Previously the Federal Reserve’s real-time payment rail, the FedNowSM Service, was said to launch in 2023, with no further details. However, the launch window is now more defined. The Fed has recently announced that the FedNow Service will launch in May-July 2023. Currently, over 120 organizations are participating in the FedNow Pilot program, which entered technical testing in September.
In a CUInsight hosted webinar, credit unions had the opportunity to ask questions directly to Joni Hopkins, Vice President, Product and Relationship Management Group at Federal Reserve Financial Services, and Mark Majeske, SVP Faster Payments at Alacriti.
Here were 3 interesting things shared in the webinar:
How to Connect
An important part of the plan is how to connect.
A credit union can connect through one of the following:
- Their own FedLine Solutions connection (existing or new)
- A service provider’s connection
- A combination of both (e.g., based on use cases or account types)
FedLine Direct®, FedLine Command®, and FedLine Advantage® are all direct means of connection. However, FedLine Web® users will need to switch to one of the three aforementioned solutions for FedNow Service connection.
Types of service providers included hosted gateways, bankers’ banks, corporate credit unions, and core processors. Whether using a third party service provider, a core processor, or corporate credit union (if preferred), credit unions can have more control by managing their profile directly through the Federal Reserve (through a FedLine Advantage or above connection). Because of the FedNow Service’s flexibility, credit unions can even connect with multiple partners, e.g., a core processor and online banking service.
The Impact of Real-Time Payments on Operations
When considering the impact that real-time processing will have on operations, there are further questions to think about. How will real-time processing be managed? Which upstream and downstream applications need to operate on a 24x7x365 basis? What contingency arrangements are needed to mitigate service disruptions?
Hopkins shared that the impact on operations is a significant concern for many credit unions. “When I’m talking to credit unions, a lot of times people get a little nervous when they think about real-time processing. Does 24x7x365 mean that I have to have someone sitting at the credit union 24 hours a day, 7 days a week, 365 days a year? The answer is no. When we’re your service providers, you will understand more about how you can offer 24x7x365 and have real-time processing without someone physically having to be in the bank. Understand that this is different, but your partners are going to walk you through it.”
Limits and Anticipated Pricing
Hopkins shared a sneak preview of anticipated pricing. However, she encouraged attendees to review their next pricing announcement for official pricing, which will likely be at the end of 2022. Overall, it won’t be a lot more than what financial institutions are paying today for legacy services, such as checks and ACH. It is likely to be a $25 monthly fee per routing number that’s enrolled in the Fed. The prices anticipated are a fee of $0.045 per credit transfer to be paid by its sender, including returns, and a $.01 Request for Payment fee.
The transfer value limit for the FedNow Service is $500,000, and the default value limit is $100,000, which can be intimidating for some. However, the Fed allows financial institutions to set their own risk tolerance. For instance, a credit union can choose to set it lower for certain payment types. The reason it goes up to $500,000 is due to use case scenarios such as possibly having real-estate closures over the weekend.
To get an update from the Federal Reserve and learn the answers to commonly asked questions, watch the full webinar, FedNow Service 2023: Your Questions Answered, featuring the Federal Reserve and Alacriti.