The Federal Reserve today launched FedNow, a new payment system that participating banks and credit unions can use to facilitate faster payments for their customers. So far, according to the Fed, 35 “early-adopting” financial institutions can receive payments instantly through FedNow. Does this new system, which facilitates sending and receiving payments at any day and at any time, have sufficient protections to guard against scams and fraud?
In the FedNow materials, officials acknowledge that in the case of fraud, the instant feature makes it more challenging to detect and stop payment on a fraudulent instant payment transaction before a scammer has already withdrawn funds. The FedNow resource page states that it offers fraud management capabilities to participating banks and credit unions, and enables security features in conjunction with the fraud protections at the financial institutions. Although FedNow is a mechanism for the institutions to use and is not consumer-facing, the materials also offer additional tips for consumers and businesses on taking precautions to avoid fraudulent transactions.
With the wide use of Zelle, Venmo and others, consumer fraud in fast, mobile payment transactions is not new. Although FedNow will likely expand availability of instant payments, and with that, may also further expose a need for Congress, the Consumer Financial Protection Bureau, and/or other federal regulators to issue stronger consumer protections for electronic fund transfers.
