Did you know that, according to data from ACI Worldwide, a meager 1.4% of US financial transactions happen in real time? What about the fact that Nigeria has faster real-time transactions than the United States?
America has always functioned as a bastion of innovation and pioneering technology. We’re the home of Silicon Valley and some of the biggest banking systems in the world — and yet we have to “wait for three to five business days” for a bank transfer to clear. At least, we had to until now.
The Fed’s real-time transaction FinTech tool, FedNow, launches this month, and the results could fundamentally alter the U.S. financial system for the better.
Real-time transactions are nothing new for the private sector in the U.S. There are plenty of businesses that operate with instant transactions and transfers. However, applying that concept to the larger banking system is something else entirely.
The Federal Reserve is trying to change that by releasing FedNow. This FinTech service will allow a wide range of financial institutions (including credit unions) to provide payments and transactions in real time.
For those that adopt this new technology, that means no more waiting for days for transactions to clear. They’ll take seconds.
This will also reduce the restrictive nature of infamously limited banking business hours. (How often do we all get out of work and the bank’s already closed?)
According to Morning Brew, “The new system will enable banks to send each other cash instantly, 24/7, as an alternative to the existing system that runs only during regular business hours and often takes days to move money.”
Technically speaking, no institution is required to join this new blisteringly-fast evolution in the banking world. But any organizations that hesitate at this crucial juncture could find themselves left behind before long.
Connecting to a real-time transaction system brings some pretty impressive perks. Credit union members can benefit from things like sending and receiving instant payments directly from their accounts. This allows them to pay bills, make payments, and even conduct person-to-person transfers with incredible convenience and efficiency. If a credit union can’t offer that kind of service, there’s a good chance they’ll lose their members to another institution that can.
However, that doesn’t mean everything about FedNow is sunshine and roses. There are some legitimate concerns to keep in mind as the U.S. banking system moves into a new phase of widespread technology.
Credit unions are able to participate in FedNow. However, leadership at these institutions should have a clear idea of what they’re getting into before signing on the dotted line. Adapting to new fintech is never easy, nor is it straightforward.
For instance, there are some critical IT complexities that come with participating in the Fed’s new fintech program. Credit unions will need to work with their own internal and third-party IT teams to establish the necessary technical connections and interfaces for their own systems to interact with the Federal Reserve’s infrastructure.
Cybersecurity risk is another factor. Credit unions will need to watch out for new security threats that could arise from working with a third-party service — even one as big as the Fed. They will also need to comply with any and all applicable regulations, requirements, and other rules that come with using FedNow.
A shift to FedNow feels like a no-brainer for most credit unions that are able to adopt the technology. The benefits it offers and the risks of being left behind are too great to ignore.
However, the “ability” element is a real factor here. IT teams must be equipped and prepared to make the switch to FedNow, and that can only happen if the right leadership is in place.
“IT teams must be equipped and prepared to make the switch to FedNow, and that can only happen if the right leadership is in place.”
A shift this big requires coordination across the C-suite. COOs (chief operating officers) must help with basic organization and decision-making. CTOs (chief technology officers) must be ready to provide precise leadership as their teams navigate the implementation of a dramatic new technology. CROs (chief risk officers) must help assess risks and threats throughout this process.
It is situations like the rollout of FedNow where having strong leadership in place matters most. At Stanton Chase, we have experience placing qualified candidates in all three of these positions across a variety of business sectors, including financial institutions and credit unions in particular.
We understand that the stakes in financial services are high, and there is little room for error or apathy. Our executive search consultants can help identify and recruit the best candidates to help credit unions maintain an edge over the competition, even during times of change. We have recently worked on several engagements in the credit union space (COO, CTO, CMO, Chief Lending Officer, Chief Risk Officer, top roles in credit, HR, etc.).
For C-level leaders in finance, it’s time to take FedNow seriously. Gather your leadership team and consider if, when, and how you can adopt this new technology. When confident credit union leadership can make decisions like these without unnecessary hesitations, they can continue to provide the best possible service for their members, not just now but for the foreseeable future.
William Brewer, CCP, is a Director at Stanton Chase Los Angeles. He is also Stanton Chase’s Global Human Resources Practice Leader. Prior to moving into executive search, Bill had 25 years of experience in corporate human resources. In addition to his executive search career, Bill is an adjunct Professor at the University of Redlands. Bill also serves as a mentor for the MBA program at the Paul Merage School of Business at the University of California, Irvine (UCI) and has been a mentor with the School of Business at the University of Redlands.
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