Fed Announces Details of FedNow Service

The Federal Reserve today released more details about its forthcoming FedNow service to provide real-time payments settlement and clearing, including phased elements of the FedNow service. In a speech today, Fed Governor Lael Brainard outlined several key features of the “initial service offering” based on feedback from banks and other market participants—many of which were advocated by the American Bankers Association:

  • Fraud prevention. To address the increased risks of fraud with instant, irreversible payments, “banks will be able proactively to set parameters that limit transaction activity in the FedNow service based on banks’ knowledge of their own customers,” Brainard said.
  • Liquidity management. To support funds availability for 24/7 payments when intraday overdrafts cannot be covered by transfers from Fed accounts, the Fed will create a liquidity management tool that will allow participating banks to pool funds to cover outflows, and the tool will be available to participants in other instant payment services, such as the Clearing House’s RTP network.
  • First steps toward interoperability. To facilitate future connectivity with other real-time payment services, FedNow will use the widely accepted ISO 20022 standard for exchanging financial data. The Fed said it is “committed to working towards compatible standards and operating procedures with [RTP], which will enable interoperability through the model of payment routing, and has initiated discussions on this subject with the existing private-sector service toward that end.”

Future features may include alias-based payments, bulk payments and enhanced remittances, but FedNow is intended to launch “as soon as practicably possible” with “baseline functionality,” the Fed said. However, the service is still not expected to be available until the Fed’s previous estimate of 2023 or 2024.