Federal Reserve’s instant payment system: FedNow goes live
Federal Reserve’s instant payment system: FedNow goes live and makes daily payments faster and more convenient
FedNow: Federal Reserve’s instant payment system goes live and makes daily payments faster and more convenient
On Thursday (July 20th), Eastern Time, the Federal Reserve announced that its instant payment system FedNow has been officially launched, aiming to modernize the US payment system. All major banks and credit unions can register and use this tool. FedNow will provide 365 days of round-the-clock service.
(Source: Federal Reserve)
In fact, the Fed has been working on a FedNow service since 2019 that would seek to eliminate the delays that typically take days for cash transfers to settle, bringing the U.S. into line with countries like the U.K., India, Brazil and the European Union, where similar services have existed for years.
Currently, 41 banks and 15 service providers have been certified to use FedNow, including community banks and large banks such as JPMorgan Chase, Bank of New York Mellon, and U.S. Bancorp, but the Fed plans to bring more banks and credit unions on board this year.
The Fed said 35 early adopter banks and credit unions, as well as the U.S. Treasury Department’s Bureau of Fiscal Services, are ready to offer instant payments through the FedNow service.
Additionally, 16 service providers are ready to support payment processing for banks and credit unions.
Federal Reserve Chairman Jerome Powell said the FedNow service will help people make everyday payments faster and more conveniently in the coming years.
Over time, as more banks choose to use this new tool, the benefits for individuals and businesses include enabling individuals to receive their paychecks immediately, or companies to receive funds immediately after an invoice is paid.
The service, which would compete with private-sector real-time payment systems, initially faced resistance from some big banks, who saw it as redundant.
But many banks have since agreed to join because FedNow will allow them to expand the services they offer to customers.
The Federal Reserve believes that FedNow will provide the market with a second option that reduces costs, improves efficiency, and reduces the vulnerability of the financial system.
“FedNow is really a great way for us to expand our reach,” said Anu Somani, head of global accounts payable and embedded payments at U.S. Bank.
Unlike P2P payment services like Venmo or PayPal, which act as intermediaries between banks, payments made through FedNow will be settled directly in central bank accounts.
The Federal Reserve also operates a real-time payment system called FedWire, but it is primarily used for large-scale corporate payments and only during business hours.
While the new FedNow system works for everyone, it may benefit consumers and small businesses the most, analysts said.
Smaller banks, which typically connect to FedWire through larger banks, encouraged the Fed to develop FedNow, arguing that it would allow them to receive real-time payments without having to pay fees to larger rivals.
FedNow doesn’t charge consumers, though it’s unclear if and how the banks participating in the service would pass on the associated costs to consumers.
