The Federal Reserve Bank Advances Future-Focused Payments Efforts
Recognizing the importance of creating choice and product depth in the payments marketplace, last year The Fed announced its new payment service, FedNow, which is targeted for implementation by 2024. Built using the ISO 20022 framework and designed for 24/7/365 access, FedNow will provide a platform for instant payments with considerations of fraud management, settlement and liquidity options using correspondents and other partners, and the flexibility to meet the needs of a range of use cases. The service will expand over time from baseline functionality at launch to offer further capabilities, including the transmission of enriched payments data and intended interoperability with other Faster Payment services. Like the RTP Network, FedNow will not be an end-to-end service, but rather a payment rail on which financial institutions and their partners will build solutions that fit their strategies and their customers’ expectations. Bankers’ Bank will stay closely connected to these efforts, providing commentary and building new tools as the FedNow solution develops. We are already laying the groundwork to be your bank’s strong partner where we can best add value to the FedNow experience.
Another priority effort at the Federal Reserve has been the development of FraudClassifier. With the expansion of payments options, fraudsters have been adapting their methods accordingly. This will further complicate recognizing and classifying fraud, already a significant problem on existing payment rails. To help meet this challenge, The Fed has rolled out a new model called FraudClassifier. Using this model, financial institutions can better track and account for fraud across payment streams with standardized terminology and identification methods. FraudClassifier is not mandatory, and is intended to be used inside financial institutions, creating organizing principals, not regulatory requirements. The greatest strength of FraudClassifier is that it is rail-agnostic. That is, it does not depend on the rules or specifications of any particular payment type to classify fraud. Instead the model asks a series of questions, starting with who initiated the payment – an authorized or un-authorized party. Two more questions about how the fraud was executed and what specifically the fraudster did provides one of twelve types of fraud, broad labels that address commonalities across different customers and payment methods. These labels are powerful organizing tools, and will help financial institutions that use FraudClassifier to get a better handle on the types and amounts of fraud they are experiencing. While The Fed has a plan for anticipated rates of adoption, version one of the FraudClassifier model is finished and ready to be used today.
The Fed uses a variety of methods to communicate with the payments community including regular updates by e-mail and informative webinars. Signing up for notices on changes and upcoming events will help the payments team at your bank stay up-to-date on all the latest news. For more information about FedNow or FraudClassifier just follow these links.
And of course, Bankers’ Bank is always a resource for you as well. Please reach out to us at any time at PaymentsStrategy@BankersBank.com.
Later this month there is an opportunity for your bank to participate in The Fed’s Chicago Payments Symposium without leaving home. This symposium is usually an in-person event but this year it is free and online, September 22 and 23, with prominent keynote speakers and covering a wide range of payments topics. More information and registration instructions can be found at the Chicago Payments Symposium website.