The FedNow Service: Community Bank Executive Questions Answered

An ICBA-hosted webinar provided valuable insights into the FedNow® Service, the Federal Reserve's real-time payment and settlement service, which launched in July. With Siobhán O’Malley from Federal Reserve Financial Services and Mark Majeske of Alacriti as key speakers, the webinar addressed critical questions about the service’s integration, customer impact, and fraud mitigation strategies. In this blog, we address the topics raised by community bank executives during the Q&A session.

Understanding FedNow’s Approach to Fraud Mitigation

A major concern among community banks revolves around fraud prevention in real-time payment systems. O’Malley highlighted the FedNow Service’s risk and fraud mitigation services. She also emphasized the flexibility offered to financial institutions, allowing them to start with 'receive only' options and gradually adopt more functionalities. Features like the ability to control and limit transaction volumes and negative lists are integral parts of the service's security framework. Mark Majeske noted the necessity for banks to update their fraud systems, especially for instant payments.  

Handling Real-Time Posting with Batch-Based Core Systems

Majeske addressed how banks using batch-based core systems could manage real-time posting. Alacriti’s solution involves accepting batch files and parsing them based on required speed and cost, ensuring compatibility with existing banking processes. He also mentioned their capability to convert ISO 20022 data for banks not yet compliant with this standard, ensuring seamless integration.

Comparing Costs with Traditional ACH Payments

O'Malley pointed out that FedNow's pricing points were transparent. The service's pricing structure includes a $25 monthly servicing fee, similar to other Federal Reserve payment rails. 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. 

Request for Payment Capabilities

Regarding the request for payment (RFP) capabilities, institutions enrolled as 'receive only' can initiate RFPs but cannot respond. For a full customer experience, community banks can connect with Send, Receive, and RFP capabilities. 

Staffing Requirements for 24/7 Operations

Many questions surrounded staffing needs for round-the-clock operations. Majeske shared insights from his experience, noting that most banks did not hire additional staff for FedNow. The system's automated nature reduces the need for constant human oversight. However, banks might consider on-call support for after-hours issues.

The FedNow Service is a big opportunity for community banks to enhance their payment capabilities and offer real-time, secure transactions to their customers. While the integration of this service involves various considerations—from fraud prevention to operational adjustments—it also provides numerous benefits, including a competitive edge. Community banks can go to FedNow Explorer for tools and resources from the Federal Reserve to prepare for instant payments. 

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?’. 

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.