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Following the much-anticipated July 2023 launch of FedNow, the Federal Reserve's instant payments service, over 100 financial institutions eager to meet consumers' desires to send and receive immediately-available payments have adopted the service – including at least 26 credit unions.
But the service, while beneficial, has been accompanied by a host of challenges in fraud prevention, security protocols and regulatory compliance within the fintech payments sector, according to a new study from Fenergo. And, choosing not to adopt the service brings its own set of risks as well.
The study, based on a survey of 100 high-level risk and compliance officers from U.S. fintech payment enterprises including providers of P2P payments platforms, mobile payment apps, payment processing, alternative loans, digital wallets and digital/virtual asset services, found the launch of FedNow has led to challenges in the areas of customer experience, talent and training, transaction monitoring and compliance investments.
Fenergo, a global Software-as-a-Service financial technology provider focused on client lifecycle management, serves financial institutions, asset management and fintech firms and is headquartered in Dublin, Ireland.
According to the study, 42% of risk and compliance officers at fintech payments companies said ensuring a smooth user experience during compliance operations in adopting FedNow is a challenge, and 69% said they were concerned that neglecting FedNow adoption would negatively affect business operations, leading to an unsatisfactory customer experience.
"These findings highlight genuine concerns about the repercussions of neglecting this transformative wave," Stella Clarke, chief strategy and marketing officer for Fenergo, stated. "Clearly, it's a delicate dance, and those who can balance user satisfaction and operational efficiency will be the most successful."
Sixty-two percent of survey respondents said that FedNow adoption would require one of the following issues to be addressed immediately: Insufficient real-time transaction monitoring, or limited data encryption and security measures.
What's more, Fenergo found inadequate FedNow-related staff training to be a top worry among risk and compliance officers at fintech payment companies, with 78% of survey respondents naming the concern and 34% stating that their company lacks anti-financial crime talent. Cumbersome and manual Know Your Customer procedures, and limited collaboration with regulatory authorities, also ranked high as concerns among respondents, at 67% and 65%, respectively.
And, the study revealed that all survey participants were having trouble securing funding for investing in new technology and enhancing compliance efforts to support FedNow. Securing this funding has been a challenge due to the inability to predict future compliance needs amid regulatory shifts, a reason cited by 43% of respondents; the prioritization of sales-driven projects over compliance (30%); and limited stakeholder awareness or uncertainties around ROI and long-term benefits (27%).
"In the rapidly evolving landscape of financial technology, compliance and risk officers at fintech payment companies are navigating uncharted waters with the launch of FedNow," Clarke noted. "Our research illuminates the significant hurdles in financial crime prevention and compliance efforts, painting a vivid picture of the challenges faced in this new era."
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Natasha Chilingerian
Natasha Chilingerian has been immersed in the credit union industry for over a decade. She first joined CU Times in 2011 as a freelance writer, and following a two-year hiatus from 2013-2015, during which time she served as a communications specialist for Xceed Financial Credit Union (now Kinecta Federal Credit Union), she re-joined the CU Times team full-time as managing editor. She was promoted to executive editor in 2019. In the earlier days of her career, Chilingerian focused on news and lifestyle journalism, serving as a writer and editor for numerous regional publications in Oregon, Louisiana, South Carolina and the San Francisco Bay Area. In addition, she holds experience in marketing copywriting for companies in the finance and technology space. At CU Times, she covers People and Community news, cybersecurity, fintech partnerships, marketing, workplace culture, leadership, DEI, branch strategies, digital banking and more. She currently works remotely and splits her time between Southern California and Portland, Ore.
