FedNow Service will enable individuals and businesses to send instant payments through accounts at their depository institutions, making it easy to send and receive money. Although this type of service is not new, it will now be under the umbrella of the Fed, ensuring that the FedNow Service will adhere to the Fed’s regulations, standards and protocols.
“We are committed to building an instant payment system that delivers the payment speed that users want without bypassing the legal and regulatory protections they have come to expect from banking relationships,” said Lael Brainard, former vice chair of the Fed, and incoming director of the National Economic Council.
“Instant payments will enable millions of American households and small businesses to get instant access to funds, rather than waiting days for checks to clear,” Brainard said. “An instant payment infrastructure ensures the funds are available immediately, which could be especially important for households on fixed incomes that wait days for the funds to be available to pay a bill.”
This new protocol will not only help end users, but also financial institutions, which will have the opportunity to develop new business models due to the open APIs. This will be an historical mark for US banking institutions, but alongside it comes significant challenges.
The main challenges are in complying with Fed regulations while implementing the new protocol; establishing high-quality implementation of the Open APIs; and anticipating any future problems. It is of paramount importance to ensure that all integration processes within the bank’s legacy system will be carried out without any damage to the current structure. Additional challenges include dealing with short deadlines and large teams while managing several important stakeholders with different demands.
GFT has successfully participated in the implementation of instant payment initiatives in Brazil. We also had a part in the debates with regulators on Open Banking throughout the rollout in Brazil, and even helped build the proposed structures and data that the working group led by Federação Brasileira de Bancos (Febraban, Brazilian Federation of Banks) presented to Banco Central do Brasil (BC, Central Bank of Brazil). Pix, the Brazilian instant payment system inspired the Fed to revolutionize the American instant payment system in part due to its success in Brazil.
In announcing the accelerated timeline for the launch of the FedNow Service, the Fed provided financial institutions with notice that the service would launch in less than a year. Thus, GFT is preparing to help our clients implement these solutions and adapt to this new protocol, of which thousands of institutions are requiring assistance. This includes provisions of the new regulations and onboarding of partners on the platform for exposing the APIs.