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Asked and answered: FedNowSM Service payment flow

April 6, 2021

The Federal Reserve has received a lot of interest as well as questions from customers and stakeholders about various aspects of the FedNow Service since we announced its features and functionality. A number of these questions are specifically related to the payment flow of the service.

To address these questions, we’ve developed resources to help you better understand how a payment is cleared and settled through the FedNow Service and what role financial institutions play in the process. See our “How the FedNow Service will work” video and payment flow diagram for an overview.

For more specific details on the payment flow, see the answers to commonly asked questions below.

  1. How will financial institutions connect to the FedNow Service, and what technology will be used to send payments and other messages?

    FedNow participants will be able to send/receive FedNow payments leveraging enhanced FedLine® Solutions which will connect to the FedNow Service.

    The FedNow Service will initially leverage IBM® MQ MQi Client for the payment message flows. Financial institutions will need to integrate their core payment processing systems with the FedNow Service using the freely available IBM® MQ MQi Client over either the FedLine VPN device or FedLine WAN router, similar to the way they connect today to other Federal Reserve Financial Services.

    The FedNow Service is committed to fostering the nationwide reach of instant payments and is exploring options for supporting other connection types based on industry needs, such as APIs. More information will become available as the Federal Reserve finalizes future releases.

  2. How will settlement occur? Can subaccounts be used?

    FedNow payments will settle in the participant’s Federal Reserve Bank master account or that of their designated correspondent. Consistent with the account structures for other Federal Reserve Financial Services, participating institutions will be able to use primary and secondary routing transit numbers (RTNs) within messages to segregate payment activity for reporting purposes, however, settlement will occur at the master account level.

  3. What is the expected end-to-end time for a credit transfer message? How long will the receiving financial institution have to respond to the request for validation?

    The service will include a payment timeout clock which will ensure that payments cannot queue "in process" indefinitely, establishing a standard of expectation for customers and processors for when payments will either be settled or rejected. Most payments will settle in just a few seconds, well below the maximum time set in the timeout clock which is currently set to trigger at 20 seconds from the timestamp in the sending financial institution's payment instruction. There will be a reserved amount of time within the 20 seconds to ensure the receiving financial institution can respond to the request for confirmation from the FedNow Service. The exact payment timeout clock allowable time will be published prior to launch of the service.

  4. Will a correspondent receive a notification when payments are completed for their respondents?

    Correspondents that establish a FedNow profile and enable the Settlement participation type will have the option to receive credit and debit notifications in real time for every settled transaction as well as FedNow reporting. Correspondents do not need to enable a profile or the ability to send or receive messages through the FedNow Service to settle FedNow transactions in their master account and will receive Federal Reserve Accounting reports to support their reporting and reconciliation needs.

  5. What will the FedNow Service offer to support participants in managing exceptions?

    In the initial release of the service, participants will have the opportunity to manage exceptions through the FedNow ISO® 20022 messages, such as requests for payment status, requests for information, and payment return requests. In line with the expectation that volume will increase over time, additional options for participants to manage exceptions may be available in future releases.

To keep you up to date with the latest FedNow Service updates, we will publish a regular “Asked and Answered” blog post that will answer customers’ most sought-after questions regarding the service. If you have any topics that you’d like to see covered in this series, please answer the “Was this content helpful?” question below and then tell us what you’d like to hear more about.

Learn more about the FedNow Service and sign up to receive FedNow News, our regular emails with news and resources about the service.

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