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The FedNowSM Service: Evolving risk management to meet industry needs

As the world of payments continues to advance, fraud is often quick to follow. The FedNow Service, set to launch this summer, will deliver features to help financial institutions manage risk at launch and evolve over time.

“As experts in customer behavior, financial institutions will continue to serve as the first line of defense against fraud,” said Nick Stanescu, senior vice president and business executive of the FedNow Service. “The FedNow Service is designed to support these efforts, with a specific focus on flexibility and meeting the changing needs of the industry.”

FedNow Service features designed to mitigate risk will be available immediately at launch. Financial institutions can set custom transaction limits based on customer behavior. Financial institutions also can create negative lists within the FedNow application to prevent payments to or from specific accounts. This control is useful for suspicious accounts identified through monitoring and can be used to implement a “waiting period” for newly opened accounts.

New post-launch features

Beyond the foundational controls and reporting features available initially, additional fraud management features will be introduced post-launch.

“We are committed to combining internal capabilities with external industry-leading technology to provide a suite of fraud tools that can evolve as instant payments adoption grows and fraud threats change,” Stanescu said.

Features under consideration would enable financial institutions to activate a control setting that rejects payments that exceed established velocity limits or cumulative value over time. These seek to address fraudsters’ efforts to work around transaction limits by originating large numbers of low-value payments in a short window of time.

Later potential features could offer the ability to fine-tune controls for different types of customers and allow participants to configure controls for non-value messages, such as requests for payment. Other updates under consideration could leverage the network to identify potential money mule activity or identify higher-risk transactions.

Reporting fraud

When fraud is reported by a financial institution, the FedNow Service network will share this information with the counterparty – the other financial institution involved in the transaction. The service then facilitates data collection to help financial institutions take action.

Participants provide the message ID and the type of fraud using the FraudClassifierSM model (Off-site), which offers the ability to classify fraud independently of payment type, payment channel or other payment characteristics. Participants also specify who the bad actor is – whether the sender, receiver or both.

The FedNow Service will offer different ways to report fraud at launch, either using ISO® 20022 messages or by sending a data file to the FedNow Service.

Learn more about the FedNow Service

For more information about preparing for the FedNow Service, visit FedNow Explorer (Off-site). Sign up to receive FedNow emails with the latest news.