April 27, 2021
The FedNow Service will provide financial institutions an innovative platform they can use to unlock instant payment use cases and create new solutions they can offer to individual and business customers.
Making the FedNow Service accessible to financial institutions of all sizes is a top priority of the Federal Reserve Banks. To help make this a reality, we’re implementing flexible design features such as the ability to choose from a variety of FedNow participation types.
As financial institutions prepare for the FedNow Service, they should start thinking about which of the following FedNow participation types will allow them to support their business and customer needs. Financial institutions can enable almost any combination of participation types, with a few exceptions. Each participation type allows for several different configurations to be flexible and meet each financial institution’s needs.
A financial institution that opts for this participation type will be able to send, receive and return customer payments (i.e., customer credit transfers). By default, these financial institutions will be enabled to send and receive credit transfers to and from other financial institutions to support instant payment liquidity needs, although this capability can be disabled as business needs change.
Participating financial institutions that enable the send and receive option will also be able to send requests for payments (RFPs) as initiated by their customer, which will allow their customers to request payments for a variety of use cases. They can also opt to receive RFPs on behalf of their customers, requiring them to enable their customers to respond to the request by initiating a credit transfer if a customer wishes to make a payment. Additional details can be included with these requests such as invoice specifics and hyperlinks in a structured format.
Some financial institutions may determine that their business needs best align with receiving customer payments. With this FedNow participation type, financial institutions will also be able to send and receive payments from other financial institutions to meet liquidity needs, as well as return payments received, but won’t be able to initiate customer payments. They will also be able to send, but not receive RFPs, since the financial institution will not have enabled the capability to send customer payments in response to receiving an RFP.
To support account balance liquidity needs that occur within a 24x7x365 instant payments environment, the FedNow Service will enable credit transfers between financial institutions at specified times, including when the Fedwire® Funds Service is unavailable. These transfers will have a higher dollar limit compared to customer transfers and can also be used to move funds to and from a joint account that backs a private-sector instant payment system.
As stated above, financial institutions that enable customer payment participation types will be automatically set up to support this functionality. Financial institutions can choose this as a stand-alone participation option if they do not wish to enable other FedNow capabilities.
As with some other Federal Reserve Financial Services, the FedNow Service will support correspondent/respondent relationships. This means that FedNow transactions for a financial institution that uses a correspondent – such as a correspondent bank, banker’s bank or corporate credit union – will settle in the correspondent’s master account.
Correspondent financial institutions may choose to enable this participation type, which will allow correspondents that do not wish to enable other FedNow Service capabilities to receive real-time debit/credit notifications when payments settle in their account, as well as FedNow reports including respondent activity.
Correspondent institutions that enable other participation types, such as customer payments or liquidity management, can still receive respondent activity reports and notifications without needing to sign up for this settlement only profile.
Correspondents also have the option of settling for their respondents and receiving Federal Reserve accounting reports to support their reporting and reconciliation needs. In this case, correspondents do not need to enable the settlement only participation type or the ability to receive real-time debit/credit notifications and FedNow reporting messages through the FedNow Service to settle FedNow transactions in their master account.
For more information on FedNow Service features and functionality, download the FedNow product sheet (PDF). You can also stay up-to-date on our progress by joining the FedNow Community or by signing up to receive FedNow Service emails.