The Federal Reserve has created a new immediate payment infrastructure called the FedNow Service that enables financial institutions of all sizes to offer secure and effective fast payment services nationwide.
Businesses and individuals can send and receive instant payments in real time, round-the-clock, every day of the year, through financial institutions taking part in the FedNow Service. Receivers will have full access to cash immediately, providing greater financial flexibility for handling time-sensitive payments. Financial institutions and their service providers can leverage the service to offer new instant payment services to customers.
The Federal Reserve and The Clearing House also worked together to improve interoperability between the two American immediate payment systems, which are probably used by similar people in the sector. Additionally, experts from the FedNow Community ISO 20022 Working Group and other business participants in the FedNow Community, including members from BNY Mellon, validated each particular FedNow message flow and set of implementation recommendations.
The FedNow Service will be implemented gradually, with the first phase's introduction scheduled for July 2023.
What is ISO 20022?
A messaging standard for the financial sector called ISO 20022 offers a common language for networks and systems all over the world to communicate with one another. The ISO 20022 standard was created and is now a widely used messaging protocol in order to provide rich data transfers, efficient from end to end straight-through payment processing, and connectivity with other payment systems. The FedNow Service will debut communications for client credit transfers, payment requests, interbank liquidity transfers, as well as messages for the FedNow system and account reporting.
FedNow's ISO 20022 Message Specification and Importance to Financial Institutions
For all financial institutions, the publishing of FedNow's message specifications represents a significant opportunity. If the capability is not already in use, Financial Institutions can now start internal and external discussions with their core providers about methods for integrating ISO 20022 messaging into their systems. Financial Institutions can offer quicker payments through FedNow along with other systems that use the communications specification by implementing ISO 20022 capabilities. Additionally, including ISO 20022 capabilities gives Financial Institutions a chance to assess current solutions, new capabilities made possible by using the standard and processes and procedures that can be improved using the standard's efficiency.
FedNow's ISO 20022 Message Specification
The communication formats, contents, and flow requirements that the Service will use when it launches are described in FedNow's ISO 20022 specifications. Customer/member and financial institution credit transfer, payment return, payment request, payment status, and other administrative and account reporting notifications will all be supported during the initial launch.
Accessing FedNow's ISO 20022 Specifications
FedNow's ISO 20022 message requirements are available to Financial Institutions via the MyStandards platform. The platform includes an implementation manual, message flow diagrams, and ISO message requirements. For financial institutions and other payment service providers planning to interface their systems with the FedNow Service, it also provides additional capabilities. Create an account at https://www2.swift.com/idm/public/selfRegistration.faces to have access to MyStandards. Access to MyStandards will be provided after an account has been registered.
How the Use of ISO 20022 will support interoperability?
Interopertability plays a critical role in advancing the countrywide reach of instant payments. The RTP Network and ISO 20022 standard usage will promote routing compatibility, allowing sending financial institutions to route payment messages across either service to reach participating recipients.
Resources that will be offered to assist smaller organizations in putting the ISO 20022 requirements into practice
It is now being worked on to create ISO 20022 training courses for business and technology specialists as well as testing possibilities that will be made available through the MyStandards portal. Whether your company uses internal solutions or an outsourced positioning with a service provider like a core processor, these programmes will aid in your organization's FedNow Service deployment preparation.
Ending Note
The Federal Reserve will start providing educational opportunities to the sector in the second quarter to encourage their adoption of the ISO standard for the FedNow Service.
PayApt is a complete, plug-and-play solution that helps Financial Institutions and FinTech companies get RTP products to market faster. PayApt also enables users to convert legacy payment messages generated by your solution to the new ISO 20022 protocol without disrupting your current setup. Try out the PayApt solution today!