Five Things to Know about FedNow, Right Now
Have you heard about FedNow® but you’re not quite sure what it is? Here are five things to know about the instant payments service the Federal Reserve launched in July 2023.
1. What is FedNow?
The FedNow Service is a real-time payment system between banks built and operated by the Federal Reserve. Banks using the service can send and receive payments in just seconds anytime–24 hours a day, seven days a week. FedNow modernizes the U.S. payment system by allowing banking customers to send and receive payments in near real time, any day of the year.
Banks and credit unions of any size can take advantage of this program by signing up with Federal Reserve Payment Services. Learn more about how financial institutions sign up for the program by participating in a guided journey.
FedNow Pioneers Weigh In
In a video, early adopters discussed why they are participating in the FedNow Service and what it means for their own organizations and for their consumer and business customers. Transcript follows.
Narrator: The world is moving faster and faster. Businesses and consumers alike expect to be able to send and receive money securely and instantly with the click of a button. To meet these expectations, financial institutions need access to a nationwide network for instant payments operating safely and reliably around the clock.
Ken Montgomery, first vice president of the Federal Reserve Bank of Boston, FedNow program executive: The FedNow® Service is now live. This new infrastructure provides financial institutions of all sizes the ability to provide safe and efficient instant payment services.
Narrator: The FedNow Service is the latest development in a 100-year history of Federal Reserve payment innovation. From the FedWire® Funds Service to FedACH® Services and Check 21-enabled services, the Federal Reserve has partnered with the industry to evolve payment platforms, eliminate friction in transactions, and create new opportunities for financial institutions, businesses and consumers.
Minal Gupta, vice president of remote services, Star One Credit Union: When the Federal Reserve first introduced FedNow, we knew from the get-go that this was something that we wanted to be part of.
Alex Du, head of payments and finance, Column Bank: The instant settlement nature of it, the 24/7/365 operating hours, all of those ultimately look like a huge benefit for our customers and our customers’ customers.
Jennifer Barker, CEO, Treasury services, BNY Mellon: Instant payments help us solve a good number of use cases for our clients. There’s a lot of opportunity to get money into [the] hands of people much faster. And then overall, it's a marketing opportunity.
Gupta: Our members in the credit union space want to move money yesterday. So we’re building consumer-facing applications on the FedNow Service infrastructure that allow money to be moved from one financial institution to another financial institution [in] real time. We’re able to transfer and settle funds instantly through the Federal Reserve.
Barker: It’s truly an instant payment solution. So you receive instant confirmation and instant settlement. We were really excited to work with the Fed on this new initiative, be at the table to help shape the functionality and bring it out to the broader U.S. financial services industry.
Du: The FedNow Service is the building blocks for the next generation of payments innovation. A payment network is only as strong and successful as the adoption of the network. Because the FedNow Service is being offered by the Federal Reserve, one of the most trusted financial institutions in the U.S., we believe there’s going to be a significant amount of adoption.
Montgomery: This is just the beginning. In the months and years ahead, we look forward to this nation’s banks and credit unions moving forward with this innovative new service. The launch of the FedNow Service is the first step in a multiyear journey to build an instant payment network that is accessible to all Americans.
2. Can I download a FedNow app on my phone?
No. FedNow is available only to banks and credit unions as a service they can offer to customers. So you might see that your financial institution has started offering instant payments in the app you already use. Want to see if your bank or credit union is participating? Check out this list of participants or contact your financial institution directly.
3. How do “real-time” payments work?
Have you ever deposited your paycheck on Friday but weren’t able to spend it until Monday? With real-time payments, deposits can clear the bank more quickly, giving you access to funds on the same day.
That eventually will be one of the benefits of the FedNow Service, Federal Reserve Board of Governors Chair Jerome Powell said in a July 20, 2023, press release announcing the service was live.
“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,” Powell said.
—Fed Chair Jerome Powell
4. Is FedNow up and running after its July 20 launch?
Yes! As of an Oct. 3, 2023, update, 107 financial institutions, as well as the U.S. Department of the Treasury’s Bureau of the Fiscal Service, were actively using FedNow and offering its services to their customers.
Kathy O’Neill Paese, St. Louis Fed interim president and CEO, discussed how FedNow came about and shared her perspectives on the service in a Regional Economist article.
Instant Payments in Action
Real-time payments take advantage of technology designed to process transactions in near real time. A transcript excerpt of a portion of the Federal Reserve Bank Services video “How the FedNow Service Will Work” provides an example.
Transcript: How the FedNow Service Will Work
Narrator: Imagine the owner of a coffee shop is running low on coffee beans and needs to schedule a quick delivery. She places an order, and the coffee bean company sends her a request for payment.
She responds to the request for payment and pays for the coffee beans right then and there through an app from her credit union, which uses the FedNow Service. Once she initiates the payment, her credit union screens the payment and sends an ISO 20022 [electronic messaging standard] compliant payment message, either directly or through a service provider to the FedNow Service, over the Federal Reserve’s FedLine network.
The FedNow Service instantly validates the payment message and passes it along to the coffee bean supplier’s bank. In real time, the supplier’s bank confirms to the FedNow Service that it intends to accept the payment, and the FedNow Service debits and credits the master accounts of both the shop owner’s and the coffee bean supplier’s financial institutions or the master accounts of their correspondents.
The FedNow Service also immediately sends a payment message with an advice of credit to the supplier’s bank and notifies the shop owner’s credit union that settlement is complete. Finally, the supplier’s bank credits the supplier’s account in near real time, making the funds available.
5. Since FedNow is a digital payments system, is it replacing cash? Is FedNow a digital currency?
No. The FedNow Service is not a form of currency, so it can’t replace cash. It is a payment service available to banks and credit unions interested in real-time services.
FedNow, much like Fedwire® and FedACH®, is a settlement system and not related to digital currency in any way. In fact, when Chair Powell testified before the House Financial Services Committee in March, he stated that a central bank digital currency is “something we would certainly need Congressional approval for.”
Editor’s Note: Information in the post about the number of financial institutions using FedNow was updated Oct. 4, 2023.
This blog explains everyday economics, consumer topics and the Fed. It also spotlights the people and programs that make the St. Louis Fed central to America’s economy. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.
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