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FedNowSM Service update: Five questions for Ken Montgomery

In late June, the Federal Reserve held a FedNow Community kickoff webinar to formally welcome its 500-plus members, provide a development update and outline engagement opportunities. We followed up with five questions for FedNow Program Executive Ken Montgomery.

Q What’s your approach to FedNow Service development?

A Our goal is to bring the service to market as quickly as we can, so we’re taking a phased approach. Our initial release in 2023 or 2024 will include mandatory features for a clearing and settlement service, as well as some value-added features and functionality to help broaden adoption and reach. Additional releases with more features and enhancements will follow quickly on an iterative basis. In the coming months, we plan to announce a FedNow Service description in a Federal Register notice.

We have a good understanding of the industry’s needs and desired functionality after hosting more than 200 hours of calls, participating in facilitated focus groups and conducting roundtable discussions at Fed and industry events – not to mention reading more than 180 letters responding to last year’s Federal Register notice. In addition, we’re drawing on the experience of other central banks that operate instant payment services. We heard loud and clear that we need to support broad industry awareness and readiness for instant payments among financial institutions, processors, fintech firms and end users. For example, instant payments will operate 24 hours a day, seven days a week, 365 days a year – so likewise, financial institutions will need to transition to 24x7x365 service availability.

Q What are your near-term development priorities?

A We are working to finalize our technology strategy, which will prioritize using new technologies to create a flexible infrastructure that evolves to meet current and future market needs. Once we decide on sourcing, we’ll review our timeline, finalize initial release requirements and provide an industry update.

In addition, we’ve committed to using the widely accepted ISO® 20022 message standard and other industry best practices for the FedNow Service. ISO 20022 is a data-rich international standard to enable enhanced processing and reconciliation, and can facilitate interoperability with other real-time gross settlement instant payment services. Our FedNow team has drafted message flows and specifications for the initial release and will seek industry input over the next couple of months. Our goal is to publish final message specs by the first quarter of next year.

Q You mentioned interoperability. What else do we need to know about it?

A The Federal Reserve’s ultimate goal for the FedNow Service is nationwide reach for instant payments, and some form of interoperability can help achieve this goal. However, the Federal Reserve alone cannot accomplish instant payments interoperability. The format and pace of interoperability depends on industry commitment and engagement – in particular, that of service operators. Just as it was for other types of payments improvements, it’s necessary for the overall industry – financial institutions, their service providers and service operators – to work toward a common goal.

For the initial launch of the FedNow Service, we believe using the widely accepted ISO 20022 standard and other industry best practices will help remove unnecessary and burdensome incompatibilities that could be a barrier to payment routing interoperability between the FedNow Service and The Clearing House’s RTP® network. Routing interoperability is where the sending institution chooses the path of a payment to the recipient based on available options, price, features and other criteria and is one of the interoperability models explicitly outlined by the U.S. Faster Payments Council in a recent white paper (Off-site). In a similar way, financial institutions and service providers route credit and debit cards payments to more than one operator.

The Federal Reserve also is open to a model of interoperability based on message exchange with other real-time gross settlement instant payment services. As with the routing model, message exchange would require compatible standards and operating procedures, addressing a host of other system and technical aspects and – most importantly – the active commitment and engagement of service operators.

Q How do you expect the FedNow Community to help?

A The FedNow Community is very important to us. This group represents a variety of expertise, viewpoints and industry segments. We will rely on FedNow Community members to help inform service design; influence our product development roadmap; consult on service features, technology and implementation plans; and provide insights on readiness for and barriers to onboarding. A high level of stakeholder engagement in pilots, testing, onboarding and user feedback could help us bring the FedNow Service to market more quickly.

In July, we will kick off the FedNow ISO 20022 Working Group, which will operate into the fall and include banks, credit unions, processors, aggregators and software providers. This working group will validate ISO 20022 message flows and individual message implementation guidelines for value and non-value message details. It also will confirm that these messages include information necessary to support downstream or integrated processes. We plan to ask the broad FedNow Community to review and provide feedback on these message specifications before they are finalized and published next year.

Later this summer, we plan to form a FedNow Reconcilement Working Group to explore reconcilement needs required by the FedNow Service and instant payments. Additional working groups will vary in duration and time commitment, depending on both topic and objectives.

Q There’s a lot going on with the FedNow Service. How can we keep up to date on developments?

A You’re right that there is a lot going with the program and within the industry. The best way to stay up to date is to sign up for the FedNow Community to receive regular updates on the FedNow Service and input opportunities. We need and welcome your engagement, and we’re committed to transparency, collaboration and inclusion in payments improvement.


“ISO” is a registered service mark of the International Organization for Standardization.

“RTP” is a registered trademark of The Clearing House Payments Company LLC.