“...In its simplest form, a completed payment through the FedNow Service involving two participating banks would have the following steps.103 To start, a sender would initiate a payment through its bank, by submitting instructions to it using an end-user interface outside the FedNow Service. After the sender’s bank authenticates the sender and validates the payment, it would submit a payment message to a Reserve Bank using the FedNow Service. The FedNow Service would authenticate the sender’s bank and validate the payment message, for example, by verifying that the message meets the FedNow format specifications. Before the Reserve Bank executes the payment message, the service would place a provisional hold on funds in the master account of the sender’s bank and would then send an inquiry message to the receiver’s bank seeking confirmation that the receiver’s bank, among other things, maintains a valid account for the receiver included in the payment message received by the Reserve Bank. If the receiver’s bank sends a positive response to the inquiry, the FedNow Service would execute the payment for the Reserve Banks by sending a payment message forward with an advice of credit to the receiver’s bank and nearly simultaneously processing a final debits and final credit to the master accounts of the sender’s bank and receiver’s bank, respectively.104 The banks are responsible for debiting and crediting their customers’ accounts and providing further notification to their customers that the payment has been completed. The entire process would take place within seconds...”
Is the primary role of the Fed in this case as an arbiter for disagreements? Why can't the banks achieve the same directly between each other using an agreed upon protocol?
Comments
Good amount of detail here including flow:
https://www.federalreserve.gov/newsevents/pressreleases/file...
“...In its simplest form, a completed payment through the FedNow Service involving two participating banks would have the following steps.103 To start, a sender would initiate a payment through its bank, by submitting instructions to it using an end-user interface outside the FedNow Service. After the sender’s bank authenticates the sender and validates the payment, it would submit a payment message to a Reserve Bank using the FedNow Service. The FedNow Service would authenticate the sender’s bank and validate the payment message, for example, by verifying that the message meets the FedNow format specifications. Before the Reserve Bank executes the payment message, the service would place a provisional hold on funds in the master account of the sender’s bank and would then send an inquiry message to the receiver’s bank seeking confirmation that the receiver’s bank, among other things, maintains a valid account for the receiver included in the payment message received by the Reserve Bank. If the receiver’s bank sends a positive response to the inquiry, the FedNow Service would execute the payment for the Reserve Banks by sending a payment message forward with an advice of credit to the receiver’s bank and nearly simultaneously processing a final debits and final credit to the master accounts of the sender’s bank and receiver’s bank, respectively.104 The banks are responsible for debiting and crediting their customers’ accounts and providing further notification to their customers that the payment has been completed. The entire process would take place within seconds...”
Is the primary role of the Fed in this case as an arbiter for disagreements? Why can't the banks achieve the same directly between each other using an agreed upon protocol?
They need to settle their master accounts anyway.