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Banks moving to an instant payment environment need a strategy that considers fraud, liquidity, compliance, and third-party risks, according to a blog post from the Federal Reserve.
Background: The Fed said that while the terms “instant payments” and “real-time payments” are often used interchangeably, it defines instant payments as those that can be made at any time of day, any day of the year, with real-time interbank settlement and immediate funds availability for receivers.
Liquidity Risk: Given the speed and available timeframe to conduct instant payments, the Fed said banks must maintain adequate balances to settle transactions. It said effective liquidity risk management practices could include:
Leveraging available intraday credit.
Securing additional credit through the discount window during normal operating hours to support after-hours liquidity needs.
Adjusting balance sheets to accommodate more highly liquid assets.
More: ICBA Payments recently announced a new partnership with Pidgin—a secure faster payments platform—to facilitate instant payments for community banks. A previous blog post recaps the first year of the FedNow Service, which now has approximately 800 participating financial institutions.