The 24/7/365 nature of immediate payments may seem daunting, but just a few simple tips offer insight on how much will change regarding your credit union’s back-office procedures after you implement one or both new payment rails. Fortunately, your credit union likely has several processes and procedures already in place (i.e., ACH and wire programs) that will also translate to immediate payment operations; any new policies and procedures will be determined by the funding options and participant profile(s) you choose. To that end, the following tips will help your credit union navigate liquidity management on the new immediate payment rails.
Tip 1: Understand your funding options.
The funding option you choose determines how much will change at your credit union regarding liquidity management. Both the RTP® network and the FedNow® service provide two options for credit unions to manage their accounts:
- Self-management. Credit unions can manage their cash on their own, which means your credit union would be responsible for handling all liquidity management for its account 24/7/365. It almost goes without saying that this choice would tremendously impact your back-office operations.
- Cash management options. If managing cash around the clock sounds like more than your credit union is willing to take on, both rails offer options to help you manage your cash:
- On the RTP network, credit unions can use a funding agent. The funding agent would jointly own the Fed account with The Clearing House, and the funding agent would be able to perform various functions on behalf of your credit union, such as providing reporting and reconciliation services and managing your liquidity position.
- On the FedNow Service, credit unions can choose a correspondent settlement provider and designate that the instant payment transactions settle in the Fed master account of the correspondent. A correspondent will also provide funding for outgoing payments. Credit unions that do not choose to use a settlement provider can take advantage of a core feature of the service and use a liquidity management transfer. During hours when the Fedwire service is not available, this tool enables participants in the FedNow Service to transfer funds to one another to support 24/7 liquidity needs.
Tip 2: Understand how settlement works on both rails.
Let’s look briefly at how settlement works on both payment rails.
For the RTP network: Credit unions will need to create a jointly owned Federal Reserve Bank of New York account, or use a funding agent, for settlement purposes.
- If your credit union is self-managed, you will have to manage your account daily, then the net amount of the transactions will either be positive or negative and will need to be acted on; you must manage your required balances in the joint account. Your credit union will need to move the balances between the joint Fed account and your master Federal Reserve Bank account and then, if desired, between your master Fed account and your settlement account, such as the One Account at Corporate One.
- If your credit union uses a funding agent, such as Corporate One, the net amount from the daily transactions will be posted into your Corporate One Account automatically.
For the FedNow Service: Credit unions can use their existing Federal Reserve Bank master account or their correspondent institution for settlement.
- If your credit union is self-funded, you will need to manage your account daily and around the clock. The net amount will either be positive or negative and you will have to manage your required balances.
- For credit unions using a correspondent settlement provider, payment transactions accumulate in Corporate One’s Fed account, and then Corporate One will post the net amounts in your credit union’s One Account.
Regarding reconciliation, your credit union will receive its daily reconciliation report from your third-party service provider or your Funding Agent/settlement provider. This is the same for both payment rails. Again, the reconciliation process won’t differ from what most credit unions are already doing with ACH or wire reconciliation.
Tip 3: Consider if you will need to implement new policies and procedures alongside those that already exist.
Most credit unions will likely choose not to manage their funds on their own. However, since payments must now be processed seven days a week instead of five, even those credit unions using the services of a funding agent or a correspondent settlement provider may want to implement some new policies and procedures like the following:
- How reconciliation processes change from reconciling “business day” transactions to “every day” transactions.
- Various authority policies. What members are authorized and how much can they send?
- Transaction dollar limits. Currently, the RTP network has a send transaction limit of $1 million, and the FedNow Service is capped at $500,000. Credit unions will need to identify the limits they’re comfortable with for various accounts. Credit unions will also be required to accept the maximum amounts; there will be no ability to limit the dollar amount of incoming deposits.
For more information on managing your liquidity 24/7/365, I encourage you to reach out to me at 866/MyCorp1 or via firstname.lastname@example.org. I’m happy to have a conversation with you about the next steps in your immediate payments journey.