Managing Risk and Fraud in Instant Payments on FedNow® & RTP®
Ten questions every bank and credit union should ask when evaluating third-party service providers for instant payments
FedNow has transformed from an “if” to a “when” for financial institutions (FIs) of all sizes. To compete, banks and credit unions know they must offer instant payments. This makes FedNow a necessary product.
Yet, to bring this instant payment vision to reality, the majority of FIs will need to engage a third-party service provider, and selecting the right one can be challenging. FIs have to thoroughly assess potential candidates to ultimately select one that offers the right fit. In addition, they will need to seek one that addresses topics ranging from ISO 20022 compatibility and API integrations to payment orchestration and future proofing and beyond.
So, FIs may be asking themselves, “What are the criteria we should use in selecting a strong instant payments partner?” Look no further. The following checklist can serve as a guide for banks and credit unions in whittling down the landscape to those partners that will best meet their needs today and in the future.
The FedNow Provider Checklist
1. Is the provider equipped today to offer both send and receive? FedNow Service was launched nearly two years ago, providing ample time for providers to roll out their offerings. Today, providers should offer both services, even if their clients choose only to receive, so they are optimized to support their customers best.
2. Does the Fednow provider offer an integration for a customer-facing send experience? In addition to simply supporting FedNow send at the processing level, a provider should be equipped to provide a customer-facing send experience that can easily integrate with an FI’s digital banking solution to provide a seamless send experience.
3. Does the provider facilitate a seamless integration with core, customer-facing and other systems? Beyond enabling the send experience, the provider also needs to ensure data and information are fed into FI systems, including core, GL, liquidity, and customer-facing ones, in real time.
4. Does the FedNow provider supply API integrations? In today’s landscape, this is a requirement of any provider. Easy API access is a non-negotiable due to the growth in open and embedded banking and fintech engagement. In addition, when business customers/members turn on FedNow, they are going to require easy integrations with solutions like QuickBooks for supplier payments and cash flow management.
5. Is the provider ISO 20022 ready? ISO 20022 has become the de facto payments standard, with Fedwire making the migration and FedNow and RTP® both based on ISO 20022 foundations. Any provider partner should already be prepared to support the standard and its benefits, including opportunities for leveraging the rich data it provides.
6. Does the provider support value-added services like Request for Payment (RfP)? As send volume continues to grow, so, too, do the use cases for instant payments. FIs want to make sure their provider is ahead of the curve, delivering solutions that ultimately could become new revenue streams.
7. Does the provider cater to real-time fraud monitoring? FIs know that particularly with instant payments send, they need to arm themselves against fraud. Any provider in this space should be helping FIs manage those needs.
8. Does the provider present a true 24/7 system? With instant payments, FIs need a system that does not go down. It needs to be accessible at any time of the day and designed to address core downtime. For instance, it should be able to double up as a shadow core when the core is down and then move them into the main core system when it’s back live.
9. Does the Fednow provider enable smart routing? Customers/members don’t care about the type of payment they send, just that the payment is made, and modern systems need to support that. For example, if an instant payment is sent to an institution who’s not set up to receive FedNow payment, the provider should have the ability to re-route the transaction as an ACH versus creating a failed payment. Similarly, the provider should be able to accommodate payments from any channel. That’s table stakes in today’s environment.
10. Will the provider scale as the industry evolves? FIs want an instant payment service provider who’s not only thinking of today but is ready to address the demands of tomorrow. These providers should be preparing for a platform economy, centered around opportunities like embedded banking. They should be able to scale services without compromising performance.
Selecting the right partner
Of course, beyond these technical requirements, FIs want to select a provider who’s a fit for their institution. They also should be looking for those providers who truly understand their needs, listen to their plans, respond to their concerns, and help them realize potential with a larger payment strategy.
While instant payments offer opportunity, they are only one component of today’s payments landscape, and FIs want a partner who can help them maximize their investment. In short, FIs are seeking a true payments partner; isn’t it time for you to make that leap?
For more information on Finzly’s payment services, reach out to our payment experts.
