It may seem daunting to embrace the world of immediate payments. The 24/7/365 nature of these rails raises operational concerns, but it’s not as overwhelming as it seems.
Before diving into operational considerations, it’s essential to grasp how settlement and liquidity work on RTP and the FedNow Service. Regardless of which rail you use and/or if you decide to participate on both rails, just know you have options to either handle your settlement and liquidity directly or outsource to certified providers to satisfy settlement and liquidity for greater ease.
• RTP Network: RTP uses a prefunded, real-time, gross settlement model. A participant may satisfy cash management (settlement/funding obligations) on its own by being a “Funding Participant” or it can use a Funding Agent to satisfy cash management (settlement/funding obligations) by opting to be a “Non-Funding Participant.” All RTP participants are required to either have a special joint deposit account at the FRBNY as a Funding Participants or have a designated Funding Agent.
• FedNow Service: Institutions can use their Federal Reserve Bank (FRB) master account or rely on a correspondent institution with an FRB master account to be their Settlement Services provider. The FedNow Service includes a liquidity management transfer, a feature enabling participants or their Settlement Services providers with the proper connections to move funds to meet liquidity needs during a limited set of hours per day.
• Daily Reconciliation: For Receive-Only participants, reconciliation reports are only for credits/funds coming into the credit union. With the transition to send, reconciliation responsibilities grow to include debits/funds going out of the credit union as well. Because immediate payments are push-credits that are good funds and settled instantly, final and irrevocable, the research related to immediate payment reconciliation goes down to almost zero.
o RTP: The Clearing House generates a reconciliation report at midnight. Institutions receive this report directly or via their Funding Agent. Reconciliation can be done the next business day along with other payment types.
o FedNow: The reconciliation window aligns with the Fedwire Funds Service business day, with a cutoff at 7:00 p.m. EST. Institutions receive this report directly or via their Settlement Services provider. Reconciliation can be done the next business day along with other payment types.
• Managing Balances: While reconciliation processes can easily be expanded to include immediate payments along with ACH, wires, and others, new processes for managing balances that accumulate throughout the day are required and can become more multifaceted with a Send profile as funding/liquidity management comes into the picture.
o RTP: Pre-funded balances are required in the joint FRBNY account because RTP maintains a Net Position for each participant regardless of profile. The RTP system settles each payment in real-time by decreasing the Net Position of the Sending Participant and increasing the Net Position of the Receiving Participant within the system. These Net Positions are backed dollar-for-dollar by the funds in the prefunded Balance Account. For institutions managing their own funds, incoming payments accumulate in the joint FRBNY account and need to be transferred to their home FRB account and then, if applicable, to their main settlement account. For sending participants, active monitoring is required to ensure the Net Position is funded adequately to support the payments being made by their members (otherwise the funds won’t send). Funding Agents can provide relief by managing balances for you, whether simply transferring accumulated net credits into your settlement account or monitoring and funding your Net Position as needed.
o FedNow: Institutions monitor their FRB master account or correspondent account and manage balances accordingly. Institutions receiving on the FedNow Service will simply need to monitor their account at the Fed or with their correspondent. Similar to RTP, sending participants are required to manage their balance, ensuring it is funded to cover the transactions being made.
• Policy Development: Institutions must update/create new policies for:
o Request for return: For instances where there may be errors with immediate payments. While returns aren’t mandatory and all payments are irrevocable, each rail does ask participants to “reasonably work” with other FIs on requests.
o Update Reg E-related policies to include immediate payments.
o Transaction dollar limits (e.g., $10 million for RTP, $500,000 for FedNow): All participants must receive each rails dollar limit, but can establish dollar limits for send.
o Annual RTP self-audit: A one-page attestation and workbook is provided to all participants to complete annually.
Immediate payments bring a transformative shift for credit unions. Starting with a "Receive Only profile minimizes operational impact while addressing member expectations for modern payment capabilities. Transitioning to a "Send" profile demands a higher level of commitment but opens new opportunities for growth and service enhancement. As the payments landscape evolves, embracing immediate payments ensures your credit union remains a leader—not a follower—in meeting the financial needs of its members.