Green Sheet interviews Craig Ramsey, ACI Worldwide

The Federal Reserve Board intends to begin a phased rollout of the FedNow Service in the third quarter of 2023. The service is designed to facilitate instant payments via business and personal depository accounts through a clearing and settlement network that enables funds to be transferred from a sender's account to a receiver's account on any day and in near real time.

Craig Ramsey, head of real-time payments, banking at ACI Worldwide discussed the initiative's potential ramifications with The Green Sheet. Following are interview highlights.

How would you advise service providers to prepare for and potentially participate in the planned rollout of FedNow?

While FedNow is slated to launch in the middle of next year, technical service providers like ACI Worldwide have actually been working with The Federal Reserve in the build pilot for a number of years. We at ACI have also been part of an Early Testing Group, which has been testing message flows to help our customers jumpstart their readiness for FedNow.

To prepare for FedNow, a bank must first focus on which use cases they will offer to their customers—the Fed has already published good information that can help educate consumers, corporates, merchants and billers. Next, a bank needs to be ready for 24/7 processing and ensure that their back-office processes can either support 24/7, or that service providers such as ACI can protect their back-office from the 24/7 service level requirement.

Finally, a bank must think about their customer fraud controls—are they able to run 24/7 and be agile enough to support real-time fraud scoring within the milliseconds available to process a payment? Customer education is another key element of preparing for a new service. If the customer is fully informed of the industry change, then they can better prepare themselves, or be wary of fraud attempts related to the new service launch.

The Fed noted that participants will be able to layer in optional features and value-added services. What types of optional services do you anticipate will be included?

The Fed is launching a series of use cases that will be enabled with FedNow. Some of these will be optional for a bank to implement, and although ACI would expect the largest banks to support all use cases, the smaller banks will likely pick and choose which ones are best for their customers.

The FedNow website has the best information, and the FedNow Community is also a good source of information even if the bank is not yet committed to a FedNow launch for their customers. Examples of optional services include BillPay and Request for Pay services that might be more appropriate to certain business segments, rather than the basic mandatory services such as P2P credit transfer.

How do you anticipate that optional features and services will work, and what challenges might they pose during planning and implementation?

At ACI we will provide a solution to process and connect to the FedNow service. The decision as to which services a bank wants to deploy then becomes based on their customer needs, and not the limitations imposed by the technical service provider. We expect some banks to hold back on certain use cases (starting small) and then when they are ready, they will be able to expand.

How do you expect the liquidity management tool, provided with the service, will support instant payment services?

ACI has worked across the world on instant payment services, and as with FedNow, we see controls for liquidity being related to funds held within the central bank settlement account, in this case 'their Fed account.' If the balance of this account falls below a level agreed with the Fed, then payments will potentially be rejected—but this is the same as with any other payment type. Funding rules will also exist for the account outside of Federal Reserve hours.

What other aspects of FedNow have impressed or surprised you?

The Federal Reserve should be commended on their work with the industry to bring FedNow to market. We have had access to the Fed experts, technical specifications and test environments that have helped us be ready to support our customers.

What impact might FedNow have on traditional payment processing methods?

ACI has seen first-hand how instant payments have impacted other payment types. What might surprise you is that, typically, instant payments do not cannibalize other payment types. Card payment volumes have continued to grow, ACH payment volumes have continued to grow, RTGS/Wire payment volumes have continued to grow.

Instead, cash and check payments have reduced, even more so during COVID. And net new transactions have been created where industry identifies new customer propositions that require a payment—the fintech or PSP chooses to leverage the new payment type, rather than using one of the older methods.

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