A quick run-down on real-time payments and liquidity management
As credit unions move forward with real-time payment adoption, how to connect is the primary consideration. However, another major decision is whether or not to use a funding agent (or correspondent partner). Participating in real-time payments increases intra-day liquidity needs, as adequate cash must be immediately available to fund outbound payments. Credit unions need to balance the risk of underfunding payment accounts and the inefficiency produced by overfunding pre-funded accounts.
A funding agent funds and manages positions in the RTP® network’s joint Federal Reserve bank account on behalf of its participating credit union. And while the Fed doesn’t require financial institutions to prefund any accounts, similar services for the FedNowSM Service are available (called correspondent partners). A correspondent partner can manage a credit union’s profile, cash, and settlement, and make payments.
For instance, The Clearing House’s RTP network is 24/7/365 and uses a reconciliation window that goes from midnight to midnight. During that time, the prefunded requirements and balances are held separately in a joint account at The Federal Reserve Bank of New York, which needs to be managed and monitored at all times. The joint account is required regardless of a credit union’s home region for a federal reserve bank, meaning without a funding agent, there is a need for a separate joint account.
A funding agent can hold the account on behalf of the credit union and actually move the money back and forth between the credit union’s account and the Federal Reserve Bank of New York’s account. This service can provide value to the credit union because if available funds get low during off hours, the credit union could run out of funds. A funding agent will pre-fund the account for the credit union, manage the limits, and react to the alerts.
Benefits of using a funding agent or correspondent partner:
- 24/7/365 facilitation and management of real-time payments – figuring out how to manage the settlement and how it’s going to be monitored is very new for many credit unions
- Simplifies processing – there is no need to have someone managing and monitoring the account every day
- Simplifies the reconciliation process – typically, funding agents have consolidated access to all different settlement reports
- Lower funding requirements – for the RTP network, there is typically a lower pre-funding requirement when a financial institution uses a funding agent
The decision to use a funding agent or correspondent partner is individual to each credit union and should be evaluated even before implementing Receive Only. To find out more about credit unions using funding agents to connect to real-time payments rails, watch the webinar, Real-Time Payments Funding Agents 101, featuring Corporate One and Alacriti.
As part of Alacriti’s Cosmos Payments solution, Alacriti offers funding agent services through a partnership with Corporate One. This provides a connection to real-time payment rails with liquidity management certainty, all from one vendor. To speak to an Alacriti payments expert, please contact us at (908) 791-2916 or info@alacriti.com.
