FedNow is an instant payment service. Through it, Financial Institutions (FIs) can let their customers send and receive money instantly. The transactions with FedNow are settled and executed through Federal Reserve Banks.
The FedNow Service
The service will be rolled out in July 2023. This is how it will work:
The sender initiates a FedNow service payment request to their Financial Institution. Upon validating the customer’s request, the Sender Financial Institution submits a payment message to the FedNow service.
The FedNow service validates the payment message from the Sender’s Financial Institution. If things are found in order, then the FedNow service would send the payment message to the Receiver Financial Institution, which has got three options at its disposal. They have the options: Accept, Reject, or Accept without posting. At the same time, the Receiver’s Financial Institution would also check if they maintain the receiver’s account.
At this stage, if the Receiver Financial Institution accepts the message. The FedNow service to settle the transaction would debit and credit the Sender and Receivers’ Financial Institutions’ master account.
Subsequently, an acknowledgment is sent to the Sender and Receiver Financial Institutions about the settlement. The funds are then credited to the Receiver’s account and notification is sent to the customer.
Though the transactions processed through this service are settled almost instantly. If, for some reason, the transaction couldn’t get settled then, then there is a maximum time limit of 20 seconds. If it takes more than 20 seconds then the transactions won’t get settled at all.
Accept without posting
A bit about Accept without posting. This is an option available to Receiver Financial Institutions which they can utilize if the receiver is not permitted to receive the amount. The Sender’s Financial Institution is subsequently informed about the status. And, the Receiver Financial Institution would initiate an investigation.
Whether the Receiver’s account is credited or not depends entirely on the outcome of the investigation.
Unless otherwise applicable, the investigation is to be completed no later than midnight EST of next business day. At that time, payment status can be pending, accepted, blocked, or rejected depending on the outcome of the investigation.
In conclusion, the FedNow service would be available 24×7, 365 days a year. Through the service, individuals and businesses would be able to send and receive money in their accounts instantly.