Month: March 2025

The Federal Reserve has always played a role in providing payment services to supplement those of private-sector providers, processing small-value transfers like recurring bill payments and direct payroll deposits. Today, Federal Reserve Banks are working to roll out an instant payment platform this year to help all sizes of financial depository institutions provide safe, instant payment services on any day and at any time. They are integrating with Federal Reserve systems, developing infrastructure, and collaborating with stakeholders on design to make fast payment and settlement available as soon as possible. But what is FedNow, and what does it do?

This Federal Reserve payment system will be called the FedNow Service and will provide businesses and individuals with the ability to send and receive FedNow real-time payments through their depository accounts. Funds will be made instantly available so the recipient can manage their money more efficiently. The platform will increase the number of market options for settling instant payments and help financial institutions provide more innovative instant payment solutions to their customers.

This article will overview the defining features of this new federal reserve payment system, how it works, and the benefits of using it.

The Features of FedNow

The features of the FedNow Service were developed as a direct result of industry feedback, in-depth analyses, and more than 180 comment letters in response to the 2019 Federal Register notice. In an effort to transform the U.S. payment infrastructure, these fed services improve on old ACH payment systems and focus on payment traceability, speed, and transparency.
Wires and ACH payments are notorious for taking too long to process. A primary improvement FedNow provides is that it can process transactions 24/7, even on weekends, bank holidays, and outside normal business hours. Banks on both ends of a transaction can instantaneously swap information and transfer money between customer accounts, and the sender gets instantly notified when their payment is successful.

Other features of the initial FedNow launch in 2023 will include:

• Data security tools for fraud prevention, i.e., transaction value limits, reporting features, etc.
• Liquidity management transfer tool to support instant transactions and liquidity of funds
• Request-for-payment capacity
• Tools to help participants handle payment inquiries, reconcilements, and exceptions
• Option to enroll only as a receiving participant
• Support for the use of correspondents and service providers
• Broadcasting of participant availability
• User interface for data needs
• Access to balance information on weekends
• Interoperability supported by the use of ISO® 20022
• Core settlement and clearing ability to support a variety of transaction types

After these fed services launch, additional features will be added later to enhance case management, fraud prevention, and error resolution. FedNow will also continue to engage with the industry and consider adding features like person-to-person payment support using a receiver alias.

The Benefits of FedNow

FedNow offers many benefits, but one of the most significant is its new ability to support a wider variety of financial institutions, especially smaller banks across communities. FedNow was designed specifically to provide instant payment services to more institutions than ever. Businesses and individuals benefit when sending money is cheap, and settling is quick. As the adoption of FedNow expands, more people will have access to instant payments, which will help individuals get access to their money faster and help businesses run more efficiently with greater insights into their budgets at all times.

Here are some additional noteworthy benefits of FedNow real-time payments:

• Lower cost of processing transactions across several categories
• Integration with the larger network of the Federal Reserve, benefitting local financial institutions and account holders
• Fast access to paychecks instead of delayed payroll times
• More efficient business management thanks to increased cash flow control and flexibility
  • FedNow guarantees to handle settlements within 20 seconds, which is much faster than any current alternatives.

Common Users of FedNow

The following types of payments will be supported by the FedNow Service:

• Business to consumer
• Consumer to business
• Business to business
• Consumer to government
• Government to consumer
• Business to government
• Me to me
• Person to person

One of the drawbacks of the initial FedNow launch is its transaction limit of $25,000. While this limit exists, FedNow may not be especially useful for larger-scale organizations and will be primarily beneficial for small businesses, P2P payments, and retailers.

How FedNow Will Work: Payment Flow

So, what is FedNow designed to do? Instant payment systems all follow a similar process flow with two main steps: 1. Clearing, which involves the exchange of payment information and fraud screening, and 2. The settlement, wherein the money moves between the accounts of the sender and receiver. The breakdown is as follows:

Certification of the legitimacy of a transaction
Creation of a record of payment
Settlement by moving money from one bank to the other
Confirmation of the success of the transaction

FedNow will be quick and easy to use. Here is an outline of what the FedNow user experience will be like:

1. An individual or business will start a transaction by sending their institution a payment message. The sender’s institution will screen the payment using its own procedures.
2. The sending institution will send a payment message to FedNow.
3. FedNow will verify that the message meets the required specifications.
4. FedNow sends the message to the receiving institution to ensure that it will accept the message of payment. This institution can confirm or deny the payment.
5. The receiving institution will respond to FedNow with a positive message of confirmation that it will accept the payment.
6. FedNow credits and debits the account of the financial institutions used by the sender and receiver.
7. FedNow forwards a payment message to the receiving institution with credit and acknowledges to the sender that the settlement is complete.
8. The receiving institution credits the account of the receiver immediately.

In March 2020, no one could have anticipated how much the COVID-19 pandemic would change how we live, work, and, yes, even bank. Remote work has become the new norm for many people, and with everyone working from home, banks have had to change to accommodate their changing customer base.
So, what’s the COVID impact on banking, and how are financial institutions refocusing on customer service banking? Let’s find out.

Banking Changes

Here are the areas where we’ve seen the COVID impact on banking and how financial institutions have responded to them.

Customer Support

Clients come into the bank for numerous reasons, but that changed due to COVID-19. With clients and bankers heading home for remote work, financial institutions couldn’t offer the customer service banking they used to. Now, banks need to reimagine the customer experience through a digital lens and provide online support to match.
One of the best ways banks have increased customer support is by digitizing all services. Additionally, they have been ensuring employees are trained and have access to all the information they need to provide complete banking customer service.

Serving Vulnerable Groups

During the height of the pandemic, when everyone was staying home, and banks were closed, these financial institutions needed to find a way to bring their services to clients everywhere. One of the groups most affected by the pandemic and bank closures were clients considered vulnerable — including those with weakened immune systems and elderly customers who rely on a physical bank for all their financial needs.

Elderly clients are also easily targeted by cybercrimes, including phishing scams, which are harder to catch and address when these customers aren’t coming into branches. Banks have had to find new ways to focus on their customers while protecting them and their financial interests.

Client Engagement

One COVID impact on banking that has been an ongoing problem during the pandemic is client engagement. When clients aren’t visiting their local branch, making personal connections and building trust is more challenging, both of which are foundational in customer service banking. To combat this, banks have started using different connection tools like SMS messages, mobile apps, push notifications, emails, and other media options to reach their customers.
This multichannel approach also helps customers interact with the bank, ensuring their concerns are heard, and needs are met.

Improved Payment Service

Electronic payment systems have long been a necessity for many, but when the world went home during the pandemic, it became clear how much people rely on these services. As part of customer service banking, financial institutions have had to create more robust and comprehensive systems to accommodate the influx of users. These systems need to be flexible and dependable to meet remote-access needs.

Remote Workforce Management

When stay-at-home orders went into effect at the onset of the pandemic, everyone switched to remote work, including bankers. You may be wondering — bankers working remotely, how does that work? And we don’t blame you! Bank employees have important customer-facing roles that don’t lend well to remote work. This is why financial institutions have had to change and adapt how bank employees work.

Reskilling

To better match banking customer service to the online world, banks have had to rethink training their employees with new skills. New bank employees haven’t been able to train with or meet their team in person, meaning they are missing out on the camaraderie and connection that comes with working near others.
This means that banks have had to find new ways to teach their employees crucial customer service skills and ensure they feel like part of the team, even if they are working remotely.

Training

Banking technology is updating and changing all the time, and banks need to stay on top of the latest updates to bring the best customer service banking to their remote customers. Banks need to be flexible in their approach to training employees and find a training program that accommodates remote working in financial services now and in the future.

Cyber Security

Cyber attacks against banks increased by 238% in 2020, which has continued to rise in recent years. This rise in attacks can be partially attributed to COVID’s impact on banking since more people are accessing banking services remotely. Banks need to tighten their cyber security approach, and many financial institutions have committed to putting more effort into this area.

Currently, the biggest cyber security threats to banks include:

• Ransomware
• Phishing scams
• Remote work
• IT weaknesses
• Denial-of-service attacks

When banks focus on customer service banking, they can work toward preventing these attacks against their systems and customers, including those continuing to do remote work.

Moving Forward

The pandemic has had long-lasting effects on every industry, including banking, and the changes we see now are likely here to stay. Financial institutions must focus on new technologies and digitized services to continue meeting the needs of all their clients.

If you are looking for growth solutions for your bank, credit union, ILC, or other financial institution, BMA is here to help. We offer customized solutions and technology to meet your company’s unique needs. Whether you’re navigating COVID challenges, opening a new bank, upgrading software, or looking for ways to enhance customer service banking, contact BMA to get started.

Teaching kids about banking from a young age lays the foundation for financial independence later in life. But what is the right age to start teaching kids about money? How do you make sure they understand what points you’re trying to make? We put together this blog to answer these questions and provide everything you need to know about helping children understand banking basics.

How to Teach Young Children About Money

Even at a young age, children can understand the concept of money. Here are some techniques for teaching young kids about banking.

Show Them That Stuff Costs Money
Explain that the things they want, like toys or treats, cost money. Start simple conversations about exchanging money for goods to help them understand the value of money and the process of purchasing items.

Discuss Budget Limits

Children should understand that individuals and families have budgets. Teach kids that you need to make choices about spending to ensure you don’t go over budget. For example, when deciding between going to a movie or buying a new toy, explain that there is a set amount of money available, and they have to choose which purchase is more important.

Teach Them How to Divide Allowances

Giving an allowance for completed tasks, such as cleaning their room or helping with chores, is a great way to teach kids about money. Encourage them to split their allowances between savings and spending.

Talk About Saving and Spending

Discuss the difference between saving money for something special in the future and spending money on immediate purchases. For instance, if they want a new game, explain how they can save a portion of their allowance over time to afford it.

Use a Clear Piggy Bank

Using a clear piggy bank helps kids see their money grow over time. The visual reinforcement of watching their savings grow can motivate them to save more.