Top nine questions about the FedNowSM Service
October 14, 2020
Since announcing the FedNow Service’s features and functionality, the Federal Reserve has received a lot of interest as well as questions from customers and stakeholders about various aspects of the service.
Through communications and conversations, we want to keep financial institutions and the broader payment industry informed on the design of the FedNow Service and how to prepare for it. Here are some of the most common questions we’ve received.
- When will the FedNow Service launch and what features will be available?
The Federal Reserve will take a phased approach to the FedNow Service. The initial launch is targeted for 2023 or 2024 and will focus on core functionality to meet market needs and help financial institutions transition to 24x7x365 operations. Initial features will include:
- Core clearing and settlement capabilities to support a range of transaction types and use cases.
- Use of the widely accepted ISO® 20022 standard and other industry best practices to support interoperability.
- Fraud prevention tools such as the ability to set lower transaction value limits and specify conditions under which transactions would be rejected.
- Receive-only participation, which will allow financial institutions to receive payments through the FedNow Service, but does not require them to have the ability to originate payments.
- A liquidity-management tool that will allow participants and others to transfer funds to each other to support the liquidity needs of instant payments.
- Reporting to support financial institutions and their correspondents with transaction monitoring, account balance inquiries and reconciliation.
Take a look at the FedNow product sheet (Off-site) for a full list of initial features and functionality. More details on timing and features will be released when available.
- What features will be included in future releases?
Our phased approach will ensure core features and functionality are brought to market as quickly as possible while providing flexibility to adjust and add features in response to industry demands or changes in technology. Additional features we’ll explore in future releases include:
- A Fed directory and/or other approaches to support alias-based payments
- Support for the use of application programming interfaces (APIs)
- The ability to support bulk payments, which will enable payroll use cases
- Enhanced remittance information, which will support B2B use cases
- And additional controls to improve safety and experience
- What fraud prevention tools will be in place with the FedNow Service and will financial institutions need to implement additional controls to mitigate fraud?
Financial institutions will continue to serve as the first line of defense against fraud through services they provide to their customers. To help combat fraud, the FedNow Service is committed to providing a safe payment infrastructure for instant payments, with features to support payment integrity and data security. Fraud prevention tools available at launch will include:
- A transaction value limit for all FedNow transactions and the ability for participating banks to set lower value limits.
- The ability for financial institutions to specify certain conditions under which transactions would be rejected, such as by account number.
- Reporting features and functionality, including reports on the number of payment messages that were rejected based on a participant’s settings.
We will continue to work with the industry on best practices for fraud prevention services and may augment or add features over time.
- What use cases will be supported by the FedNow Service?
The FedNow Service will be use case agnostic, which will allow financial institutions to use it as a springboard for innovation. The first release of the FedNow Service will provide core clearing and settlement capabilities to support a broad range of transaction types, including those that are expected to gain traction initially, such as:
- Account to account transfers (A2A) (PDF) – The FedNow Service will provide fast and certain money movement between accounts for businesses consolidating funds, investors making deposits into wealth management or brokerage accounts, and individuals transferring money between checking and savings accounts or funding stored value accounts.
- Bill pay (PDF) – Through the FedNow Service, financial institutions can offer innovative instant bill pay capabilities that allow individuals and businesses to move money from their own accounts to biller accounts in a matter of seconds, at any time, on any day of the week.
We will continue to work with stakeholders and providers in the industry to ensure they have the information they need about the FedNow Service to build out services supporting a variety of use cases.
- How will the FedNow Service compare to other faster payment services already in the market?
The growing demand for instant payments has driven the creation of several faster payment systems, but there are some differences among them. Some are closed loop systems (PayPal, Venmo, Square’s Cash App), others are open loop (VisaDirect, MasterCard Send, Zelle, RTP, etc.) and some settle payments between financial institutions on a deferred basis while others settle in near real time.
The FedNow Service will be open to all eligible depository institutions across the country, no matter their size or geographic location. The FedNow Service will support interbank clearing and settlement in real time and will allow financial institutions to innovate to provide their customers with the ability to send and receive instant payments for a range of use cases.
For more information on the differences among various faster and instant payment systems, read our article Fast, faster, instant payments: What’s in a name?
- Which vendors will support the FedNow Service?
We are finalizing our technology strategy that will incorporate a blend of internal Federal Reserve resources and partnerships with external vendors. Our intention is to prioritize using resources and technologies to create a flexible infrastructure that is able to evolve to meet current and future market needs. We will continue to keep the industry informed on our progress.
- Will the FedNow Service be interoperable with private sector options?
We understand the importance of interoperability to help advance nationwide reach of instant payments. The FedNow Service is committed to using the widely accepted ISO 20022 standard and other industry best practices to help remove incompatibilities that could be a barrier to payment routing, a form of interoperability, between the FedNow Service and RTP.
The Federal Reserve, however, cannot accomplish interoperability for instant payments alone. The industry—depository institutions and their service providers as well as service operators—must work towards this common goal, as it has in the past with other payment services.
- How can financial institutions get ready for the FedNow Service?
It’s important that financial institutions and industry partners take appropriate steps now to make sure they’re able to use the FedNow Service when it becomes available. We recommend preparing by:
- Seeking education on instant payments. Take a look at our instant payments education series and FedNow section of our website for the latest information.
- Reviewing existing customer-facing, processing and accounting systems, including technical considerations and operational implications of a 24x7x365 processing environment.
- Building awareness among stakeholders and staff, and educating customers on the benefits and use cases of instant payments.
- Ensuring the ability to use ISO 20022 messaging for interbank fund transactions.
- Enhancing risk prevention practices, fraud and compliance technology to accommodate sender screening and authentication.
- Considering opportunities for innovative new product offerings and end-user experiences from an underlying FedNow Service infrastructure.
- Determining how online and mobile banking and customer service support may need to change to support instant payments.
We are committed to ensuring the accessibility of the FedNow Service to banks of all sizes nationwide, which is our guiding principle for defining our design choices and onboarding process.
- How can organizations get involved in the development of the FedNow Service?
The Federal Reserve is committed to collaborating with industry stakeholders. Industry leaders and organizations interested in providing input in the development of the FedNow Service are encouraged to join the FedNow Community (Off-site), an interactive group that advises on the design, onboarding and implementation of the FedNow Service via focus groups, work groups, conference calls, virtual meetings, surveys and other channels.
In early October 2020, we announced plans for a pilot program that will inform and support the FedNow Service’s development, testing and adoption. We invite financial institutions, service providers and payment processors to apply for the pilot program. Those who aren’t yet a part of the FedNow Community should first join the Community (Off-site) and then complete the application for the pilot program. Learn more about the pilot program.
Another way to stay engaged is to sign up for FedNow News, our regular email that provides updates on the FedNow Service.