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Seven Steps to Preparing for FedNow

The U.S. trails many emerging markets in instant payment capabilities. It must accelerate the payments infrastructure to meet and surpass global benchmarks, securing a competitive edge in the ever-evolving financial landscape.

Recently, BlackRock Chairman and CEO Larry Fink criticized the U.S. Payments System as lagging in this area compared to emerging markets. "In many emerging markets – like India, Brazil, and parts of Africa – we are witnessing dramatic advances in digital payments, bringing down costs and advancing financial inclusion," he said in the letter to BlackRock investors published March 15. "By contrast, many developed markets, including the U.S., are lagging behind in innovation, leaving the cost of payments much higher."

However, help for the U.S. has arrived as the FedNow Service was launched on 20th July 2023. This service will advance the U.S. towards closing the gap with markets across the globe. Euronet is poised to help customers bridge to FedNow Service and recommends these seven steps that banks can undertake to get FedNow ready.

Evaluate your existing payment systems

A successful FedNow implementation requires a thorough assessment of your current payment systems and their ability to integrate with the new rail. This assessment should include an analysis of the current state of your payments infrastructure—including software, hardware, networks, and applications—and your plans for future development. What role does each system play in your current payments process: Which systems are involved in processing electronic payments? Are they all connected? What is their capacity? How do they communicate with each other? What is their security level? Is there any legacy technology that needs to be replaced? Are there any gaps between your current systems and the requirements set by FedNow Service?

Familiarize yourself with the FedNow Service

The FedNow Service is an enhancement to existing Fedwire services that allows banks to send same-day ACH payments to any bank or credit union in the U.S. for a low fixed fee per transaction. 

Get to know the FedNow Service by reading the documentation, including the Operating Circular, Technical Specifications, and other guidance documents published by the Federal Reserve. Studying this information will help you understand how the system works and the participation requirements you will need to participate.

Review your compliance requirements

Banks should review their compliance requirements and ensure that their bank is compliant with all relevant regulatory requirements and guidance related to FedNow Service, such as those related to fraud prevention and customer identification.

Regulation E, for example, requires that financial institutions provide customers with an explanation of the terms of electronic funds transfers at the time of the initial authorization. The institution also must obtain a consumer's affirmative consent before each transfer, except where the transfer is initiated automatically by the consumer.

Consider your customer base

One of the most important steps in implementing your FedNow service is to evaluate your bank's customer base and identify any early adopters of the FedNow Service. Work with those customers to test and implement the new payment rails.

Update internal processes and training

Revise internal processes and procedures to ensure they align with the FedNow Service requirements—train staff on how to use the system and communicate with customers about the new payment options available.

Implement a FedNow pilot program. The Federal Reserve will provide a two-week pilot program designed to help institutions prepare for FedNow. Participants will be able to test all aspects of their systems before full rollout, including connectivity and transaction processing capabilities. The pilot will also help institutions better understand how their business practices may need to change to support FedNow transactions effectively.

Implement security controls consistent with FedWire regulations (Regulation E). After the pilot program concludes, institutions must establish appropriate security controls for each FedNow accounts within their institution's control. These controls must be consistent with those Regulation E requirements under the Electronic Fund Transfer Act (EFTA) for non-electronic transfers.

Conduct testing

Banks and payment providers can conduct testing with other banks and payment providers to ensure interoperability. Testing is especially important for banks that have not previously used APIs for payments or in cases where the bank is using a new API provider.

Connect with third-party providers

You can connect with third-party providers such as Euronet, who can help you integrate with the FedNow Service. Determine what services those providers offer and evaluate whether they can help meet your needs for the new payment rails.

Working with a third-party provider for payment services offers numerous advantages, including:

  • Cost-effectiveness: Third-party providers typically have a scalable and established infrastructure, which can reduce the costs associated with developing and maintaining an in-house payment system.
  • Expertise: Third-party providers specialize in payment services and bring a wealth of experience, knowledge, and best practices to the table, ensuring smooth and secure transactions.
  • Compliance: Payment providers are well-versed in industry regulations and compliance requirements, helping businesses easily navigate complex legal frameworks.
  • Security: Payment service providers invest in advanced security measures and fraud prevention tools to protect sensitive data and mitigate risks associated with payment processing.
  • Faster implementation: Leveraging a third-party provider's existing infrastructure can     significantly reduce the time it takes to implement payment services, allowing businesses to focus on core competencies.
  • Global reach: Many payment providers offer support for multiple currencies and payment methods, enabling businesses to accept transactions from customers worldwide.
  • 24/7 support: Reputable payment service providers often provide round-the-clock support to address any issues, ensuring uninterrupted service for businesses and their customers.
  • Scalability: As businesses grow, third-party payment providers can easily scale their services to accommodate increased transaction volumes and changing business needs.
  • Continuous innovation: Payment service providers are constantly updating and        improving their offerings, providing businesses access to cutting-edge technology and features.
  • Enhanced customer experience: Third-party providers can help businesses streamline payment processes and offer convenient payment options, ultimately improving the overall customer experience.

    By taking these steps you will be able to provide your customers with all the benefits of instant payments. Take the first step towards greater efficiency, flexibility, and scalability by choosing Ren – the comprehensive payment solution designed to empower your business and help you join in the benefits of FedNow Service. Click the button below to get started and unlock the full potential of your financial operations today.

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