The Launch of FedNow: A Major Milestone in U.S. Payments Systems

FedNow’s introduction this year has been a major highlight in payment system news, offering 24/7 access for users to send and receive money throughout the year.

However, according to a recent study by Fenergo, new fraud risks have emerged post-FedNow launch. The immediacy of these transactions introduces challenges related to security protocols, regulatory compliance, and fraud prevention. Faster payments also reduce transaction clearing times, amplifying the potential for fraudulent activities requiring more advanced protection measures.

A survey among high-level risk and compliance officers from various fintech companies revealed that 42% find it challenging to balance compliance operations with a seamless user experience during FedNow adoption. Additionally, 78% of these officers expressed concerns about insufficient staff training in this context.

“Navigating the uncharted waters brought by the launch of FedNow,” said Stella Clarke, Chief Strategy and Marketing Officer at Fenergo, “our research underscores significant hurdles in financial crime prevention and compliance efforts.”

A New Era for Faster Payments

The anticipation leading up to FedNow’s launch was high. As a government-developed instant payment system, it promised to democratize access to real-time payments among major banks, smaller banks, and credit unions.

Studies suggest that 30% of financial institutions (FIs) will adopt real-time payments in 2023 with many waiting until FedNow is officially operational. The challenge now lies in balancing the high volume of transactions with customer privacy and security. Compliance processes such as anti-money laundering, know your customer (KYC), and fraud detection operate at a slower pace compared to the speed of these transactions.