FedNow Service: Capabilites at Launch

FedNow Service: Capabilities at Launch

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Agenda

Get ready for the

FedNow Service, an

opportunity to learn

more about the launch of

instant payments

Introduction

Service Overview

Features & Capabilities

Account-to-Account Use Case

Q & A

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission from the Federal Reserve Banks is strictly prohibited. 2

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End users can access the service through

their financial institutions as they do today

with other payment systems

Overview The FedNow Service is being developed by the Federal Reserve to enable financial

institutions (FIs) of every size, in every community across America, to provide safe and

efficient instant payment services in near real time, around the clock, 365 days a year

FIs eligible to hold accounts at the Federal Reserve

Banks can participate in the FedNow Service and

connect directly or through a service provider

FIs can designate a service provider or

agent to connect directly and send or

receive payments on their behalf

End users can access the service through

their financial institutions as they do today

with other payment systems

Other industry providers can work with FIs to

create and offer a variety of instant payment

solutions



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FedNow Payment Flow



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Roadmap Overview The FedNow Service is use case agnostic, which means that with innovation from the industry a

range of use cases can be supported to solve your customer’s instant payment needs.



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Release 1 Core Clearing & Settlement

The initial release prioritizes core clearing & settlement features that enable use cases, enhance safety/security and improve customer experience

Core clearing & settlement (C&S) features

24x7x365 Real Time

Credit Push

High Availability

Access via FedLine® Channel

ISO 20022 Messaging

Maximum Transaction

$ Limits

Remittance Information

Master Account

Settlement

Correspondent/ Respondent

Intraday Credit

7 day Accounting

Basic Reporting

Service Level

Transfers

Settlement



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Value-Add Features The FedNow Service will offer features that enable use cases, enhance safety/security

and improve customer experience

Release 1 Potential future features under consideration

All FedNow core clearing & settlement features

Core C&S

Directory

(to support P2P)

Final

confirmation of

posting

Request for

Payment (RfP) Bulk

messaging

Use case

enabler

Safety /

security

Extended

remittance

Message

signing

Basic Fraud

controls (Lists,

limits, reporting)

Enhanced

Fraud controls

FI Avail. Mgmt.

(Status messages)

FI to FI Liquidity Transfers (LMT)

FedNow Portal 24/7/365 DI

Balance

Availability

Resolution

mgmt.

Enhanced reporting

APIs (Informational,

Transactional)

Customer

experience

Use case enabler

Safety / security

Customer experience

Potential features to be enabled via multiple releases per year



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Participation Types FedNow participation types are optional and configurable, to provide maximum flexibility and drive early adoption

Credit Transfer

Receive Only Send & Receive Request for Pay (RfP)

• Able to receive or return

customer payments and send

request for payments (RfP)

• Not able to initiate customer

payments or receive request

for customer payments (RfP)

• By default, enabled to send

and/or receive FI liquidity

transfers (LMT); can be

disabled

• If an FI plans to transition to

instant payments over time,

beginning as a RO participant

may be a good option

• Able to send, receive, and return

customer payment messages

• Able to send and can enable receipt

of RfP; receiving RfP can be disabled

• By default, enabled to send and/or

receive FI liquidity transfers (LMT);

can be disabled

Settlement Services

Settlement Only for FIs

• A correspondent can settle a respondent’s FedNow transactions

• Correspondents can receive real-time

notices of debits or credits and inquiries for

FedNow Service reports by setting up a

participant profile with connection

information for their respondents

• Settlement Only does not support initiating

credit transfers

• Able to receive requests for payment; must also

enable Credit Transfer Send & Receive

participation type

FI Transfers

Liquidity Management Transfers (LMT)

• FI-to-FI transfers to support instant payment

liquidity needs at specified times, including when

the Fedwire® Funds Service is unavailable

• Between master accounts of two participants or a

participant’s master account and a joint account that backs another private-sector instant payment

service

• Not required to enable other participation types in

the FedNow service; by default, LMT is enabled

for the Send & Receive participation type



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Participation Types - Overview Participants can enable any combination of participation types within the Service to meet their specific requirements and can modify them as needed

Customer

Credit

Transfers

Send

Customer

Credit

Transfers

Receive

Return

Customer

Credit

Transfers

FI

Liquidity

Transfers

Request

for

Payment

Send

Request

for

Payment

Receive

Send/Receive ** **

Receive Only **

Settlement

Only

Liquidity

Management

Transfers

N/A N/A N/A

** can disable



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Questions?

10CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission from the Federal Reserve Banks is strictly prohibited.

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Account-to-Account (A2A) Use Case



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Market Research Faster A2A transfers reduce credit and settlement risk for financial institutions and

funding delays for new accounts. In a survey of ~2,000 corporations and consumers,

two top benefits of faster/instant payments were immediate funds availability and

around-the-clock 24/7/365 access to funds

Corporations and businesses identified their top use cases as:

• Internal transfers (32%)

• Cash pooling to consolidate funds across subsidiaries (15%)

• Account sweeps (6%)

• Funding prepaid accounts (6%)

Consumers identified their top use cases as:

• Transfers between accounts at the same FI (29%)

• Transfers between accounts at different FIs (28%)

• Draw/fund prepaid debit accounts (15%)

• Transfer funds between FI & brokerage accounts (14%)

Source: March 2021 FRFS Insights on Industry Payments Readiness Activation Survey



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Primary A2A Use Cases Based on industry feedback, five A2A use cases have been identified:

✓ Me to me - funds transfers between my account(s) at two different

institutions

✓ Me to you - funds transfers from my account to someone else’s account

✓ On us - internal money movement within an organization

✓ Brokerage – immediate funding of brokerage accounts

✓ Mobile Wallets – funding or defunding a digital wallet



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Me-to-Me/Me-to-You Allows your customers to instantly transfer money between accounts, improving

efficiency and supporting real time money management

Use case Example Benefits to end-user

Me-to-Me Moving money from a checking • No settlement risk to bank

account at one financial institution to a • Real-time money management for checking account or savings account consumer at a different financial institution using

• No funding delay at new account an RTN and account number

initiation

Me-to-You Making a payment from one financial • No settlement risk to bank

institution to a different financial • Real-time money management for institution using an RTN and account consumer number



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On-Us The ability to move money across accounts at the same FI solves an expensive

problem for businesses who may be unable to move funds within their general ledger.

It is estimated that issuing 500 checks per month can cost ~$1200 in labor costs


On-Us Moving funds between internal

accounts across a corporation and

its subsidiaries.

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Real time money management for your

institution

Facilitate money movement from one

core to another core in the case of

• mergers

Revenue potential from combined

balances

• Internal funds transfers for account

liquidity



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Brokerage Accounts Reduced risk and enhanced customer experience lie at the core of the A2A

brokerage account use case


Funding • Fund brokerage account via • Faster funding time

brokerage credit push (could be initiated • Time savings for firms and consumers in Accounts by RfP from brokerage portal) linking brokerage accounts to funding

reducing liquidity risk accounts



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Mobile Wallets As industry stakeholders innovate on top of the FedNow Service and consumers

embrace digital and contactless banking, consumers can fund and defund these

accounts in near real-time


Fund / • Fund wallet account via credit push • Time savings for consumers as they link

defund wallet accounts and spur adoption of • Defund wallet account to FI via credit wallet mobile wallet push

• Faster funding time

• Faster money movement to credit

consumer account



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What’s Next In preparing for FedNow, there are some key considerations that your organization

can address today

Product and Capability Planning

✓ Are there specific instant payment use cases that are of interest to your business or retail

customers?

✓ What participation types will meet the needs of your customers and the use cases of

interest?

✓ Will you be ready to send/receive RfPs on behalf of your customers?

Technology Planning

✓ What additional capabilities or enhancements to existing systems may be needed to

handle real-time processing and the desired customer use cases or experiences?

✓ Which service providers need to be engaged to support your targeted use cases?

✓ What interaction points for customer-facing and internal staff might be impacted?

Make Sure You…

o Discuss FedNow implementation with your Account Executive

o Determine how to handle continuous availability within your environment

o Access MyStandards® and review ISO® specifications if you are preparing to support FedNow in-house

o Engage your service providers to understand how they may support you in your FedNow journey



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Questions?

“FedNow,” “Fedwire and “FRBservices.org are service marks of the Federal Reserve Banks.

A list of marks related to financial services products that are offered to financial institutions by

the Federal Reserve Banks is available at FRBservices.org.

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


Any use of this material without specific permission from the Federal Reserve Banks is strictly

prohibited.

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Resources

To learn more about the following please visit:

FedNow payment flow

https://www.frbservices.org/financial-services/fednow/blog/asked-answered-fednow-payment-flow.html

FedNow features: Flexible participation types https://www.frbservices.org/financial-services/fednow/blog/fednow-features-flexible-participation-types.html

FedNow ISO20022 Message specifications https://www.frbservices.org/financial-services/fednow/blog/announcing-iso-20022-specifications-initial-launch-fednow.html



https://www.frbservices.org/financial-services/fednow/blog/asked-answered-fednow-payment-flow.html

https://www.frbservices.org/financial-services/fednow/blog/fednow-features-flexible-participation-types.html

https://www.frbservices.org/financial-services/fednow/blog/announcing-iso-20022-specifications-initial-launch-fednow.html

Documents

FedNow Service: Capabilites at Launch