Federal Reserve launches instant payment system FedNow

The Federal Reserve unveiled its instant payment service, FedNow Service, late last week, in a move that will allow users to send and receive money any day and time within seconds.

“The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient,” said Federal Reserve chair Jerome H. Powell in a statement. “The benefits to individuals and businesses will include enabling a person to immediately receive a paycheck, or a company to instantly access funds when an invoice is paid.” 

The tool comes in anticipation of ripe demand — according to a May survey from the Federal Reserve, 83 per cent of businesses and 75 per cent of consumers are already using faster payments, and over 50 per cent of the two groups say they are likely to use faster payments more often in the future.

Teaming up with American institutions feeds into the Fed’s research as the regulating body found that 7 in 10 businesses and consumers prefer accessing faster payment services through their primary financial institution.

While the tool is a step towards a more finance technology-savvy direction for the Federal Reserve, it has already earned the title of “FedYesterday,” by some pundits who globally believe the tool is a little late to the game — Brazil’s instant payment system, Pix, was created in 2020, India launched its a tool as well that year Unified Payments Interface and even earlier, Bank of England created its Faster Payments System in 2008. 

Globally, it does put FedNow a bit behind the curve, a point that Philip Kelvin, co-founder of Tranch, a B2B payments firm, says is due to the vast amount of banks in the US, totalling over 10,000, making the exercise of building an instant payment tool cumbersome. 

Nevertheless, FedNow has been in the works since 2019, making its summer appearance greatly awaited. While the tool is projected to support payments up to $500,000, in its initial roll-out phase it can support $100,000. 

The tool was launched with the support of 57 early adopter organizations which included financial institutions and service providers, according to the statement. Early adopters included the likes of JPMorgan Chase, BNY Mellon, U.S. Bank, and Wells Fargo. The Federal Reserve said that the plan is to “grow a robust network aimed at reaching all 10,000 U.S. financial institutions.” 

Other big-weight banks such as Bank of America, Citi Group, PNC, and Capital One were noticeably absent given their size and scale. 

FedNow Service, while novel, is not the US’ first foray into instant payments as The Clearing House, a banking association and payments company, launched such a tool in 2017. While for consumers, fintech such as Venmo, CashApp, and Paypal may appear instant, they operate on a closed ACH network. 

“Access to faster payment options, including instant payments, is now seen as indispensable rather than a nice-to-have,” said Connie Theien, head of industry relations for Federal Reserve Financial Services, said when research by the regulating body found consumers and businesses alike were leaning towards instant payment options.