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Five Fun Facts About the FedNow Payment Flow

By Ashton Vandivert posted 02-03-2023 13:49

  

Although you’ve been hearing about FedNowSM for quite some time now, you may find yourself with more questions than answers. Maybe you’re asking yourself: How does the Service work? What does a FedNowSM payment look like?

And, while I can’t answer all of your questions in one short article, let’s go with the flow (see what I did there?) and take a look at five fun facts about the FedNowSM payment flow.

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  1. The process happens within seconds. With FedNowSM, every second counts. Because they are classified as instant, FedNowSM payments will take place in a matter of seconds. According to frbservices.org, each payment will be subject to the timeout clock, which is anticipated to be 20 seconds. This sets the expectation that payments will be settled or rejected within a defined timeframe.
  2. There are five primary participants involved. Similar to other payment systems like check and ACH, there are five primary participants involved in a FedNowSM payment. These include the Sender, the Sender’s Financial Institution, the Federal Reserve Banks, the Receiver’s Financial Institution and the Receiver.
  3. All payment messages are validated by the FedNowSM Service. Once the Sender’s financial institution submits a payment message to the FedNowSM Service, it is validated by the Federal Reserve. This helps to ensure that each party within the payment flow is eligible to send and receive FedNowSM payments.
  4. Throughout the payment process, two-way communication is used. One of the coolest features of a FedNowSM payment, in my opinion, is the use of two-way communication that takes place throughout the payment flow. Unlike traditional ACH where “no news is good news,” FedNowSM payments consist of various response messages. For example, the Receiver’s financial institution may initiate a positive response that it intends to accept a payment. Or, a Sender can receive a confirmation message that a payment was received.
  5. There are eight steps in the FedNowSM payment flow, with the ninth step being optional. From start to finish, there are eight trackable steps in a FedNowSM payment. It’s crazy to think about all of those steps happening within a matter of seconds! By breaking the payment message down into individual steps, one can really visualize exactly what’s happening along the way!

    If you’d like a visual explanation, watch this short video from the Federal Reserve to see a payment flow through the FedNowSM Service from start to finish and hear what financial institutions need to know about your role in the process.

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