The U.S. Federal Reserve announced the launch of its instant payments service, FedNow®, on Thursday, July 20. According to a Fed news release, 35 financial institutions, the U.S. Department of the Treasury's Bureau of the Fiscal Service, and 16 service providers are ready to support payment processing for banks and credit unions. The goal is that, over time, the service will become ubiquitous, enabling consumers and businesses of all sizes to send instant payments 24/7, 365 days a year.
"The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient," Federal Reserve Chair Jerome H. Powell said in the release. "Over time, as more banks choose to use this new tool, 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."
At the first release, FedNow will offer baseline functionality to support market needs for various use cases, including those growing in demand, such as account-to-account (A2A) transfers and bill pay. At launch, according to the Federal Reserve website, the FedNow Service will also include optional features, including fraud prevention tools, the ability to join initially as a receive-only participant, request for payments capability, and tools to support participants in handling payment inquiries. The Fed will release additional enhancements and features over time.
One of the most appealing features to smaller financial institutions is their ability to access instant payments at fair prices, providing a potential competitive advantage. Although FedNow does offer significant opportunities for smaller financial institutions, operational challenges, including core readiness, present obstacles they must first overcome.
The FedNow Service competes with The Clearing House's real-time payments rail, RTP®, which went to market in November 2017. However, a recent survey conducted by the Center for Payments reveals that many financial institutions see these services as complementary, with some survey respondents indicating they plan to implement both RTP and FedNow over time.
Although widespread adoption will take time, NEACH encourages financial institutions to sign up for news updates on the Fed's Explore website now, regardless of where they are in the process. Be sure to also regularly visit NEACH's Innovating Payments website for updates and news on how these developments might impact financial institutions and their customers and members.
AUTHOR: Joe Casali, AAP, NCP
Executive Vice President
As the EVP of Payments Innovation for NEACH, Joe focuses on exploring innovative solutions and technologies that will help position members for success, both now and in the future. Connect with Joe to read more of his blogs, articles, and posts.