FedNow: Navigating the World of Real-Time Payments

As the demand for real-time payments grows in the US market payment landscape, so do financial institutions’ requirements to offer faster and more efficient payments. The RTP network by the Clearing House (TCH) laid the foundation for connectivity protocols, but many FIs have been eagerly waiting for FedNow to move forward for real-time payments. Finally, Fednow is set to launch on 20 July 2023.

Federal Reserve Bank

Why is the Federal Reserve Bank developing FedNow?

Core features

What are the core features of FedNow?

List of differentiators

What differentiates FedNow from other payment rails?

Adoption difficulties

What are the difficulties that an institution can face?

Federal Reserve Bank

Why is the Federal Reserve Bank developing FedNow?

Core features

What are the core features of FedNow and why US market needs it?

This new service enables financial institutions to deliver end-to-end instant services to their customers, which means there is no buildup of short-term credit risk or interbank obligations. And participants will have access to their money immediately.

Additionally, FedNow works with rich data supported within ISO 20022 messages, whether it’s about including remittance information in payment messages or requesting payment messages.

The Federal Reserve has announced the core features of the newly launched FedNow:

Instant payments, 24x7x365 availability.
Core clearing and settlement capabilities with credit transfers within seconds.
Data security and fraud mitigation tools.
Network-level maximum transaction value limits.
Use of ISO 20022.
Encryption of all data flows.
Adjustable participation options.

List of differentiators

What differentiates FedNow from other payment rails?

What differentiates FedNow from other payment options is that it is specifically launched to make instant payment technology accessible to a wider audience in the US. Its projected compound annual growth is greater than any present RTP payment rails in the US. Approximately 90% of the US citizens are desiring for faster payments capabilities. 1 The table below shows numerous domestic payment options and their positioning in the payment marketplace.

Adoption difficulties

What are the difficulties that an institution can face while adopting FedNow services?

The potential roadblocks to adopting FedNow services include the following:

Increased cost:

Implementing a new payment infrastructure requires significant investment in infrastructure, technology, and staff members, which could Stall FedNow Adoption for banks.

Operational Complexity:

Sometimes, legacy systems indicate incompatible with the new FedNow system, and eventually make the integration process complex and time-consuming.

Volumes Forecasting and Back-Office Processes:

Since the settlement timeframe has been reduced to 20 seconds, FI needs to review back-office processes to help streamline relevant workflows.

Connectivity and Bandwidth Requirements:

Each FI needs to review bandwidth and connectivity requirements to ensure the connection meets the forecasting requirement to connect to the FedNow Service using FedLine® Solutions.

Risk Mitigation Systems:

Instant payments call for current risk mitigation systems adjustments. FI needs to review fraud mitigation solutions, Office of Foreign Asset Control (OFAC), and anti-money laundering (AML) solutions.

Speak with our experts!

How ECS can help you?

FedNow service provider early testing partner for FedNow, ECS offers unique access to expert insights on real-time payment trends and the expected impact of the FedNow launch. Through our IMS Payments, handle best in class instant payment workflows and experience the resiliency, security, scalability, and availability demanded by instant payment schemes. Our solution offers end-to-end services, including connectivity, risk management, and back-office processes to suit the needs of all sizes of financial institutions, covering on-premise and a range of cloud solutions, including SaaS.

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