Understand FedNow and its differences from other payment processes.
The FedNow Service offers various educational resources, as do other industry groups. Staying attuned to these resources will help financial institutions learn more as more institutions roll it out. Among the key fraud management considerations specific to FedNow payments and other instant payments:
- Clearing and settlement occur almost immediately rather than hours or days later, as they do with checks, ACH, and consumer-friendly applications like Venmo.
- FedNow will operate around the clock every day of the year, so fraudsters can try to push through fraudulent transactions at any time. Fraud detection, processes, and controls must be in place to act quickly at all times.
Involve the right people at the bank or credit union to create a retail solution tailored for your risk tolerance and your customers or members.
As they do when offering any new product or service, financial institutions will control certain aspects of their FedNow instant payments offering, and several of those controls can reduce fraud risk. Here are some fraud risk management options that FedNow will give participants some control over:
- When to begin using FedNow. Each bank and credit union can set its own implementation timeline.
- How the institution wants to use FedNow. One bank could decide to initially use the network solely for allowing businesses to make instant payments for payrolls. Another may allow credit transfers to be sent and received.
- How much money can be sent. The FedNow Service is setting network-level transaction limits, which will cap the amount per transaction that a financial institution can send. However, each financial institution participating in the FedNow Service will be also able to configure a lower transaction value limit, which they may adjust over time, using their institution’s risk policies as a guide.
- How to accept. FedNow participants will be able to submit an “accept without posting” status. This would indicate to the originating institution that more information is needed for compliance or fraud considerations before payment will be accepted. Financial institutions will be able to request information such as more details about the sender. This is similar to how FedLine allows financial institutions executing wire transfers to ask for more information about the source of funds before completing the transaction.
- Who can send or receive. Each financial institution can set its own rules and limits regarding FedNow payments.
Peter Tapling, a board advisor with the U.S. Faster Payments Council, encourages financial institutions to carefully design their FedNow offerings to control how customers or members use them.
“Even if a bank signs up to be a sending institution with FedNow, they have the ability to control how they offer that send capability to customers,” he said during a recent video interview with Information Security Media Group. “So from a fraud and risk perspective, a lot of thought needs to be put into who am I going to offer this product to, under what conditions, and during what times. Even though FedNow is available 24x7x365, at the end of the day, the product being offered to the customer is a bank product, it’s not FedNow, and so the bank gets to control how they’re going to offer that product.”
Including fraud and AML/CFT staff among those involved in product and capability planning, technology planning, and treasury planning can support FedNow implementation that is designed with anti-fraud measures in place.