One of the most common concerns we at Wespay hear from our FI members is how they will handle exceptions when it comes to Instant Payments via RTP and FedNow. The underlying concern is whether the FI needs support staff available 24x7x365 to handle exceptions in real-time. Addressing these concerns requires a shift in mindset from legacy batch processing to the modern continuous processing model. These questions are usually asked in the framework of legacy payment rails, such as checks, wires, and ACH, and can be divided into two categories: debit and credit exceptions.
Instant Payment Credit Exceptions
Credit exceptions occur in wires and ACH transactions and are typically a problem with identifying the correct receiving account, such as an incorrect account number or name mismatch. Wire and ACH transactions don’t require an immediate response and provide the receiving FI with time to review the transactions. In an Instant Payment network, the receiving FI must respond to received messages within seconds, eliminating the opportunity for research and further decisioning. Instant payments that do not immediately match a receiver’s account number will be automatically rejected.
FIs are permitted to post transactions based on the account number alone per the Uniform Commercial Code. However, they may opt to perform name matching as part of their fraud mitigation strategy, or may choose to perform an OFAC screening that could result in a potential suspect hit which typically requires a certain level of manual review. In this case, a review cannot occur within the network required time frame. To assist in this situation, both Instant Payment networks have been built with a response of “Accept Without Posting,” which allows FIs to meet requirements for immediate response while also providing an opportunity for a manual review. The “accept without posting” response enables the receiving institution to set aside the payment for manual review later. While name matching is not currently considered a commercially reasonable procedure, technology continues to advance toward making it a reality. Institutions using this technology would likely set a match percentage score similar to OFAC processes today and automate the decision-making process, eliminating the need for the manual review processes associated with legacy exception processing in most cases.
Instant Payment Debit Exceptions
In addition to typical exceptions with validation of the account or account ownership, debit exceptions in legacy payment rails have included issues with unauthorized transactions, revoked authorizations, and stop payments. Since instant payment networks are credit push-only, institutions will not need to be concerned with the traditional exception issues associated with debit entries from the perspective of a receiving FI.
All this is not to say that there will not be an exception handling process for Instant Payments. One of the unique features of Instant Payment networks is the ability to send non-value messages, such as a request for information and a request for return of funds (RFR). Responding to these non-value messages is likely to require manual intervention by staff members. However, both networks allow responses to be sent the following business day. Both requests for information and RFR messages are intended to be rare, and for most institutions, these requests will have little to no impact on staffing requirements.
