Role of technology in

Faster Payment
10/17/2020 Systems
Subject: IT for BFSI

Division: B, Group- 04

GUIDED BY:
PROFESSOR. NEHA DHARURKAR

SUBMITTED BY:
MEDHA MUKHERJEE 20030241075
MOHINI ROY CHOWDHURY 20030241076
PRATEEK PANDEY 20030241082
SULAKEY MARUTHI RAO 20030241096
VISHAL RAJKUMAR MALKANI 20030241073
VISHWENDRA CHAUHAN 20030241100
 TABLE OF CONTENTS

Contents
TABLE OF CONTENTS..........................................................................................................1
1. INTRODUCTION..................................................................................................................2
2. OBJECTIVE OF STUDY..........................................................................................................4
3. REVIEW OF LITERATURE.....................................................................................................4
3.1 Methodology......................................................................................................................7
3.2 Comparative study of IMPS with other payment methods...............................................7
4. STUDY ON IMPS..................................................................................................................9
4.1 Services available under IMPS........................................................................................10
4.2 How to send and receive money using IMPS?................................................................11
4.3 How IMPS work?..............................................................................................................12
5. PROPOSED MODEL...........................................................................................................13
5.1 FedNow - Service Design..................................................................................................15
5.2 Payment Flow...................................................................................................................15
5.3 Scope for use....................................................................................................................16
6. CONCLUSION....................................................................................................................16
7. REFERENCE.......................................................................................................................17

1
 1. INTRODUCTION
In recent years, the landscape of retail payments has shifted rapidly. Retail payments play an important
role in the financial system and the economy as a whole, involving relatively low-value transactions
between individuals, companies and public authorities. Central banks have a strong interest in the
efficiency and safety of retail payment systems and instruments due to their significance for the
efficiency and stability of the financial system. Reflecting the general interest of central banks in retail
payments and relevant value of innovations for the reliability and safety of retail payment systems, the
previous The Committee on Payment and Settlement Systems (CPSS) and Committee on Payments and
Market Infrastructure (CPMI) study presented an overview and review of innovations in retail payments
and described a range of important developments and patterns across jurisdictions.

One such improvement includes enhancing the speed and convenience of retail payment end-users.
Enhancing payment speeds, powered by demand for real-time or near-real-time retail payments, is a
major trend across jurisdictions. In addition, online banking, mobile payments and so on Technological
advances have improved the versatility and comfort of making retail payments.

After that earlier study, the trend towards increased speed and convenience for retail payments seems to
have accelerated. As shown in below table, the number of CPMI jurisdictions with services, schemes
and systems that enable end-users to make almost continuous real-time or near-real-time payments has
more than doubled since 2010. Proposals and initiatives in additional CPMI jurisdictions for the
provision of retail payments with these features indicate that this number may increase dramatically in
the coming years.

Fast payment implementations in CPMI countries

Existing fast payment implementations in CPMI countries:
Country Implementation Year commenced
Mexico SPEI 2015
Switzerland Twint 2015
Singapore Fast And Secure Transfers (FAST) 2014
Italy Jiffy – Cash in a flash (Jiffy) 2014
Turkey BKM Express 2013
Sweden BiR/Swish 2012
India Immediate Payment Service (IMPS) 2010
China Internet Banking Payment System 2010
(IBPS)
United Faster Payments Service (FPS) 2008
Kingdom
Korea CD/ATM System 2007
South Africa Real-Time Clearing (RTC) 2006
Korea Electronic Banking System (EBS) 2001

The emergence of fast payments in multiple CPMI jurisdictions, as well as an apparent acceleration in
the rate at which they are being proposed and implemented, reflects important developments in the
demand for and supply of such payments. As a result, central banks, other authorities and payment
industry stakeholders are paying considerable attention to the development of fast payment services and
have been involved in their development to varying degrees.
Technological innovations have revolutionized many activities for end users. The connectivity and
functionality associated with computers, extensive telecommunications networks, security procedures
and, more recently, sophisticated mobile devices allow end users to exchange messages, place orders,
obtain digital content and engage in various other activities in near-real time. Moreover, these
technologies are often available around the clock so that end users can enjoy fast services at any time of
the day or night. A letter by post may have once required days to be delivered, but now electronic mail,
instant messaging services and social network applications allow end users to send and receive
messages in seconds and at negligible cost, regardless of the time of day or location of the sender and
receiver. Notably, these developments are a worldwide phenomenon, occurring in various ways in both
advanced and emerging economies.

The same technological developments that have altered end-user activities in other areas may have also
affected demand for fast payments. As described in the report on Innovations in retail payments,
changes in end-user behavior, often due to technology, have been behind many retail payment
innovations. These technological developments do not exclusively affect demand for fast payments;
however, improvements in information technology may have affected demand for fast payments in a
number of ways.

For transferring funds real time and 24X7X365 interbank was a major challenge faced in banking
industry. Only NEFT & RTGS were available to user for fund transfer during banking hours. NPCI
conducted a pilot study on the mobile payment system with the banks like SBI, BOI, UBI and ICICI in
August 2010. Also the banks like Yes bank, Axis and HDFC bank joined this league in the month of
September, October and November 2010 respectively. Based on the study, IMPS (Immediate Payment
System) was launched on 22nd November 2010 by Smt. Shyamala Gopinath, DG RBI at Mumbai and
this service is now available to the Indian public. Using IMPS, users can transfer money instantly from
one account to the other account, within the same bank or accounts across other banks. There is no
minimum amount for transactions, but the maximum amount is Rs.5 lakhs, which is again, can vary
between banks. IMPS is a payment service introduced by National Payments Corporation of India
(NPCI). The eligible criteria for the Banks who can participate in IMPS is that the Bank should have
approval from RBI for Mobile Banking Service. The service, launched in November 2010, as an instant
mobile remittance solution, has today evolved as a multi-channel, multidimensional remittance
platform. The IMPS platform today is capable of processing P2P (Person to Person), P2A (Person to
Account) and P2M (Person to Merchant) remittance and transactions can be initiated from Mobile,
Internet as well as ATM channel. In addition to banking customers, non-banking customers can also
avail the IMPS facility through Reserve Bank of India (RBI) approved PPIs. This can be payments for
utility bills, mobile or DTH recharge, credit card bills, grocery bills, travel ticketing, online shopping
and even educational institutes fee payments through this channel.
 2. OBJECTIVE OF STUDY
1) To understand the importance of Real time payment in today’s world

2) To understand meaning of the terms Immediate Payment Service (IMPS)

3) To study present status of Immediate Payment Service (IMPS) in India

4) To compare and analyze Immediate Payment Service (IMPS) from customers point of view

5) To understand about the new technology which is better than IMPS

6) To study about FedNow and its scope of use

3. REVIEW OF LITERATURE

Real-time payments are changing the reality of payments, Deloitte – The case says real-time payments
systems have been successfully implemented across different countries and regions catching on across
the globe in places like Mexico, the UK, Sweden, India and Singapore. Technology, high speed data
networks and consumer behavior are among some of the factors fueling this demand for speed, and the
typical result in most countries has been the Central Bank’s involvement in driving the transition to a
real-time system, largely through industry consultation and the identification and move toward a
national payments roadmap. However, banks ought to devise an implementation plan that is aligned
with their long-term digital strategy. Rather than focusing purely on the ROI for real-time payments
implementation, banks can treat it as an opportunity to spark innovation for their products and services.
Deriving business value from this initiative will depend on rapidly changing market trends as well as on
how agile and relevant banks remain.

It is witnessed that there are

tremendous technological and
business model changes over the past
decade. From new payment platforms
and solutions, to updated regulations
addressing payment effectiveness and
security, to — maybe most
significantly — higher expectations
from merchants and consumers.
Various attributes contribute towards
growth of Real Time payment- among
which Customer and merchant
expectation play a key role.
There are many “faster payment” schemes available around the globe aimed at expediting the
availability of funds by creating a workaround for underlying Clearing & Settlement mechanisms. Yet a
single approach for the industry has not yet evolved. One such example of faster payment is the
Immediate Payment System, IMPS, of National Payments Corporation of India that is available 24*7
throughout the year including bank holidays. Other countries have chosen to implement “multiple
batch” systems with clearing cycles that are designed in the same manner as traditional systems, but
repeated many a times a day. The important systems are mentioned below.

With a 10-fold rise in transaction value and eight-fold increase in volumes over last year, India’s IMPS
has been rated the world’s best real time money transfer platform by FIS. In the sixth annual ‘Flavours
of Fast report’ by FIS, which analysed 54 countries, India’s Immediate Payment Service received the
only 5+ rating on the Faster Payments Innovation Index scale of 1-5. The programmes were rated on
innovative features, fund availability and market application. The payment systems of countries like the
US, China, Japan, the UK, Germany, Australia, Denmark, Poland, Romania, Singapore and Sweden
were analysed by FIS.
Launched almost a decade ago, IMPS is the core of one of the most evolved and sophisticated public
digital payments infrastructures in the world. Funds can be accessed via mobile devices, online, at
ATMs, through text messages and at physical bank branches.
India is one market which has successfully integrated real-time payments with mobile and the result has
been 1,000 per cent plus growth rates. Though more than half the population remains offline, India’s
real-time scheme processes 20 million fast payment transactions each day.

Dr. Shilpa Bhimrao Gaonkar (2018), ‘Conceptual Study’ – The Objective of the study was to explore
various payment instruments available to the people, and its benefits. It has used data from reports of
RBI, GOI, NPCI, MEDIANAMA etc. Study revealed that various new instruments are emerging.
Benefits of going cashless increased transparency, efficiency and convenience, easier tracking, etc.
DR. PRIYANKA KOTECHA Ph.D. Scholar, Calorx Teachers' University, Ahmedabad, 2019: the article
entitled “IMPS, immediate payment service is also known as Interbank Mobile Payment Service means
funds are transferred electronically by mobile phone services. IMPS is a mobile based payment service
as the customers use mobile phones as a medium for transferring funds. IMPS is an easy and immediate
mode of transferring the funds immediately from one account to the other account, within the same bank
or accounts across other banks.

YEAR VOLUME(MILLIONS) VALUE (BILLIONS)

2011-2012 0.1 0.4

2012-2013 1.2 4.3

2013-2014 15.4 95.80

2014-2015 78.4 581.90

2015-2016 220.8 1622

2016-2017 506.7 4116

The reach and utilization of IMPS has shown at prolific pace since its nascent stage. Transactions have
increased from 0.1 million to 506.7 million in the year 2011-2012 to 2016-2017, which shows in the
following graph the phenomenal popularity of IMPS in Indian banking industry.

Traditionally, it took one or more days (even weeks in the case of some cross-border transactions) to
begin a cashless retail payment before the funds had reached the payee. Initiation and processing of
transactions has frequently been limited to particular periods during the day. These two drawbacks of
the Traditional payments, payment speed and availability of services are the key aspects that quick
payment projects seek to improve.

The Stambhadri Cooperative Urban Bank Ltd. (SCUB) Case- SCUB is a progressive bank operating
out of Khammam district, Telangana. It is at the forefront of using technology-enabled solutions to
create a distinct USP among banks in its region. The bank has a loyal set of customers who are
interested in deriving the full benefits of digital banking. The bank selected MAXIMUS for providing a
wide range of services on total outsourced basis. These services range from EFT Switching and Card
Management using RuPay cards on the National Financial Switch (NFS) operated by the National
Payments Corporation of India (NPCI). SCUB wanted to go live with RuPay card services for ATM,
POS and eCommerce channels simultaneously. MAXIMUS connected the bank to NPCI through its
ASP Switch hosted at its PCI-DSS certified data centres. Apart from Switching, MAXIMUS is also
offering complete card production and PIN mailer services. The MAXIMUS ASP Switch is connected
to the bank’s Core Banking System (CBS) through ISO8583 messaging. SCUB is now part of the
national ATM and POS network. Its customers can also use the RuPay debit cards to carry out online
transactions. MAXIMUS provides 24×7 technical support to the bank. The bank would be going live
with the MAXIMUS Immediate Payment Service (IMPS) solution, ABHI, shortly. It can be inferred
that the amalgamation of MAXIMUS with IMPS would add a different flavor to the traditional payment
methodology and would be more convenient for the people to use the same.

Western Union’s integration with IMPS payments- Western Union has successfully linked its retail agent
network and digital transactional sites in select countries to move money in minutes to account holders
of select banks via India’s revolutionary Immediate Payment Service (IMPS). The service is available
using cash and debit cards at participating Agent locations, and debit and credit cards at
www.westernunion.com.com at this time. Western Union President and CEO, Hikmet Ersek’s main
objective was to harness the banking system to link retail or digital transfers from major send countries
to direct money into individual bank accounts of major receive countries. The Bank currently has
connections to transfer money into bank accounts in more than 50 countries. Now, after introduction of
IMPS, India leads the way in making such payments as the payment can be made in minutes. This is a
major advantage for the customers where the bank is giving them choice of placing the cash on the
counter or using the cashless send options and yet sending directly into a bank account from major
center’s around the world. Direct-to-bank international money transfers are preferred by customers
looking for the convenience of funds received directly into a bank account and accessible on demand,
24/7, according to a Western Union user survey. The in minutes delivery speed is an enhancement to the
direct-to-bank money transfer services launched by Western Union last year, which delivers funds
within one banking day to 140 banks in India. This service, provided in collaboration with IndusInd
Bank, operates using the National Payments Corporation of India’s (NPCI) revolutionary IMPS
platform, which has recently been approved by the Reserve Bank of India to facilitate cross-border
money transfer within minutes to select banks.

3.1 Methodology
This study has used primary data from various Case studies and the inferences are drawn based on that. The
secondary data from the official websites of NPCI and RBI is used to conduct a comparative and
quantitative analysis on the collected data to analyze the trends in the Payments systems of NEFT, RTGS
and IMPS. The dataset includes monthly data for the above-mentioned instruments from November 2010
till October 2019.
 3.2 Comparative study of IMPS with other payment methods

This study has used secondary data from the official websites of NPCI and RBI. Monthly data for
volume of transactions for RTGS, NEFT and IMPS has been collected. Quantitative analysis has been
performed on the collected data to analyze the trends in the said digital instruments. The dataset
includes monthly data for the above-mentioned instruments from November 2010 till October 2019.
The same data was arranged to arrive at month-wise volumes for the same period and also yearly
volumes for each instrument. In trend analysis, certain models are applied to the collected data in an
attempt to spot a pattern and make predictions about the future values.

The trend for RTGS payments can be well defined using a linear model as shown in fig. 6. It shows an
overall upward trend with seasonal peaks which is usually during the financial year end. Thus, it can be
implied that the volume of transactions for RTGS will continue to rise almost at the same rate as has
been so far.
The trend for NEFT can be approximately shown using a linear model with accuracy measures. NEFT
shows an upward increasing trend. This implies that NEFT transactions will continue to increase with
time almost at a constant rate. In the recent years mainly 2018 and 2019 some spikes have also been
observed.

The trend for IMPS approximately follows a quadratic model with the accuracy measurements. As it is a
quadratic model, the growth rate is not constant. From the graph and the equation, it can be inferred that
rate of change of growth is also positive, hence IMPS will continue to grow at a faster rate with time.

As seen from the trend analysis, the usage of digital instruments is increasing with time. RTGS and
NEFT are growing at almost a constant rate as seen from the linear model in their trend analysis. IMPS
has increasing growth rate as compared to RTGS and NEFT which is evident from their quadratic
models in trend analysis. They would thus continue their share of payments. RTGS and NEFT are the
oldest payments systems introduced in India and hence have a steady growth over the years. IMPS was
introduced later and have gained popularity among the masses due to real time usage and ease of use.

4. STUDY ON IMPS

IMPS stand for Immediate Payment Service in Indian banking system terminologies that was launched
on 22nd November 2010 by Smt. Shyamala Gopinath, DG RBI at Mumbai and this service is now
available to the Indian public. It is a money transfer mechanism made available by the apex bank of the
country, the Reserve Bank of India and the National Payments Corporation of India (NPCI). Initiated in
2010 by the NPCI with the help of a pilot project with 4 major banks, IMPS has now grown to 150+
banks.

The major feature of IMPS is that it is available at all times for usage. It transfers funds instantly and is
a great banking platform in case of emergencies. The transaction charges of this platform are also very
nominal and the transfer limit is also considerable, approximately Rupees 2 lakhs per day. Moreover,
IMPS is available on mobile too which makes it super-convenient.

IMPS provide robust & real time fund transfer which offers an instant, 24X7, interbank electronic fund
transfer service that could be accessed on multiple channels like Mobile, Internet, ATM, SMS, Branch
and USSD (*99#). IMPS is an emphatic service which allow transferring of funds instantly within banks
across India which is not only safe but also economical. Currently on IMPS, 590 members are live
which includes banks & PPIs. This facility is provided by NPCI through its existing NFS switch.

4.1 Services available under IMPS

Using Mobile number & MMID (P2P):

IMPS offer an instant, 24*7 interbank electronic fund transfer service capable of processing person to
person, person to account and person to merchant remittances via mobile, internet and ATMs. It is a
multichannel and multidimensional platform that make the payments possible within fraction of seconds
with all the standards and integrity maintained for security required for even high worth transactions.

Sender & Receiver – Have to register for Mobile Banking & get a unique ID called “MMID”
 Generation of MMID is a One-time process.
Remitter (Sender) transfer funds to beneficiary (Receiver) using Mobile no. & 7digit MMID of
beneficiary.

Using Account number & IFS Code (P2A):

Presently, IMPS Person-to-Person (P2P) funds transfer requires the Remitter customer to make funds
transfer using Beneficiary Mobile Number and MMID. Both Remitter as well as Beneficiary needs to
register their mobile number with their respective bank account and get MMID, in order to send or
receive funds using IMPS.

There may be cases where Remitter is enabled on Mobile Banking, but Beneficiary mobile number is
not registered with any bank account. In such cases, Remitter shall not be able to send money to the
Beneficiary using Mobile Number & MMID. Hence on the merit of the feedback received from the
banking community as well as to cater the above-mentioned need, the IMPS funds transfer has been
made possible using Beneficiary account number and IFS code as well, in addition to Beneficiary
mobile number and MMID.

Customer Initiated - P2M (Push):

IMPS Merchant Payments (P2M - Person-to-merchant) service allows customers to make instant, 24*7,
interbank payments to merchants or enterprises via mobile phone. IMPS enable mobile banking users a
facility to make payment to merchants and enterprises, through various access channels such as Internet,
mobile Internet, IVR, SMS, USSD.

Sender enter details of merchant's (Customer initiated - Push)

• Merchant Mobile Number & MMID
• Amount to be transferred
• Payment reference (optional)
• Sender's M-PIN

Merchant Initiated - P2M (Pull):

IMPS Merchant Payments (P2M - Person-to-Merchant) service allows customers to make instant, 24*7,
interbank payments to merchants or enterprises via Mobile & Internet. IMPS enable mobile banking
users a facility to make payment to merchants and enterprises, through various access channels such as
Internet, mobile Internet, IVR, SMS, USSD.

Customer enter own details (Merchant Initiated - Pull)

• Customer own Mobile Number
• Customer own MMID
• OTP (generated from the Issuer Bank)

Additional information:

IFS Code – 11-digit alphanumeric number, available in the users Cheque book. Using Aadhaar number
(ABRS). In ABRS, a remitter can initiate IMPS transaction using the beneficiary’s AADHAAR
number, which acts as a financial address & which will be linked to the beneficiaries account number.
ABRS facilitates in simplifying the IMPS payment initiation process as in this service the customer will
have to input only AADHAAR number of the beneficiary for initiating an IMPS transaction. Another
important utility of this service will be in disbursal of subsidy payment i.e. Electronic Benefit Transfer
(EBT)/ Direct Benefit transfer (DBT) by the Government. ABRS will act as a catalyst in expanding
financial Inclusion reach.

4.2 How to send and receive money using IMPS?

a) Registration Process:

 You have to register yourself with the mobile banking service of the bank. Some people consider
SMS alert service as Mobile Banking. It is not true. You have to place a separate request for
Mobile Banking Service. It will link your mobile no with the bank account no.
 Bank will issue unique Mobile Money Identifier (MMID) and MPIN to the customer. MMID is
7 digit no in which 1st 4 digits are the unique identification no of the issuing bank.
 Now you can download Mobile Banking Application through Google Play Store. Some banks
also allow download through SMS if your bank provides IMPS on SMS. A link to download
Mobile Banking Application is pushed through SMS on customers mobile number registered for
mobile banking.

b) Transfer money through IMPS:

 Assuming you wish to transfer money to your friend A then your friend A should also be
registered for mobile banking service (Though it is not compulsory).

 Your friend will share his MMID and Mobile No with you for money transfer. Please note that
you don’t need your friend’s Bank Name, Account No and other details for money
transfer.

In case, your friend is not registered for mobile banking service then you only need his
account number and IFSC code of the branch for IMPS. Transfer through MMID/Mob No or
Account No/IFSC code is also known as IMPS P2P (Person to Person).

The 3rd method is by using Aadhaar no of your friend. In this case, you only need Aadhaar no of
your friend to transfer funds through IMPS. The amount will be transferred to the bank account
linked to the Aadhaar.

 To transfer money through IMPS, you can login to the mobile banking application / Net Banking
of your bank.

 You can select the IMPS or use the SMS facility if your bank provides IMPS on SMS

 Enter the MMID and mobile no of your friend.

 Enter the Amount and your MPIN or OTP to transfer money to your friend.

 You will receive SMS confirmation along with transaction number for any future reference.
 4.3 How IMPS work?

The IMPS switch works in real time, meaning that once the transfer request is initiated by the remitter
of funds, it is routed by its bank via a central switch (National Finance Switch (NFS) operated by NPCI)
which in turn routes the transaction to the Beneficiary's bank. The Beneficiary's bank then
acknowledges the receipt and sends back the acknowledgment which is received by the recipient in real
time.

When you make an IMPS transfer, your sender mobile first sends this information to the sender bank,
which checks the data; whether your MMID is correct or not and if it matches with what it has in its
system. If it’s all correct, it debits the money from your bank account and transfers this to the NCPI
server, which then transfers it back to the receiver’s bank. The receiver bank goes about checking
everything again and then sends the status of the whole transaction to NCPI, which passes it back to
Sender’s bank. Both Receiver and Sender are then updated about the transaction through SMS. All this
normally takes just about 15-30 seconds for everything to happen and the money gets transferred near
instantaneously.

A transaction is received at NPCI for routing to beneficiary bank only after debiting the remitting
customer’s account. Therefore, the risk of a remittance being made with the remitting customer not
having adequate funds does not arise. Once the transaction reaches the beneficiary bank, it would be
treated as “good fund” and the beneficiary bank should credit the beneficiary’s account immediately.
Thus, it would be a real-time money transfer system from the customer’s point of view. However, from
the members’ perspective, interbank settlement of debiting the sending bank and crediting the
beneficiary bank would take place on a net basis four times a day on RTGS working days. Settlement
pertaining to four cycles of Sunday would be merged and settle through RTGS on Monday in single
MNSB file.

5. PROPOSED MODEL

The Federal Reserve is committed to fulfilling our public policy goals in a spirit of cooperation and
competitive fairness. We are pleased that the private-sector faster payment service is in the market, and
we see important benefits from the resilient and competitive market that would result from the FedNow
Service providing an alternative consistent with the requirements of the Monetary Control Act. The
requirement to consider the best way to make our payment and settlement services accessible to banks
across the country, along with long-standing principles including cost recovery over the long run, guides
our assessment of when the Federal Reserve should engage in the payment system. In setting fees, the
Federal Reserve is required by statute to "give due regard to competitive factors and the provision of an
adequate level of such services nationwide."10 I want to share with you some of the analysis—viewed
through the prism of our public policy goals of accessibility, safety, and efficiency—that we considered
in making today's decision.
Accessibility means serving more than 10,000 banks of varying sizes and missions that are in
communities all around the country. It turns out no single private-sector provider of any U.S. payment
system has ever achieved nationwide reach on its own, whether it be checks, ACH, cards, or wire
transfers. Acting alone, a single private-sector RTGS service will face significant challenges in
establishing an accessible infrastructure for faster payments with nationwide reach. In contrast, because
of our experience with providing other services, the Federal Reserve already has invested in connections
and customer service relationships with nearly every bank, small and large, across the country.
Currently, we provide payment services to nearly all banks either directly or indirectly. With our 12
regional Reserve Banks, we have the capacity to meet the needs of banks serving different communities
and with different needs and operating models. For that reason, commenters stated that the Federal
Reserve is uniquely positioned to offer nationwide access to a new payment and settlement service for
faster payments. FedNow will allow faster payments to reach banks of all sizes and their customers
across the country, which is especially important for rural communities, who often struggle with access
to financial services.
Guided by our public mission, the Federal Reserve serves the needs of all banks, no matter how small or
challenging to reach, and with competitive fairness. In response to our request for feedback last
November, several commenters emphasized how much they value the Federal Reserve's mission of
providing nationwide access on fair, transparent terms and expressed concern that a sole private-sector
RTGS service provider may be less likely to exhibit the same commitment over the long run.
Safety is also vital. If the Federal Reserve does not establish the FedNow Service, there will be a single
provider of real-time retail payment services. We are mindful of the serious safety issues associated
with a single point of failure; a risk that will rise as faster payments grow. Stakeholders have noted the
importance of having access to more than one real-time payment service for back-up purposes in order
to provide resiliency through redundancy. In fact, many banks already take advantage of having
connections to multiple operators today in check, ACH, and wire services. The Federal Reserve has
always had a vital role in promoting the safety and stability of the U.S. payment system by providing
liquidity and operational continuity especially in times of stress. The FedNow Service would allow the
Federal Reserve to extend this role into the real-time retail payment market.
Finally, competition will promote efficiency and innovation. The U.S. real-time retail payment
infrastructure stands to gain from competition, including through higher service quality and lower prices
over the long run, which in turn should support wider adoption.
The FedNow Service will provide a neutral foundation for innovation and competition in end-user faster
payment services. In response to the request for feedback, merchants and fintech companies commented
that a Federal Reserve real-time retail payment service could broaden the scope for innovation in faster
payments. They noted that a single provider that is owned and operated by one segment of the payment
industry may focus on a narrow set of use cases that do not reflect the full breadth of possible use cases
for faster payments. Recognizing the vibrancy of our payment industry, the addition of the FedNow
Service could provide a springboard for broader private-sector participation in the development of
innovative end-user services.
FedNow is the new interbank real-time gross settlement (RTGS) service that will offer integrated
clearing functionality for faster digital payments. The FedNow Service will be available to depository
institutions in the United States and will enable individuals and businesses to send instant payments
through their depository institution accounts. The service is intended to be a flexible, neutral platform
that supports a broad variety of instant payments. At the most fundamental level, the service will
provide interbank clearing and settlement that enables funds to be transferred from the account of a
sender to the account of a receiver in near real-time and at any time, any day of the year. Depository
institutions and their service providers will be able to build on this fundamental capability to offer
value-added services to their customers.

The FedNow Service will be designed to maintain uninterrupted 24x7x365 processing with security
features to support payment integrity and data security. The service will have a 24-hour business day
each day of the week, including weekends and holidays. End-of-day balances will be reported on
Federal Reserve accounting records for each participating depository institution on each FedNow
Service business day. Access to intraday credit will be provided to participants in the FedNow Service
during its business day under the same terms and conditions as for other Federal Reserve services.
The FedNow Service will provide a liquidity management tool to support instant payment services. The
tool will enable participants in the FedNow Service to transfer funds to one another to support liquidity
needs related to payment activity in the FedNow Service. The tool will also support participants in a
private-sector instant payment service backed by a joint account at a Reserve Bank by enabling transfers
between the master accounts of participants and a joint account.
5.1 FedNow - Service Design

The Federal Reserve reached a milestone in the development of the FedNow Service with the August 6,
2020, announcement of the service’s features and functionality. Industry feedback and in-depth analysis,
including over 180 comment letters (Off-site) in response to the August 2019 Federal Register notice
(Off-site), helped drive the FedNow Service features and design.
The initial FedNow Service launch will include:
 Core clearing and settlement capabilities to support a range of transaction types and use cases
 Use of the widely accepted ISO® 20022 standard and other industry best practices to support
interoperability
 Features that will support flexible adoption, including support for the use of service providers
and correspondents and an option to enroll as a “receive-only” participant
 Value-added features including request-for-payment capability and tools to support participants
in their handling of payment inquiries, reconcilements and certain exceptions
 Features to enhance experience for financial institutions by broadcasting participant availability
to support their transition to 24x7x365 operations, a user interface to support data needs and the
ability to have access to balance information on weekends
 Features to support payment integrity and data security and tools to help financial institutions
combat fraud, such as a transaction value limit and reporting features
 A liquidity-management tool that will allow participants and others to transfer funds to each
other to support the liquidity needs of instant payments

After the initial service launch, it is to offer additional features related to fraud prevention, error
resolution and case management. It will further be continuing to explore other features, including
potential support for person-to-person payments that use the alias of a receiver. Ongoing engagement
with the industry, including a pilot program, will play a role in the implementation plans.
 5.2 Payment Flow

The figure below illustrates a completed payment over the FedNow Service in its simplest form. This
process is designed to take place within seconds.

In step 1, a sender (i.e., an individual or business) initiates a payment by sending a payment message to
its financial institution through an end-user interface outside the FedNow Service. The sender’s
financial institution is responsible for screening the payment according to its internal processes and
requirements.

In step 2, the sender’s financial institution submits a payment message to the FedNow Service.

In step 3, the FedNow Service validates the payment message, for example, by verifying that the
message meets message format specifications.

In step 4, the FedNow Service sends the contents of the payment message to the receiver’s financial
institution to seek confirmation that the receiver’s financial institution intends to accept the payment
message. At this point, the receiver’s financial institution will have the opportunity to confirm or deny
that it maintains the specified account.

In step 5, the receiver’s financial institution sends a positive response to the FedNow Service,
confirming that it intends to accept the payment message. Steps 4 and 5 are intended to reduce the
number of misdirected payments and resulting exception cases that can occur in high-volume systems.

In step 6, the FedNow Service debits and credits the designated master accounts of the sender’s and
receiver’s financial institutions (or their correspondent financial institutions), respectively.

In step 7, the FedNow Service sends a payment message forward to the receiver’s financial institution
with an advice of credit and in parallel sends an acknowledgement to the sender’s financial institution,
notifying it that settlement is complete.

In step 8, the receiver’s financial institution credits the receiver’s account. As a term of the FedNow
Service, the receiver’s financial institution must agree to make funds available to the receiver almost
immediately after step 7. This crediting to the receiver’s account as well as the debiting of the sender’s
account by their respective financial institutions happens outside the FedNow Service.

5.3 Scope for use

The FedNow Service is a new instant payment service that the Federal Reserve Banks are developing to
enable financial institutions of every size, and in every community across the U.S., to provide safe and
efficient instant payment services in real time, around the clock, every day of the year. Through
financial institutions participating in the FedNow Service, businesses and individuals will be able to
send and receive instant payments conveniently, and recipients will have full access to funds within
seconds, giving them greater flexibility to manage their money and make time-sensitive payments.
Consistent with the Federal Reserve’s historical role of providing payment services alongside private-
sector providers, the FedNow Service will provide choice in the market for clearing and settling instant
payments as well as promote resiliency through redundancy. Financial institutions and their service
providers will be able to use the service as a springboard to provide innovative instant payment services
to customers.

6. CONCLUSION

There are many opportunities for financial institutions to create value for their customers by supporting
an array of instant or other faster payment capabilities. These can drive revenue and customer retention,
as well as reduce costs. By offering faster payments, financial institutions can stay competitive by better
serving their individual and business customers, who increasingly want advanced digital banking
services. Offering an integrated faster payment option gives customers a more comprehensive set of
services and might help attract new customers. Financial institutions also may be able to shift customers
away from check and cash payment offerings, which tend to be manual, time-consuming, and expensive
to support.

IMPS is gaining popularity amongst Indians. However, some customers are reluctant to use IMPS
facility due to various reasons. Some Customers are not using IMPS as they think that there is high
amount of risk is involved in it. IMPS can be accessed through Internet banking, Mobile Banking
Application or ATM for that knowledge of computer is essential. Most of the users of IMPS are from
literate class. Every bank is having different structure of IMPS. IMPS facility of Public Sector Bank’s is
good as compared to other banks. For using IMPS, it is essential to have MMID, which creates
problems for the customers. Bankers are also not that much cooperative to provide information about
IMPS to customers. Some applications are complicated to use. For some banks, there is a limit of
Rs.5000 the researcher wants to provide following suggestions: Still there is scope for improvement in
awareness about IMPS, therefore National Payments Corporation of India and RBI should try to
increase awareness through advertisement.

In coming years with increase in technology robust innovations pop out making life easier. One such
implementations in payments is FedNow closing all the loopholes and short comings by keeping in
mind the security dullness possessed by current implementations.

7. REFERENCE

1. Press Release-New ECB report examines the costs of making payments in the European Union.
European Central Bank, October 1, 2012.
2. The Cost of Cash in the United States; Bhaskar Chakravorti and Benjamin Mazzotta, The
Fletcher School – Tufts University, 2013
3. http://iibf.org.in/documents/Updates%20for%20%20Retail%20banking.pdf
4. https://www.finextra.com/pressarticle/57764/western-union-integrates-with-indias-imps-for-
faster-payments
5. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/strategy/us-cons-real-time-
payments.pdf
6. https://www.npci.org.in/sites/default/files/IMPS%20PG-1.8-RBI_0.pdf
7. https://www.jagoinvestor.com/2012/10/imps-online-money-transfer-using-mobile.html
8. A Study of M-Banking and Customer Satisfaction in Aurangabad by Mr. Khauja Sarfaraz,
Research Scholar, Dr. Babasaheb Ambedkar Marathwada University, A’bad.
9. http://puneresearch.com/media/data/issues/58b857b6d5274.pdf
10. https://www.finextra.com/pressarticle/57764/western-union-integrates-with-indias-imps-for-
faster-payments
11. https://www.livemint.com/news/india/google-wants-us-federal-reserve-to-follow-india-s-upi-
example-and-build-fednow-11576335813947.html
12. https://corpgov.law.harvard.edu/2020/08/31/fednow-the-federal-reserves-planned-instant-
payments-service/#:~:text=FedNow%20will%20be%20designed%20to,after%20receiving
%20notification%20of%20settlement
13. https://www.accenture.com/_acnmedia/PDF-92/Accenture-Payments-On-The-Fast-Lane.pdf