Banks that won’t be ready to send payments through the Federal Reserve’s new real-time payments system when it becomes available in July should at least be prepared to accept such payments, recommended an industry executive whose company is involved in the effort.
“We are having very detailed conversations with a lot of our institutions about the importance of at least being set up on the receive aspect, even if they're not ready to go to the send aspect,” Jack Henry President Greg Adelson said Wednesday during the company’s fiscal third-quarter earnings call with analysts.
Monett, Missouri-based Jack Henry has a stake in the widespread use of FedNow. It's one of 120-plus companies and organizations that signed on early to participate in development of FedNow and to push for adoption of the new instant payment system by financial institutions.
Jack Henry has 20 financial institution clients set to go live with FedNow sometime between a July 19 launch and late August, said Adelson, who is also the company’s chief operating officer.
With interest in the forthcoming service picking up, Jack Henry has sold another 51 contracts and has “a significant number of others that are in process,” Adelson said. Jack Henry, like financial technology competitor Fiserv, will connect financial institutions to the FedNow service once it’s launched.
Jack Henry CEO David Foss mentioned he met with Fed officials, including those working on FedNow, earlier this week to discuss strategy and rollout of the payments service. “We are very engaged with the Fed, and (it’s) very, very top of mind for us to make sure that we’re helping our customers take advantage of this opportunity,” Foss told analysts during the call.
Notably, the U.S. Treasury Department has signed up as an initial user of the new Fed payment system. It hasn’t always been an early participant of new payments approaches.
Some of the payment types federal entities are likely to encourage financial institutions to receive through FedNow include tax payments and veteran benefits payments, Jack Henry executives said. “Things that the Treasury and the Fed can control, they’re going to be pushing that,” Adelson said.
That’s why the company has been focused on signing up bank clients “to get that ‘receive now’ turned on, so regardless of where that payment is being initiated from, it has a place to land,” Adelson said.
With the rise of the gig economy, Adelson identified the movement of gig worker funds into bank accounts as a top use for FedNow. “The Fed believes that to be a big one,” he added.
Paying employees in a speedier fashion is already a key use case of the existing real-time RTP network provided by The Clearing House. DailyPay, an earned wage access provider, is the second-largest user of the RTP system.
Another potential use: Banks’ customers moving money from external wallets into depository accounts, Adelson said.
He also noted the potential for FedNow to disrupt the card payment space. When D.A. Davidson Analyst Peter Heckmann raised the possibility of FedNow payments being more likely to displace automated clearing house payments or bank transfers than card payments, Adelson disagreed.
With respect to business-to-business payments, FedNow could replace check payments or virtual cards that carry interchange fees, Adelson said, mentioning a “heavy focus” on B2B uses amid the ongoing digitization of that area of payments.
Change at the merchant level is possible, too, he said. Indeed, large retailers fed up with rising interchange fees have expressed interest in real-time payments possibilities.
“The card part of this, specifically on the merchant side, and specifically in B2B payments, could have some chance for disintermediation,” Adelson said.
Since some smaller banks Jack Henry works with have been “leery” of engaging with The Clearing House’s real-time payments network RTP due to big bank ownership, Adelson expects more interest in FedNow, given the Fed’s involvement.
Payrailz revenue shortfall
Separately, as part of its earnings report for the quarter ended March 31, Jack Henry noted a revenue shortfall tied to its acquisition last year of Payrailz. The company’s integration of that digital payments service provider has encountered “third party implementation delays,” Chief Financial Officer Mimi Carsley said during the call.
That’s expected to cause fiscal year 2023’s revenue contribution from Payrailz to be 25% lower than the company originally projected, amounting to an estimated $9 million instead of $12 million, according to a Wednesday note from analysts at the investment firm Robert W. Baird & Co.
Jack Henry announced last August it was buying Payrailz to help clients modernize payment services. “We just need a couple of the integration partners to be able to get some of their work done that will help us accelerate the revenue in fiscal year ‘24,” Adelson said.
The company’s fiscal third-quarter net income slipped 4%, to $81.5 million, while revenue rose 6%, to $508.6 million.