Unraveling the future of FedNow for credit unions

Publisher’s Note: CUInsight is hosting a free webinar Wednesday, November 29 titled, “Instant Payments: A Year in Review and What’s Next in 2024”. We hope you’ll join us! Register here.

The world of payments is ever-evolving, and a significant leap in that trajectory is the move towards real-time payments. A recent webinar delved deep into this topic, and toward the end, webinar attendees were able to ask their questions directly to Dan Gonzalez, VP of Customer Relations at Federal Reserve Financial Services, and Mark Majeske, SVP of Faster Payments at Alacriti. Here are some of the top questions, and what we learned from the Q&A session.

Q: What are some of the specific fraud mitigation tools put in place for the FedNow® Service?

A (Dan Gonzalez): The FedNow service will offer several tools for fraud mitigation:

• Mandatory reporting of any fraud to the service, which then notifies both parties involved in the transaction.
• Creation of negative lists to allow credit unions to block certain payments either in or out.
• Introduction of dollar limits, initially set at $500,000 per transaction, but institutions can set their own maximum limits based on comfort levels.

Q: Does the Fed list, which service providers support, send capabilities?

A (Dan Gonzalez): The Fed lists certified service providers but doesn’t break them down by capabilities. The FedNow Explorer website does showcase vendors supporting the FedNow service, where they list their capabilities.

Q: With the introduction of real-time payments, how has the gap between receiving and sending capabilities evolved?

A (Mark Majeske): The time between wanting to receive and then send has shortened considerably. While both actions might not occur simultaneously, the interval between them is decreasing.

Q: Why wouldn’t institutions need to staff 24/7 to monitor and manage their accounts in real-time?

A (Dan Gonzalez): Initially, most credit unions will primarily receive funds, which means money is coming into their accounts. Managing liquidity is more critical when sending money. The challenge is more about ensuring enough money is available for outgoing transactions than monitoring incoming ones.

Q: Considering that some platforms offer free real-time payment services, is it viable for institutions to charge for the same?

A (Mark Majeske): While some platforms might offer free services to end-users, there’s intrinsic value in expedited payments. Financial institutions can potentially adopt a model where standard transfers remain free, but expedited ones come at a cost.

Q: Can international payments be made using the FedNow Service?

A (Dan Gonzalez): Initially, the service is domestic-only. While future capabilities may consider international payments, no timeframe has been set for this expansion.

Q: Are payments through the FedNow Service one-time or can they be scheduled in advance?

A (Mark Majeske & Dan Gonzalez): While the system can operate both ways, once a transaction hits the network, it processes instantly. Any scheduling needs to happen at the user interface level before the transaction is sent to the network.

Q: Given that transactions are irrevocable, how are institutions addressing issues like account takeover and potential fraudulent transfers?

A (Dan Gonzalez): The onus of confirming transactions lies with the sender. Once funds are received, the receiving institution isn’t obligated to return them. However, institutions need to be prepared and ensure that the transactions are valid before sending.

To get insights, strategies, and actionable steps to ensure your credit union is ready for the FedNow Service, watch the full webinar, The FedNow Service is Coming: Is Your Credit Union Ready?, featuring the Federal Reserve and Alacriti.

Alacriti’s centralized payment platform, Orbipay Payments Hub, provides innovation opportunities and the ability to make smart routing decisions at the financial institution to meet their individual needs. Financial institutions can take full ownership of their payments and control their evolution with ACH, Wire, TCH’s RTP^® network, Visa Direct, and the FedNow^® Service, all on one cloud-based platform. To speak with an Alacriti payments expert, please contact us at (908) 791-2916 or info@alacriti.com.

Don’t forget to join CUInsight and Alacriti for our free webinar titled, “Instant Payments: A Year in Review and What’s Next in 2024“, on Wednesday, November 29. Register yourself and a colleague here.