Fed: Instant payments require enhanced risk management

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.