Jack Henry plans to hit the ground running when FedNow launches and 20 FIs are coming along for the ride

What’s the news?

The Federal Reserve is gearing up to launch its new digital payments system FedNow in July. FedNow is the first US government-led payments system to offer real-time payments. As the month of the launch draws closer, technology provider Jack Henry has announced that it is operationally ready to support the system.

FedNow: Looking under the hood

The JHA Paycenter, Jack Henry’s proprietary payment hub, is already integrated with The Clearing House’s RTP network and the Zelle Network, provided by Early Warning Services. The new FedNow system will operate as an alternative to the RTP network as the two have similar frameworks. This will introduce redundancy into the payments ecosystem, a conscious move by the The Federal Reserve to avoid a system failure.

Jack Henry has been working with the Federal Reserve for two years, providing feedback and testing on the development of the service. “More than 20 of our financial institution clients are part of the pilot and early adopter program and we’ve been working closely with them to prepare for FedNow’s launch this July,” said Tede Forman, president of Jack Henry Payment Solutions.

Among the first to adopt the new system when it launches will be Alabama-based Bryant Bank and HawaiiUSA Federal Credit Union.

For HawaiiUSA Federal Credit Union, being part of the FedNow related JackHenry pilot program was a question of representation of interests. “Being a small credit union, in the middle of the Pacific, and in the last time-zone in the US, we wanted to ensure that the needs of financial institutions in Hawaii were being considered in this new 24/7/365 payment rail.” said Scott Young, vice president of payments operations at HawaiiUSA Federal Credit Union.

Considering the impact

One big selling point of FedNow is its real-time nature when it comes to settling accounts and the fact that it's open 24/7. “If a member wants to wait until the actual due date to pay a loan, they can absolutely do that with FedNow. It gives them the flexibility to do what they want and when they want.  Since funds are transferred and settled between financial institutions instantly, it reduces some of the risks because payments are completed faster and there is no buildup of interbank obligations,” said Young. 

Apart from risk mitigation, Forman highlights multiple other use cases benefitting from the FedNow launch, including how gig workers are paid, as well as easily moving money from external wallets to depository accounts.

Moreover, he adds that this launch may also affect check volumes and virtual cards, since businesses will have access to real-time settlement of funds. “On the business side, we see opportunities in the property management, trucking and title company industries. And, we may see this become a viable alternative for merchants looking to avoid rising interchange fees and improve the point-of-sale experience for their customers,” he said.

Eventually FedNow’s impact may spill over to international payments as well, due to the use of standardized messaging formats like Zelle.