FedNow upgrade introduces more risk controls, but will financial institutions hit “send”?

Contributed

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The FedNow® Service recently celebrated its second anniversary with around 1,400 participating financial institutions (FIs) across all 50 states. To mark this milestone, the Fed announced
the addition of a new account threshold feature that allows financial institutions to enhance risk mitigation by adjusting value and transaction levels based on customer/member segments. It also increased the transaction limit from $500,000 to $1 million,
broadening the range of potential use cases, including more business-related transactions.

Will the new account threshold feature and increased transaction limits encourage more financial institutions to activate send functionality in FedNow?

In theory, the ability to send larger transaction amounts, combined with the new account threshold features allowing for more fraud controls, may encourage more financial institutions to implement send. Whether it does or not is another question.

From a fraud perspective, I think the biggest concern on the send side is the speed of settlement. From what I’ve seen, many financial institutions are just “dipping their toes” in the water and starting with receiving only. However, anecdotally speaking,
they’re not ready to transition to send unless a big customer specifically requests it. The majority of financial institutions are more likely to develop a “wait and see” approach.

Still, financial institutions are aware that the industry is reaching a tipping point for instant payments, and they are carefully assessing send functionality. Decisions around send rely on an ecosystem, from what core providers have developed to what customer/member-facing
experiences need to be interconnected, and perhaps most importantly, to what fraud mitigation tools are available.

The fraud conundrum

Because fraud, and fear of fraud, are certainly hinderances for financial institutions in leveraging send. The U.S. Faster Payments Council reported in its

2025 Faster Payments Barometer that 34% of respondents are seeing an increase in fraud, and another 84% point to multifactor authentication as a top value-added service for faster payments to support fraud mitigation.  

That’s likely because as attacks get more sophisticated, having the right tools in place makes all the difference. Recently, I was at a treasury management conference where a banker shared a cautionary tale. A customer/member they knew well emailed their
financial institution, requesting that they add a specific individual as an administrator for the treasury management platform. The financial institution immediately called the person at the other end to discuss the matter and obtain the necessary information.

Everything went smoothly until it didn’t.

Using artificial intelligence (AI), a fraudster hacked into the individual’s laptop to obtain the necessary information, intercepted the call, and led to the financial institution suffering a $130,000 loss that it was unable to recover. The banker sharing
the incident said they had been in treasury management for over 30 years and had never experienced anything like it. Fraudsters’ level of sophistication has risen exponentially.

Tips for opting into instant payments send

But fear of fraud should not be a barrier to innovation. As global commerce begins to demand instant payments, financial institutions need to assess both the cost of instituting them and the potential lost opportunity costs aligned with holding off.

In essence, financial institutions need to consider the following as they evaluate instant payments send functionality for their organisations:

• Stay strategic: Consider how send functionality aligns with your strategic and business plans, your customer/member base, and their needs, as well as your geographic location. Additionally, dedicate the necessary time and resources
  to develop specific processes, procedures, and controls that reduce risks and identify potential fraud. 
• Realise fraud occurs: Recognise that fraud happens, and today’s malicious actors are more skilled than in the past. Today’s advanced fraudsters use artificial intelligence and other cutting-edge technologies to deceive and evade
  detection by even the most experienced bankers. Yet, more advanced fraud mitigation tools exist, and employing state-of-the-art solutions may help to stave off losses.
• Weigh risks against benefits: Although fraud is a risk, there are other benefits to implementing instant payments send. For example, you may gain new customers/members seeking send capabilities, increase your business customers/members
  that want to send high-value transactions, and create revenue-generating capabilities, among others.
• Learn from other financial institutions: Discuss experiences with financial institutions that have implemented send functionality to accelerate your learning curve, gain valuable lessons learned, and avoid costly mistakes.
• Engage a trusted provider: Determine whether you’ll work with your core or another  third-party processor to enable send functionality. Ensure that whomever you work with has appropriate business continuity plans in place to ensure
  continuity of operations and can integrate with the fraud mitigation tools of your choosing.
• Limit access: Before activating send, consider who will have access, the total dollar amount involved, and how to incorporate it into your liquidity risk management. In addition, set limits for customer/member transactions and
  consider offering send functionality on a limited scale to test the waters prior to rolling it out to a larger customer/member base.

The bottom line is that instant payments aren’t going away. Over time, more financial institutions will adopt both receive and send capabilities. The only questions are when and how you plan to join.

For more information on how to create an instant payments strategy or to implement instant payments, contact SFE at
info@sfe.org.