What type of settlement model does FedNow use?

FedNow employs a real-time gross settlement model, which means that transactions are settled immediately as they occur, rather than being accumulated and settled at a later time. In this model, each payment is processed individually and settled in real time. This allows financial institutions to transfer funds instantly, improving the efficiency and speed of payment services.

Real-time gross settlement is crucial in a faster payments system because it ensures that funds are available to the recipient without delay, supporting the need for immediate transaction finality. This is particularly important in situations where merchants and consumers expect instant payment confirmations, enhancing the overall payment experience.

The other settlement models listed, such as deferred net settlement, typically involve transactions being accumulated over a period before being settled in a lump sum, which does not provide the immediacy that FedNow aims to deliver. Batch processing also does not offer real-time settlement, as it processes transactions together at scheduled intervals. Partial settlement, while it can occur in various contexts, does not specifically define the framework used by FedNow. Thus, real-time gross settlement is the appropriate model for the FedNow system, aligning with its goal of enabling fast, efficient transactions.