May 5, 2021
A recent FedNow Community town hall meeting highlighted the vision and key pillars of the FedNow technology strategy, and how the Federal Reserve intends to deliver a service that fully meets market-driven business requirements for 24x7x365 instant payments clearing and settlement. We followed up with five questions for Dan Anthony, senior vice president and chief information officer for the FedNow Service, who spoke at the town hall.
Q: What is your technology strategy and the factors guiding your approach to building the service, and how does this approach benefit financial institutions and end users?
A: Our technology approach for the FedNow Service is driven by security, performance and resilience – three pillars that are at the center of every technology decision we make. We are working to build a highly secure and resilient instant payments platform that will allow industry innovation to flourish in the near term and far into the future, consistent with our policy goals of safety and efficiency in the U.S. payment system.
The FedNow team is employing agile software development – in other words, iterative and collaborative development – which we expect to help us narrow the timeline for the industrywide initial launch of the FedNow Service, facilitate 24x7x365 operation, release new features more quickly and provide the flexibility to accommodate evolving technologies and use cases. We anticipate this approach will enable more frequent, smaller FedNow technology updates that are designed to be seamless and nondisruptive. Our technology approach will leverage automation, integration and testing throughout the development cycle, not solely in the final testing phase. We’ll offer options to financial institutions, including the ability to choose whether or not to adopt a given new feature beyond the core product.
Our goal is nothing less than to launch a FedNow Service that will put instant payments in the hands of more individuals and businesses, drive current and emerging use cases and support the economic needs of America.
Q: Is the FedNow Service being built internally, or are you using external vendors?
A: Our technology strategy blends Federal Reserve and external vendors. Our technology decisions are based on a rigorous evaluation process. In addition, the FedNow technology team continually assesses opportunities to leverage emerging technologies where they provide an appropriate business or technology advantage.
The FedNow Service is being delivered using a carefully selected technology portfolio. While we don’t share details of the internal tech stack, we have made – and will continue to make – choices designed to achieve our goals for the FedNow Service’s time to market, security, resiliency, performance, efficiency and innovation. Our innovative architecture leverages the learnings of some of today’s most high-performing, resilient and large-scale technology platforms across the globe in industries including financial services, healthcare and media. We plan to incorporate some of the same technologies that power software-as-a-service, or SaaS, products widely in use today, including virtualization and cloud, where appropriate.
Q: How will financial institutions connect to the FedNow Service, and what technology will be used to send payment (and other) messages?
A: We are currently designing and developing the FedLine solutions that will support the FedNow Service and provide the high level of security, resiliency and reliability that our customers expect from us. 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® 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.
API access to the FedNow Service also will be an important part of the product roadmap. As the Federal Reserve finalizes solution details, we’ll provide more information to support planning and ensure ease of connectivity.
Q: How will your technology strategy support 24x7x365 operation of the FedNow Service?
A: We are working to offer a service that is highly available and resilient due to distributed, replicated processing with redundancy, as well as operational tools and processes, such as self-healing and site reliability engineering, or SRE practices. More frequent, smaller FedNow technology updates will be designed to be seamless and nondisruptive to facilitate 24x7x365 operation and new features.
Q: How is the Federal Reserve working with the industry on FedNow development?
A: To ensure our service meets the industry’s ever-evolving needs, we’re obtaining ongoing insights from the 1,300+ member FedNow Community and the 120+ participants in the FedNow pilot group. We’re also working to help financial institutions and industry partners take appropriate steps now to make sure they’re able to use the FedNow Service when it becomes available – such as by reviewing existing processing and accounting systems and looking at technical considerations and operational implications of a 24x7x365 processing environment. These could include the ability to use ISO® 20022 messaging and enhancing risk, fraud prevention and compliance technology and practices to accommodate sender screening and authentication.
Industry readiness for instant payments in the United States is much more of a challenge than in other countries. New Zealand – where I hail from – has only a handful of banks while the United States has more than 10,000 financial institutions. That challenge is one reason I took on this exciting role as the FedNow CIO. I look forward to working with industry stakeholders to explore opportunities for innovative new product offerings, make the FedNow Service a reality and enable nationwide reach of instant payments.