US FPC: A deep understand will be vital as instant payments evolve

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As instant payments continue to have a significant impact on the US ecosystem, the US Faster Payments Council (FPC) has emphasised ‘it is key for financial institutions to understand how messages and money are exchanged within instant payments schemes, and how that differs from traditional rails’.

In a document titled Guideline.01: Operational Considerations for Instant Payments Receive-Side Primer, which was also sponsored by Form3, the industry-led membership organisation published its first guidance resource for financial institutions offering instant payment services. 

The guidelines also underlined the threat of fraud, which it stated ‘exists no matter what the enviroment’, however integral fraud in this environment is developing an understanding of differences between ‘authorised fraud (i.e., scams) and unauthorised fraud, and customer resistance to authorised fraud scams’.

In terms of a fraud-fighting strategy, it’s highlighted that an approach specific to the nature of an instant payment environment is crucial, with a fraud monitoring tool potentially being a key asset.

Serving as a springboard for businesses to plan their journey towards faster payments adoption, the recommendations look at the operational considerations needed for receiving instant payments and the priorities needed to be set when offering the new payment method. 

Miriam Sheril, Head of Product – US at Form3 and FPC Operational Considerations Work Group Chair, said: “While the conversations around faster payments have been going on for a while, with the recent launch of the FedNow Service to complement the TCH RTP private sector solution – it’s clear that the tactical ‘how do we do this?’ is becoming more and more of the conversation.

“That’s why the OCWG was formed – to start pulling together information on how to actually think about operating a faster payment service specifically focused on those two new rails.”

The first entry in a series of guidelines delivers an in-depth introduction to instant payments operations by explaining how they are changing the US payments ecosystem. Some of the topics explored include liquidity management, fraud mitigation, exception processing, staffing needs and training requirements among others. 

According to the paper “no two financial institutions are the same – therefore the problems shared, while universal, may not be solved in the same manner for each institution”. The ways to address such problems will be examined in the next editions of the guidelines, which will explore the send side of instant payments, as well as non-value messages. 

Tony Cook, Operational Considerations Work Group Vice Chair and Executive Vice President of Payment Operations at FirstBank, commented: “With all the excitement around instant payments, the focus of the conversation is usually on topics like ubiquity, interoperability, and use cases, but there’s not as much around how to practically support a 24/7 instant payment rail and what financial institutions need to think about and prepare for from a back office perspective.

“This is why our work group came together – to help financial institutions think through these challenges and get more comfortable stepping into instant payments.”

As a body, the FPC itself focuses on tackling topics such as interoperability, security risk management and cross-border payments through the inclusion of diverse perspectives in order to lay the foundation for an easier adoption of faster payments. 

FPC Executive Director Reed Luhtanen added: “Our first guideline on operational considerations for instant payments lays the groundwork for addressing practical challenges in the industry.

“FPC members are at the forefront of advancing faster payments, and this new guideline underscores our commitment to equipping financial institutions with the knowledge and resources required to embrace the era of instant payments.”