At the recent 2024 Payments Management Conference, we sat down with Kevin Olsen, Senior Vice President of Innovation and Strategy at Pidgin, for an enlightening discussion on the intricacies of onboarding FedNow. With his extensive experience in payments and a knack for simplifying complex processes, Kevin shared valuable insights on what financial institutions need to know about integrating with FedNow.
A Growing Demand for FedNow
There's a significant rush for financial institutions to get onboard with FedNow. The recent announcement of 777 institutions being onboarded highlights the rapid adoption and the growing trust in this new payment system.
Key Considerations for Onboarding
Kevin emphasized several critical aspects that institutions should focus on:
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Send and Receive Decisions: Institutions need to decide whether they want to be send-only, receive-only, or both. Kevin refers to receive-only as "receive first," underscoring that many institutions initially choose to receive but eventually opt to send as the network expands.
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Testing for Both Send and Receive: Even if an institution starts as receive-only, Kevin recommends testing for both sending and receiving to ensure a smooth transition when they decide to start sending.
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Authorized Officials List (OAL): Understanding who the authorized signatories (OALs) are is crucial. These are the individuals authorized to make decisions and sign documents with the Federal Reserve. Kevin shared anecdotes about institutions discovering their OALs hadn't been updated for years, leading to significant delays.
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Master Account Decisions: Institutions must determine whether they will use their own master account or a correspondent’s. Kevin debunked the myth that every bank has a master account, explaining that many rely on correspondents.
The Onboarding Team
Building the right team for onboarding is essential. Kevin highlighted the roles that need to be involved:
- OALs and EUACs: The end-user authorized contacts who sign off on the process.
- Treasury and Accounting: For balancing and reconciliation.
- IT Department: To handle the technical aspects and ensure smooth integration.
- Service Providers: To guide the process and ensure compliance.
Speed of Implementation
Kevin mentioned that while onboarding can be as fast as eight days, the average is about 30 days. This timeline varies based on the institution's preparedness and the efficiency of their service providers. He emphasized the importance of having all paperwork and authorizations in place to avoid delays.
Handling Exceptions and Continuous Operations
One common concern is how to manage exceptions, especially during weekends. Kevin reassured that with FedNow, exceptions are minimal and often handled automatically. Institutions have until midnight the next business day to resolve any issues, reducing the need for weekend interventions.
Adapting to Seven-Day Accounting
Kevin addressed concerns about transitioning to a seven-day accounting system. The main challenge has been the fear of change rather than the technical aspects. He assured that most institutions have managed the shift smoothly with minimal impact.
The Importance of Testing
Testing is a crucial part of the onboarding process. Kevin highlighted that institutions working with established service providers and cores find the testing phase straightforward and quick. However, new service providers might require more rigorous testing to ensure all systems are fully functional.
Real-World Performance
In real-world scenarios, transactions through FedNow often complete in less than a second, far surpassing the 20-second standard. This speed is a significant advantage for institutions looking to offer their customers instant payment capabilities.
Conclusion
Onboarding FedNow can seem daunting, but with the right preparation and team, it can be a smooth and efficient process. Kevin Olsen's insights provide a clear roadmap for financial institutions to follow, ensuring they can leverage the benefits of instant payments with minimal disruption.
As the payment landscape continues to evolve, staying informed and prepared is key. With experts like Kevin Olsen leading the way, institutions can confidently navigate the complexities of FedNow onboarding and beyond.
For more insights and updates tune into the Wrestling Payments Podcast Season 2, Episode 15: NEACH > Podcasts.