How the Fed Being Down Affects B2B Payments

Yesterday, “The Fed is Down” memes filled our Twitter feed and probably worried every company using B2B payments. The Federal Reserve confirmed an outage at 11:15 AM EST on Wednesday, February 24, 2021. The first question on everyone’s mind: Should we be concerned? 

First of all, the outage has been resolved, it lasted about 4 hours, and any disruptions are going to be short-lived.

Secondly, the Fed almost never suffers outages. At 99.99% uptime for ACH, for example, it has exceeded its uptime goals of 99.85% every year since 2012. What does 99.99% uptime mean in terms of time? It means being offline no more than:

Daily: 1 minute 26 seconds

Weekly: 10 minutes 5 seconds 

Monthly: 43 minutes 12 seconds

Yearly: 8 hours 45 minutes 36 seconds

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In software, 99.9% uptime, or “three nines,” is good enough for most service-level agreements. What’s better? “Five nines,” or 99.999% uptime - which would allow less than 1 second of downtime per day, 6 seconds a week, 26 seconds a month, or 5 minutes 15 seconds per year. 

Today’s outage lasted for around 4 hours, which doesn’t leave a lot of room for downtime if the Fed meets its goal for 2021. But at least, it was well-documented so users could see what was going on. 

‍Here’s a list of the Fed services that were down at some point during the outage, including payment systems:

‍Account Services

Central Bank

Check 21

Check Adjustments

FedACH

FedCash 

FedLine Advantage

FedLine Command

FedLine Direct 

FedLine Web

Fedwire Funds

Fedwire Securities

National Settlement

Of those, let’s talk about three systems used daily by businesses. One, the FedACH, is an automated clearinghouse, and two are wholesale payment systems operated by the Fed — the Fedwire Funds Service and the National Settlement Service. What does each one do?

FedACH

‍FedACH is the Federal Reserve Banks' automated clearing house service. When businesses set up ACH, the Fed is one of the main ways they get processed.

What are the alternatives to using the Fed for ACH?

The Federal Reserve is one of the main automated clearinghouses, but there are others:

1. The American Clearing House Association
2. The New York Automated Clearing House
3. VisaNet ACH Services
   

If FedACH goes down, ACH credits and debits may be delayed.

According to CNBC, "Outages, particularly with the ACH system, can have wide-ranging impacts. The system handles direct deposits of payroll, Social Security and income tax refunds as well as auto payments for mortgages and utility bills".

According to the Fed’s website, it handled 62.1 million transactions a day on average in 2019 with an average value of $1,802, the latest year for which data are available. Presumably, that’s over 2.5 million transactions per hour of outage. At $1,800 per transaction, this is a lot of money movement that was possibly delayed during the outage.

Fedwire Funds Service

The Fedwire Funds Service is an electronic funds-transfer service that banks, businesses and government agencies rely on for mission-critical, same-day transactions. 

The Fed uses the Fedwire payment system to settle wire transfers individually, in real time, like the ones sent and received by businesses. 

According to the Fed, the Fedwire Funds Service operates 21.5 hours each business day from 9:00 p.m. Eastern Time on the preceding calendar day to 6:30 p.m. Eastern Time.

If FedWire goes down, wire transfers may be delayed. The Fed notes that the backlog of files may take time to clear.

National Settlement Service

Without this service, it wouldn’t be possible for clearinghouses, financial exchanges and other clearing and settlement groups to deposit money into recipient accounts. 

This is the last-mile service that tells the local Federal Reserve Bank which institutional accounts to send payouts to, and which accounts to collect funds from. 

Current operating hours for the National Settlement Service are 7:30 a.m. to 5:30 p.m., ET. Files submitted prior to 7:30 a.m. will be queued for processing at the opening.

If this goes down, funds transferred will not be able to arrive on time at the institution where the account is located. This is the final step before the funds hit the recipient account

Check21

Check-21 enabled services give banks the ability to handle paper checks electronically, speeding up the process. Services include FedForward, FedReturn and FedReceipt, and if they are down it will likely slow the processing of check payments.

The bottom line:

If the Federal Reserve is down, all B2B payment methods may be affected in some way, depending on the service outage: credit, wire transfer, paper and electronic check, and ACH. Mostly, the disruptions are going to be around delays in sending and receiving funds, updated account information like amounts, and delivery of user files. The upside is that the Fed itself expects to experience less than 9 hours of downtime - per year.

To check the service status of the Federal Reserve, click here.