and retailers have a stake in instant payments. It will add a payment method that allows money to be transferred directly, and provide another option to a consumer that is increasingly seeking choice and flexibility in not just what they buy, but how they shop and pay for items. Following a transaction, retailers won’t have to wait to receive money until it is cleared by the bank, as is the case with many payments now.
For retailers, it opens up potential not only to offer a more direct payment method, but also to reduce interchange fees and other payment processing costs.
“It's not just about speed of payment for them. It's about ease of payment,” Ramsey said. “How easy can they make the checkout process? And as more and more people are used to transacting on their phones and using their phone for everything, then this gives them a chance to offer instant payment methods in store and online as well,” Ramsey said.
It points to how the infrastructure of payments is changing the way that consumers transact. When a payment is made, most banks use Automated Clearing House, or ACH, to settle the payment. While a person paying at a register may think that’s the final point in a transaction, the transfer of funds actually takes hours or even days to actually settle.
Peer-to-peer services such as Venmo or mobile wallets introduce convenience. However, when payments are sent, there is still a third-party or intermediary that is facilitating that transaction, meaning the exchange of money isn’t settled right away.
With the FedNow service, the payments will be transferred directly between accounts. Digital wallets aren’t necessary. Rather, users can pay directly from their bank account. In turn, when receiving money, the funds go directly into a bank account.
“When I get a message back that says ‘payment sent,’ I know that the money is in your account already because the network has done the necessary messaging between the two banks and the money is already in your account,” Ramsey said.
For consumers, transacting directly between accounts provides an accurate picture of a bank account in real time. FedNow will be accessible 24/7, so transactions can be made at any point.
“It enables you as a bank account holder to control your money more easily,” said Ramsey.
Going forward, ACI projects that real-time payments will quadruple in the U.S. by 2027 to about 11.5 billion transactions. Rather than replacing currently used transaction methods such as ACH and wire services, Ramsay said these are likely to be “net new” transactions.
The fact that the Federal Reserve is backing this new payment method figures to help add trust.
“Think about the construction of the railroads back in the 19th century,” Ramsay said. “That's exactly what the Fed are doing. They're laying down the tracks that can then enable banks and fintechs to offer the services on those tracks.”
In a digital economy where there are many payment methods, the Fed is also mindful of presentation. The central bank wants FedNow to be recognizable as a payment method, right alongside the likes of PayPal and Zelle or even Mastercard. Along with legitimacy, brand recognition is key to gaining more adoption among consumers and merchants.
“They want the FedNow service to become as easily recognizable as a Visa card logo on the side of the checkout,” Ramsey said. “Just like with Venmo, we say ‘I’ll Venmo you the money,’ the Fed very much want to see, ‘I’ll FedNow you the money.”
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.