Exploring the FedNow® service for credit unions
Since its July launch, the Federal Reserve’s FedNow® Service, a real-time payment and settlement service, has garnered significant interest from credit unions. This always-available instant payment option offers numerous benefits and integration possibilities for credit unions, but also raises questions regarding its implementation and impact on members. Top areas of focus include fraud mitigation, operational integration, and cost implications.
Navigating fraud mitigation with FedNow
One of the primary concerns for credit unions when considering real-time payment systems is the risk of fraud. The FedNow Service has been designed with a robust suite of risk and fraud mitigation services. Credit unions have the flexibility to start with a ‘Receive Only’ option, reducing initial risks and allowing for a gradual introduction of more functionalities. Features like the ability to control and limit transaction volumes and negative lists are integral parts of the service’s security framework. Additionally, there is a strong emphasis on educating the industry about scams and fraud trends.
Beyond the network-level security measures, credit unions must consider their internal fraud prevention strategies. For instance, integrating decision engines that process fraud system outputs in real time can add an additional layer of security.
Adapting to real-time transactions with existing systems
A key operational concern is how credit unions with batch-based core systems can adapt to real-time transaction processing. A solution that enables the parsing of batch files according to the desired speed and cost parameters can facilitate a smoother transition to real-time payments without disrupting existing processes. Also, with the increasing adoption of ISO 20022 standards, having a system that can convert data formats is crucial for seamless integration.
Understanding the cost
When it comes to costs, the FedNow Service presents a transparent and economically feasible option for credit unions. The service’s pricing structure includes a $25 monthly servicing fee, which is similar to other payment rails from the Federal Reserve. In contrast, for ACH there is a $50 month origination fee and a $40 receipt monthly fee. However, FedNow costs $0 to receive transactions on the network, so in other words, transactions received to a credit union are free. Send transactions are $0.045 per transaction.
Staffing for 24/7 real-time payment operations
The transition to a 24/7 real-time payment system raises concerns about staffing requirements. However, most credit unions may not need to hire additional staff specifically for FedNow operations. The automated nature of the system and its rule-based processing reduce the need for constant monitoring, although having on-call support could be beneficial for addressing any issues that may arise outside regular business hours.
The FedNow Service presents a significant opportunity for credit unions to enhance their payment capabilities and offer real-time, secure transactions to their members. While the integration of this service involves various considerations—from fraud prevention to operational adjustments—the benefits and competitive edge it provides make it an attractive option.
For more information about FedNow, please go to Alacriti’s FedNow guide, which answers common questions such as ‘What’s the difference between the FedNow Service and the RTP network’, and ‘How does FedNow work?’
