FedNow payment agents explained: How fintechs can integrate the FedNow® Service
Let’s face it: in a digital economy, everything moves fast. Consumers expect to move money instantly, businesses expect to make payments without delay, and fintechs and other payment providers want to design seamless experiences that meet these needs.
As a non-financial institution provider — a payroll platform, digital wallet provider, online merchant or other fintech — you may want to send and receive instant payments on behalf of your end customers within the flow of your own system, eliminating extra steps in the transaction or the need to route customers to external platforms.
That’s where the FedNow Service’s “On Behalf Of” (OBO) capability comes in. Since the service launched, it has offered fintechs this option to get involved on the FedNow network. With an OBO arrangement, a fintech can partner with a bank or credit union on the FedNow Service to deliver the speed and transparency of instant payments to your customers.
There are two ways to do this:
- With a standard OBO arrangement: You rely on your partner financial institution’s existing connection to the FedNow Service
- As a FedNow payment agent: Working through a financial institution,you establish an OBO arrangement and your own FedLine Solutions® connection. This enables you to send and receive FedNow transactions for your end customers as an agent of your financial institution.
This resource explains the benefits of both setups, and why you might choose to act as a FedNow payment agent.
How does an OBO arrangement work?
At a basic level, a fintech has a deposit account at a bank or credit union that is live on the FedNow Service. The fintech sends and receives instant payments — payments that are ultimately made on behalf of its own customers — through its deposit account.
For example, a digital wallet provider holds customer funds in an omnibus account at their financial institution. As an OBO depositor, the wallet provider can send a payment on behalf of the customer from that account. Funds clear and settle instantly over the FedNow Service and the recipient’s financial institution makes the money available within seconds.
OBO arrangements enable fintechs to:
- Move money for customers without requiring them to initiate transactions directly from their bank or credit union app or web interface.
- Build smoother end-to-end experiences into your apps and platforms.
- Offer faster payouts, disbursements and transfers.
- Cut out unnecessary steps and operational delays.
For many fintechs, this simpler OBO setup is enough and already in practice today. But providers that want more control over the full payment flow may consider going a step further as a FedNow payment agent.
What can fintechs unlock as a FedNow payment agent?
Every OBO setup gives fintechs a way to leverage instant payments — offering efficiency on the back end and more control over the customer experience on the front end. Operating as a FedNow payment agent takes the OBO arrangement a step further, maximizing the control a fintech can have over a FedNow payment.
“By connecting directly to the FedNow network through our own FedLine connection, we can build instant payments into the products our customers rely on for their most important transactions, like invoicing, payroll and bill pay. As more financial institutions join the network, more of our customers get their money faster and can act with more confidence. That’s what we’re building toward: a world where money moves in real time between people, businesses, and the institutions that serve them.
”
James Barrese
Senior Vice President of Fintech
Intuit
To operate as a FedNow payment agent:
- A fintech engages a financial institution to act as its service provider, enabling the fintech to connect directly with the FedNow Service and transact on the financial institution’s behalf.
- The fintech completes certification to act as a service provider on behalf of the financial institution.
- Once certified, the fintech connects to the FedNow Service through its own FedLine connection, rather than routing through the financial institution’s connection.
With this type of OBO setup, the fintech — rather than the financial institution — can send payment instructions directly to the FedNow Service, acting as an agent of its partner bank or credit union.
This payment flow illustrates how a FedNow transaction works when facilitated by a FedNow payment agent. The fintech is acting as a service provider for their partner bank or credit union, which enables the fintech to connect to the FedNow Service directly. First, the fintech’s customer initiates an instant payment to pay their supplier. Then the fintech, partnering with their financial institution to establish a FedLine connection, sends the payment instruction to the FedNow Service. Next, the FedNow Service clears and settles the payment instantly. Lastly, the receiving financial institution gets the funds in seconds, and the supplier is able to use the funds right away.
Because the service facilitates an end-to-end instant transaction, some fintechs find that handling more of that flow in-house better fits how they want to serve their customers. As a FedNow payment agent, a fintech has more control over their FedNow transactions and strategy, and they can receive robust transactional data directly.
Check out this resource to learn more about eligibility and requirements for FedNow service providers.
Financial institutions play a critical role
Here’s the part that’s easy to misunderstand: becoming a FedNow payment agent doesn’t mean you bypass your financial institution. It means working with them in a new way.
As a FedNow payment agent, a fintech connects to the FedNow Service directly — but only because a financial institution permits the fintech to act on its behalf as a service provider. The role of the financial institution shifts but remains central to the arrangement.
That shift comes with a few implications:
- The relationship between a fintech and its financial institution gets more integrated, not less. Because the fintech is acting as the partner financial institution’s agent, fintechs can expect closer, more structured collaboration than a standard partnership.
- The financial institution will dictate certain terms. Because the partner financial institution remains legally responsible for the transactions and activity sent under its name, the parties will have to establish terms and conditions directly with each other.
- Finding the right partner is critical. Engaging a service provider is a big commitment for a bank or credit union, and not every financial institution will offer the option. Talk to your financial institution about the possibility of a service provider arrangement and check out the Innovator Exchange for a list of banks and credit unions open to a FedNow payment agent solution.
How to get started with OBO
Ready to get going on an OBO setup? Here are your next steps:
- Talk to your financial institution.
Ask about their FedNow plans and readiness or visit the Innovator Exchange to find partners who can help you connect. - Explore your connection options.
Decide whether becoming a FedNow payment agent (i.e., a service provider) fits your needs and those of your financial institution. - Review the FedNow Service Operating Procedures and Operating Circular 8.
Understand authorization, transparency and operational requirements. - Read more about OBO.
Check out this resource (Off-site) for more information on OBO and the role of OBO depositors.