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Three Things to Know About FedNow, Now

FedNow smartphone laptop earbuds
By Kristen Jason

3 minutes

The service is launching between May and July.

Sponsored by Alacriti

Previously the Federal Reserve’s real-time payment rail, the FedNowSM Service, was set to launch in 2023, with no further details. However, the launch window is now more defined. The Fed has recently announced that the FedNow Service will launch in May-July 2023. Currently, over 120 organizations are participating in the FedNow Pilot program, which entered technical testing in September.

In a recent webinar, credit unions had the opportunity to ask questions directly to Joni Hopkins, VP/product and relationship management group at Federal Reserve Financial Services, and Mark Majeske, SVP/faster payments at Alacriti.

Here are three interesting things that were shared in the webinar.

How to Connect

An important part of the plan is how to connect.

A credit union can connect through one of the following:

  • their own FedLine Solutions connection (existing or new)
  • the connection of a service provider, such as Alacriti
  • a combination of both (e.g., based on use cases or account types)

FedLine Direct(4), FedLine Command®, and FedLine Advantage® are all direct means of connection. However, FedLine Web® users will need to switch to one of the three aforementioned solutions for FedNow Service connection.

Types of service providers included hosted gateways, bankers’ banks, corporate credit unions, and core processors. Whether using Alacriti, a core processor or a corporate credit union to connect to FedNow, credit unions can have more control by managing their profile directly through the Federal Reserve (through a FedLine Advantage or above connection). Because of the FedNow Service’s flexibility, credit unions can even connect with multiple partners, e.g., a core processor and online banking service.

The Impact of Real-Time Payments on Operations

When considering the impact of real-time processing on operations, there are more questions to think about, such as: How will real-time processing be managed? Which upstream and downstream applications need to operate on a 24x7x365 basis? What contingency arrangements are needed to mitigate service disruptions?

Hopkins shared in the webinar that the impact on operations is a significant concern for many credit unions.

“When I’m talking to credit unions, a lot of times people get a little nervous when they think about real-time processing,” he said. “Does 24x7x365 mean that I have to have someone sitting at the credit union 24 hours a day, 7 days a week, 365 days a year? The answer is no. When we’re your service providers, you will understand more about how you can offer 24x7x365 and have real-time processing without someone physically having to be in the bank. Understand that this is different, but your partners are going to walk you through it.”

Limits and Anticipated Pricing for FedNow

Hopkins shared a sneak preview of anticipated costs. However, she encouraged attendees to review their next announcement for official pricing, which will likely come out at the end of 2022.

Overall, the pricing won’t be a lot more than what financial institutions are paying today for legacy services, such as checks and ACH. It is likely to be a $25 monthly fee per routing number that’s enrolled in the Fed and a fee of $0.045 per credit transfer to be paid by its sender, including returns, and a $0.01 request for payment fee.

The transfer value limit for the FedNow Service is $500,000, and the default value limit is $100,000, which can be intimidating for some. However, the Fed allows financial institutions to set their own risk tolerance. For instance, a credit union can choose to set it lower for certain payment types. The reason it goes up to $500,000 is due to such use case scenarios as having real-estate closures over the weekend.

To get an update from the Federal Reserve and learn the answers to commonly asked questions, watch the full webinar, FedNow Service 2023: Your Questions Answered, featuring the Federal Reserve and Alacriti.

Kristen Jason is associate director/product marketing for Alacriti. She is responsible for marketing strategy and content for Alacriti while staying abreast of industry trends. She offers over 17 years of marketing experience, including eight years in financial technology and payments. Jason holds a bachelor of science in psychology and business administration from Florida A&M University and an MBA from the University of Central Florida. Alacriti’s centralized payment platform, Cosmos, provides innovation opportunities and the ability to make smart routing decisions at the credit union to meet their individual needs. Credit unions can take full ownership of their payments and control their evolution with ACH, Wire, TCH RTP® network, Visa Direct, and the FedNowSM Service, all on one cloud-based platform. To speak with an Alacriti payments expert, please contact us at 908.7912916 or info@alacriti.com.

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