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and hello to everyone i am very happy to be with you today virtually um i'm maria akers and since we aren't in person feel free to send some energy our way through the chat feature i'm coming to you from omaha nebraska and it is a beautiful fall day here our topic today is the fed now service and i'm going to give some background on where we've come from and jamie will pick up on where we're going so i like to start broadly with the federal reserve's three mission areas so the one most people think about is our role in setting monetary policy and certainly that is the area that typically generates headlines and is our most visible role but the fed has two other roles that the general public is typically not as aware of but given that we have a lot of bankers with us you know our role as banking supervisors which is to promote the safety and soundness of individual financial institutions and monitor their impact on the financial system as a whole the other is the fed's responsibility to provide and maintain an effective and efficient payment system and that is where we will concentrate our discussion today the next slide all right the federal reserve performs several key functions to maintain the integrity of the payment system since its founding more than a hundred years ago the federal reserve has played an operational role in support of our goal of an accessible safe and efficient u.s payment system that involves providing core infrastructure to move funds and information between financial institutions so basically interbank clearing and settlement the services that we offer include check processing ach wire transfer and i'll note that we offer these services alongside other private sector operators which provides choice in the market in addition serving an operational role allows us to provide stability and support to the banking system and in turn to the broader economy visible in recent years which is the role of the fed as an advocate and change agent of payments improvement so i think back at the beginning of my career with the federal reserve system i was at vienna fed and it was the early 90s and one of my first assignments was to convert ch files uh to any of the any of the bankers here uh if that rings any bells but i was the person that would come into your brain to your bank uh with my box of three and a half inch floppy diskettes and an encryption card uh and install fedline on your computers so so that's kind of a blast from the past uh another one that comes to mind is check 21 which allowed check images to be used for presentment now i see somebody's been around that long in the chat and you know by being able to use check images instead of the paper checks truncating paper checks that meant that we were no longer having to basically fly checks across the country at night so definite efficiency gains there so as the central bank we are in a unique position to be a leader by bringing payment stakeholders together and offering a space for discussion and collaboration which is how our most recent payment improvements journey began so next slide so more than 10 years ago the fed saw that the payment system was at a critical juncture in its evolution so if you think back there was lots of innovation going on with technology right we had high speed data networks ever more sophisticated mobile devices that you know we're able to do so much on um as well as a general change in the nature of commerce um lots more online shopping uh and end user expectations so basically people got used to things being quick and easy and they wanted payments to be the same way so the fed recognized that there were gaps between the capabilities of our traditional payment methods and the growing demand for fast convenient and secure payments so that's where faster payments come in so that funds can be sent and received immediately and that's 24 by 7 by 365. so before i give a quick recap of the federal reserve's past faster payments journey um i have a polling question for you so how familiar are you with faster payments not at all slightly familiar somewhat familiar or very familiar is everyone able to see the polling question well here we have some results coming in it doesn't look like everyone can see it looking in the chat okay i see some folks being able to see the results so i will go ahead and recap the answers so we have 15 saying not at all familiar uh 32 slightly familiar our highest category is somewhat familiar at 38 and then um 15 very familiar so we have a good bell curve here and uh hopefully at the end of our presentation uh you will uh you'll have no you'll know even more so we'll go to the next slide so now i'm going to talk about the federal reserve's faster payments journey uh which is years so in september of 2013 the fed offered perspectives on key gaps and opportunities in the u.s payment system and solicited industry feedback in a public consultation paper so you'll see that there is there's going to be a common theme on this slide where we ask for industry feedback and i will say we are never disappointed in the response that we get because we get a lot of feedback and a majority of it is from the banking community so in response to the feedback to the public consultation paper we were able to author our original strategies for improving the us payment system paper and we affectionately call that our sips paper and that was really a call to action to the industry it identified five desired outcomes for the u.s payment system around speed security efficiency international payments and that was all underpinned by industry collaboration so again going back to this leader catalyst role of the federal reserve so to support those outcomes uh the paper proposed a variety of strategies but i am going to focus my remarks on the faster strategy primarily so to collect broad industry perspectives um the fed convened two task forces the faster payments task force and the secure payments task force and these task forces um we asked for volunteers and we received an overwhelming response and ended up with a very broad and inclusive group of stakeholders so we had representation from organizations across the payments community so obviously financial institutions but also non-bank payment providers payment processors and operators businesses consumer groups government agencies regulators standards bodies industry trade organizations consultants and academics and this was great because we felt like all of these voices were really needed in the conversation um and so we ended up with more than 300 members as part of the faster payments task force and they met over a two-year period so um i'm curious if you participated in either of the task forces please let us know in the chat so after much discussion and analysis and consideration of a variety of viewpoints the faster payments task force wrote a final report which included 10 recommendations for implementing their vision for a safe ubiquitous faster payments capability in the united states and two of those recommendations were for the federal reserve so oh i see somebody i see someone that participated in both uh the task forces though uh so we did our um so the task force asked the federal reserve to develop a 24 by 7 by 365 settlement service to support faster payments and also to explore other operational roles that we might perform in supported faster payments so the federal reserve we did our own analysis of what that might look like and we issued a federal register notice in 2018 once again asking for public comment on potential on potential actions that we could take to offer a real-time gross settlement inter-bank clearing and settlement service we received over 400 comment letters again from a variety of stakeholder segments across the country and they were actually signed by more than 800 organizations and as part of my job i got to read every single one of them uh and if so let's say if you wrote a letter to us why don't you let us know in the chat so these letters were largely in support of the fed offering such a settlement service um all right first bank this time so in 2019 the fed announced it would build the fed now service and again ask for comments on its features and functionality because we wanted to hear from the industry you know what were their priorities what did they want the service to look like how would it uh work well for them so this time we received almost 200 comment letters again read them all and considered input from those as well as additional industry discussions we looked at best practices of other central banks that operate instant payment services and we did our the board's own analysis uh to come up with a description of the fed now service which was announced just this past august so now we are down to the last dot on my slide showing the target launch date of the fednel service which is 2023 or 2024. so that is a very quick uh recap of our efforts over the last 10 years or so and that's going to bring us up to where we are today and i will now turn things over to jamie champlin to give you more details on the fed now service all right well thank you maria for that great overview of our faster payments journey now let's do dive more specifically into the fed now service including what you can expect and how you can also get involved so if you want to advance to the next slide as marie explained you know the rapid evolution of technology really presented a pivotal opportunity for the federal reserve and the payments industry to modernize our nation's payment system and establish a safe and efficient foundation for the future we are developing fed now to enable financial institutions of every size and in every community across america provide a safe and efficient instant payment service in near real time around the clock 365 days a year so maybe let's talk a little bit about instant versus faster if you've been listening closely you heard maria talk about our faster payments journey and now i've changed the terminology a bit um to instant so let me clarify faster payments tends to be a broader term that we use that can really be applied to many different payment mechanisms that have gotten fast or increased the speed of a payment we use the term instant to differentiate fed now because of the immediate interbank settlement that occurs right now so it is a slight nuance but just wanted to explain while you're hearing me talk about instant payments when describing fed now and maybe if i can get a thumbs up in the chat or a response just to let let me know that that that makes sense that'd be great when we think about instant payments how does that benefit consumers and businesses an instant payment service again which is the immediate transfer and settlement of funds day and night weekend and weekdays has the potential to become widely used and yield significant economic benefits for both individuals and businesses by giving them more flexibility to manage their money and make those time-sensitive payments for small businesses the ability to receive payments immediately may result in better cash flow management more broadly instant payments may provide businesses with a considerable opportunity to improve efficiency and reduce costs of payments relative to paper checks or other existing payment methods for individuals the ability to both send and receive payments more quickly may help alleviate those mismatches between the time that incoming funds are received in the time that spending needs to occur this improved ability to manage your money can enable some individuals to avoid those high cost borrowing and penalties such as overdraft or late fees and no doubt the the covid pandemic that we're currently in really further underscores the need for instant payments in order to move money quickly and allow for that immediate access to those funds so i'll pause here to do another quick poll question for the group okay so if you are a financial institution are you seeing demand for instant payments not yet yes a modest amount yes a moderate amount or yes a significant amount give folks a chance to respond okay so hopefully if you can see the results it looks like yes a modest amount is is the highest response we've got 25 percent not yet 36 at a modest amount 31 at a moderate amount and 9 at a significant amount so thanks for your responses on that if we want to go ahead and advance to the next slide so the federal reserve marked a key milestone in the development of the fednow service with the announcement of our services features and functionality as maria noted the features were informed by over 182 stakeholder comment letters in response to our august 2019 federal register notice we also had additional discussions with the industry we considered the experience of other central banks that operate in payment services and we conducted our own analysis um so the fed now service design incorporates all of this stakeholder input and reflects goals that align with our public mission of accessibility safety and efficiency so those three areas that maria highlighted earlier our goal is to bring fed now to market as quickly as we can so we are taking a phased approach our initial release will include core features for a clearing and settlement service as well as some value-added features and functionality to support a range of transaction types and use cases additional releases with more features and enhancements will follow quickly on an iterative basis and we believe this phased approach will allow for adjustments and improvements in response to industry needs or changes in technology i would just want to iterate that implementing implementing the fed now service as soon as possible remains a high priority for the federal reserve and thus far we've been fortunate that the pandemic has not negatively impacted our progress while our target release still remains 2023 or 2024 we do intend to announce a more specific time frame for launch launch once additional development work is completed so now let's jump to the next slide and really look more specifically at the features okay we'll start with accessibility this first release of the fed now service will foster nationwide reach of instant payments and provide added functionality to help financial institutions manage that transition to 24x7 by 365 operations the federal reserve's broad reach based on the connections and customer service relationships we have with more than 10 000 diverse financial institutions across the country will support a nationwide infrastructure for instant payments through the fednow service features that will support flexible adoption of the fedenal service include support for banks use of agents and correspondents much like you do today as well as an option to enroll as a receive-only participant the federal reserve will adopt a seven-day accounting regime for fed now but banks are not required to do so also fednel will provide reports and support reconcilement and other processes that are in line with the internal accounting regime of participating banks and lastly we also heard from stakeholder feedback about the importance of interoperability to help advance the nationwide reach of instant payments to support this goal the service will use the widely accepted iso 2022 standards and adopt other industry best practices which would remove barriers to interoperability okay we'll jump next and talk a bit more about safety the fed now service is designed to provide a safe payment infrastructure for instant payments with features to support payment integrity and data security we heard uh from the industry about the importance of tools to combat fraud and those tools will be offered at the launch of the fednow service and augmented and enhanced over time so tools available at the launch will include a transaction value limit for all fed now transactions and the ability for participating banks to set lower value limits the ability to specify certain conditions under which transactions would be rejected as such as by an account number and reporting features uh including reports on the number of payment messages that were rejected based on our participants settings lastly by operating alongside the private s ctor instant payment service the fentanyl service will promote resiliency and instant payments by allowing banks to connect to more than one service for contingency purposes all right we'll move on to efficiency next so this first release of the fed now service provides again core clearing and settlement capabilities to support a broad range of transaction types and use cases banks and their service providers will be able to use the fed now service really as a platform or springboard to provide innovative instant payment services to customers at launch these services include a request for payment functionality that could enable bill payment use cases and the ability to include information about a payment such as bill or invoice information along with the payment which could support b2b use cases next given that the instant payments involve payment by payment settlement between banks on a 24x7 by 365 basis the federal reserve recognized the industry's concerns about having adequate funds in their federal reserve accounts to settle instant payments on weekends and holidays to address these concerns the fed now service will include a liquidity management tool that will allow participants to transfer funds to each other in support of liquidity needs the tool will also be available to participants in the private sector instant payment service allowing them to transfer funds between their federal reserve accounts and the joint account that backs the settlement in that service additionally access to intraday credit will be provided for participants in the fed now service during its business day under the same terms and conditions that are available for our other financial services today and finally the fedenal service will provide banks with choice in instant payment services generating that competition that can result in efficiencies related to pricing service quality and innovation so that's a high level summary of the features and functionality for fed now and i'd like to pose another poll question to the group okay so hopefully folks can see this which use case do you anticipate will benefit the most from instant payments you've got person to person such as paying family and friends business to business such as paying suppliers or vendors business to person such as payroll or insurance disbursements person to business such as e-commerce or point-of-sale or other we'll give folks a minute to respond okay well the results are up hopefully you can see them i'll walk through them and it's it's we're a little bit um i would say more evenly dispersed so this is good insight so 27 say person to person so when you're paying your family and friends uh 31 so the the highest response is business to business such as paying suppliers or vendors but that doesn't i will admit that doesn't surprise me given a lot of that business we know is still conducted via check so that's good um 18 for business to person such as payroll or insurance disbursements 23 for person to business so again e-commerce or point-of-sale and then one percent for other so um appreciate the response that's helpful helpful insight for us okay so we want to advance to the next slide as you've heard a bit about our features and functionalities at our first release thought it may be helpful to walk through a simple fed now payment flow that again will take place in a matter of seconds so in step one the who would be an individual or business initiates a payment by sending a payment message to its financial institution through an end user interface that's outside the fed now service the center's financial institution is responsible for screening the payment according to its internal processes and requirements that's the first step then in step two the sender's financial institution submits a payment message to the fednow service in step three the fed now service validates the payment message and this could be for example by verifying that the message meets certain format specifications then in step four the fed now service sends the contents of the payment message to the receiver's financial institution to seek confirmation that that receiver's financial institution intends to accept the payment message at this point the receiver's financial institution will have the opportunity to either confirm or deny that it does maintain the specified account maybe give me a smiley face in the chat if you're if you're following along okay then we'll move along to step five and this is when the receivers financial institution would send a positive response back to the fed now service confirming that it does intend to accept that payment message and really steps four and five are intended to reduce the number of misdirected payments and resulting exception cases that can occur in high volume systems okay then in step six the fed now service debits and credits the designated master accounts of the senders and receivers financial institutions or it could be their correspondent financial institutions in step seven the fednow service sends a payment message forward to the receiver's financial institution with an advice of credit and in parallel it's sending an acknowledgement to the sender's financial institution notifying it that the settlement is complete then finally in step eight the receiver's financial institution credits the receiver's account as a term of the fed now service the receiver's financial institution must agree to make those funds available to the receiver almost immediately after step seven this crediting of the receiver's account as well as the debiting of the sender's account by their respective financial institutions does happen outside the fed now service so again that's a high level overview of a simple payment flow again all of this is happening in a matter of seconds and seems very simple right um but that's what we wanted to highlight for you just to give you a sense of how we expect the messaging to work um so that really wraps up the overview of the fed now features and functionality and i will kick it back over to maria that really talk about ways you all can stay engaged and educated and get involved in some of the efforts all right so yes preparing for the fed now service so before before i get started again i have a couple more questions pulling questions for you so where is your organization with regards to statistic payments not interested right now thinking about offering instant payments actively preparing to offer instant payments or already offering instant payments and then there's another question if you do plan to offer instant payments what is your implementation timeline we're already offering instant payments one year two years three years or more than three years okay we have our results so um a few of you are not interested right now might have been some of the folks that aren't seeing demand quite yet but the large majority 56 percent are thinking about offering instant payments um uh it looks like 20 are actively preparing and i'm pretty impressed 18 are actually already offering instant payments and then of those that answered the second question if you plan to offer instant payments what is your implementation timeline um so the folks that are already offering are 23 one year is 29 uh two years is 33 and i think that actually aligns with um some of the things that we've been hearing from the industry about how long it sort of takes to get your systems ready and make those investments and then more than three years is three percent so thank you for answering those polling questions for you for us and now we can go to the next slide so to help with your instant payment strategy we've launched an instant payments education page on our frbservices.org website where we will regularly be posting new content so there are already several resources out there and i encourage you to bookmark that and check back often to learn more next slide so as we proceed with the development of the fed now service we will continue to engage the industry to gain input on the service features and design so in may we announced the formation of the fednow community group for industry stakeholders interested in providing insights to help inform and involve evolve the development of the service and we are very pleased that we already have over 700 members so uh raise your hand in the chat if you're one of them and if you're not and would like to join make sure to submit a participant profile form members of the fednow community may be requested to provide input on the design and features of the service the product development roadmap industry readiness are barriers for onboarding and implementation and we're going to get your insight via a variety of channels um we're going to have focus groups working groups conference calls virtual meetings surveys but you can really determine how involved you would like to be so it's fine if you just want to sign up to get information that we send out and attend attend our webinars working group formation has already begun the iso 2022 working group kicked off in july to inform and refine the fed now iso 2022 message specifications that jamie mentioned and the reconcilement work group is made up of large medium and small financial institutions and third-party processors who handle reconcilement on behalf of their customers and that will support the planning and design work to facilitate federal service reconcilement activity we'll also be establishing a federal service pilot program and testing approach we expect the first phase of the pilot program to begin in the near term with financial institutions and service providers serving in an advisory capacity as we work through the operational details of the service so there are lots of exciting things happening in the community of richardson and on the next slide is a recap of where you can go to learn more section here if we settle our cash letter through a correspondent well we lose the use of some of the tools you mentioned especially liquidity so no uh when when uh you know the way the service is designed that any kind of relationship that you have with a correspondent bank you should be able to continue that uh through using the fednow service so jamie i'll out invite you to join back in all right well i see another question um that will respond do you view this as primarily a b2b solution and or a direct competitor to consumer project products such as paypal venmo etc again that's a great question you know we're really viewing fednow to be that platform for innovation and are intending for it to be a use case agnostic so that it really can support all of those different use cases that we talked about earlier p2p b2b b2c etc um when you talk about things like paypal venmo those of course are those end user apps that folks use um so it would be up you know the financial institution would be providing those end user interface type apps um to all of us as end users but again um the intention is that fed now would serve as that platform for those different types of use cases i thought we had a question about at what point is the fed debit for sending institutions um and if looking at the female payment flow it would be after the receiver's financial institution sends confirmation to the federal service that is when the master account um is debited from the senator site and then credited to the receiver's debt and i might jump in i know i'm keeping an eye on time um i know it's is there a chance the service will be launched sooner than 2023 or 2024 and um as i mentioned earlier we we did hear you know from the industry about the urgency for time to market um so fed now is a priority for us as you can imagine it is you know a complex undertaking um so we are doing everything we can to advance it as quickly as possible and we will you know provide updates to our um industry experts and ecosystem through just our regular updates so so more to come on that i see a question and sorry these are coming in quickly so appreciate so bear with us about a directory i think i saw a question maybe plans to have a directory service um so that is one of those value-add services that we are currently exploring um that will not be a part of our first release but you know again understanding the use cases that it could support that is part of our exploration as in for potential future future releases of fed now okay and i saw a question about is there a push to have interoperability uh with uh the clearinghouse's rtp um and i know that then we touched on us in her description but you know we recognize the importance of interoperability uh in instant payments we received a lot of comment letters uh regarding that uh after our august 2019 federal register native and the fed is committed to advancing um interoperability to achieve nationwide reach which is really the goal for faster and instant payments and it's going to really you know take everyone working together to achieve that goal and we are as jamie mentioned you know building towards combat uh compatible standards using the iso 2022 messaging to uh enable um all right well i see that we are at 12 44 so i will jump in and i want to say thank you all for joining us today for an update on fed now as part of our banking economy webinar series and on behalf of the federal reserve bank of kansas city thank you and enjoy the rest of your week have a good day everyone goodbye