The Federal Reserve System’s first new payments platform for 40 years has gone live in a keenly awaited move designed to speed up money flows across the US.
FedNow is an interbank system designed to enable credit transfers to complete in seconds and make instant payments available around the clock.
It launches with 35 banks and credit unions, as well as the Department of the Treasury’s Bureau of the Fiscal Service, ‘ready with instant payments capabilities’, according to the ‘FedNow Service is live’ announcement (on 20 July). In addition, 16 service providers ‘are able to support payment processing’ through FedNow.
Banks listed as ‘early adopter’ financial institutions include JP Morgan Chase and Wells Fargo, while North Carolina-based Finzly, S&P 500 Index member Fiserv and London-headquartered financial software firm Finastra are among the list of FedNow payment processing providers (Global Government Fintech lists all companies at the end of this article).
“The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient,” said Fed chair Jerome Powell in the central bank’s announcement. “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.”
RELATED ARTICLE Fintech ecosystem gears up for FedNow launch in US – article (5 May 2023) as the clock ticked down towards launch
Plans for Fed Now were unveiled in 2019, with the first FedNow tests taking place more than 12 months ago as part of a pilot programme. The service is being launched in stages, with features and enhancements due to be added in the coming years.
“Launching the FedNow Service is an important step in the journey toward advancing instant payments throughout across the United States,” said Ken Montgomery, first vice-president of the Federal Reserve Bank of Boston and FedNow programme executive (and who was included in Global Government Fintech’s ’23 people to watch in 2023′). “We are excited to see how financial institutions build and innovate on the service over time to meet the growing demand of their customers for instant payments.”
Until now the Fed’s payment rails have only been available on weekdays, with transactions potentially taking several business days to be finalised. That said, a private-sector real-time payments system developed by The Clearing House – a consortium owned by more than 20 major banks including JP Morgan Chase and Wells Fargo – has been live since 2017.
Central banks in other countries have moved significantly more quickly to create faster payments infrastructure – a state of affairs that the Fed has acknowledged and has been seeking to address by developing FedNow. The Financial Times reported on 20 July that some critics have labelled FedNow ‘FedYesterday’.
In an interview with American Banker published in February 2021, Montgomery said: “It’s not just a matter of developing a core clearing and settlement engine. It really is having the resiliency, the security, the integration with back-end systems and then the ability to service 10,000 financial institutions across the United States… if I compare us to other central banks, if I compare us to other instant payment providers globally, nobody has the scale and reach that FedNow has to achieve.”
RELATED ARTICLE FedNow US instant payments service to launch in July – an article (17 March 2023) reporting on the latest developments
FedNow ecosystem growing
Fintech companies have been eager to capitalise on FedNow, which is operating alongside pre-existing Fed payment services such as Fedwire and FedACH (where ‘ACH’ stands for ‘Automated Clearing House’).
For example, Finzly announced in February that it had released ‘the world’s first-ever’ application programming interface (API) to connect to FedNow.
S&P 500 Index member Fiserv announced in April that ‘nearly 20’ financial institutions had ‘committed to be part of the FedNow Service pilot program via Fiserv.’ The company issued an update on 20 July that ‘multiple Fiserv clients, including Mediapolis Savings Bank and Salem Five Bank, went live on the service at launch’ and that ‘nearly 100 additional Fiserv clients have committed to be part of the new instant payment rail via Fiserv and will go live in the coming months.’
Since last year, the Fed has been developing a ‘FedNow Service Provider Showcase’ – an increasingly lively website to connect financial institutions and businesses with service providers, and which has expanded to include an ‘Instant Payments University’, ‘Showcase Theater’ and ‘Technology Tower’. In the latter area, for example, visitors are able to download a 16-page ‘FedNow Service: Technical Overview and Planning Guide’.
Other resources being provided include a ‘readiness roadmap’ for financial institutions working with service providers; a ‘planning office’ to enable people to ‘understand how to prepare [their] organisation for instant payments and the launch of the FedNow Service’; and a video (3min29sec) giving an overview of how FedNow works.
‘Regulated liability network’ project findings
In a separate development in the US, the Federal Reserve Bank of New York’s New York Innovation Centre (NYIC) has published the findings of experimentation exploring the feasibility of an interoperable network for wholesale payments operating on a shared multi-entity distributed ledger.
The research project, which was announced last year and undertaken in partnership with private-sector participants, experimented with the concept of a regulated liability network (‘RLN’) – a theoretical payment infrastructure designed to support the exchange and settlement of regulated digital assets.
The study featured three workstreams that analysed the technical feasibility, business applicability and legal viability of using shared ledger technology to settle the liabilities of regulated financial institutions through the transfer of central bank money. The experiment was conducted in a test environment and used only simulated data.
A proof-of-concept successfully simulated both domestic and cross-border scenarios, identifying shared ledger technology as a potential solution to support payment innovation, according to a press release, issued to summarise three reports: ‘business applicability’ (33 pages), technical (31 pages) and legal (46 pages).
The NYIC said that it has not committed to any future phases of work connected to the proof-of-concept and that the findings ‘highlight areas for further research and analysis on potential enhancements to critical payment infrastructures supporting the functioning of the global economy’.
FedNow: financial institutions on board
- 1st Source Bank
- Avidia Bank
- BNY Mellon
- Bridge Community Bank
- Bryant Bank
- Community Bank of the Bay
- Consumers Cooperative Credit Union
- Corporate America Credit Union
- Eastern Corporate Federal Credit Union
- First Internet Bank of Indiana
- Global Innovations Bank
- HawaiiUSA Federal Credit Union
- JPMorgan Chase
- Mediapolis Savings Bank
- North American Banking Company
- Peoples Bank
- Pima Federal Credit Union
- Salem Five Bank
- Star One Credit Union
- United Bankers’ Bank
- US Bank
- US Department of the Treasury’s Bureau of the Fiscal Service
- Veridian Credit Union
- Wells Fargo Bank
FedNow: financial institutions servcing as settlement agents and liquidity providers
- Alloya Corporate Federal Credit Union
- Atlantic Community Bankers Bank
- BNY Mellon
- Bankers’ Bank of the West
- Catalyst Corporate Federal Credit Union
- Community Bankers’ Bank
- Millennium Corporate Credit Union
- Quad City Bank & Trust
- The Bankers Bank
- Vizo Financial Corporate Credit Union
FedNow: service providers supporting payment processing for financial institutions
- ACI Worldwide Corp
- Aptys Solutions
- BNY Mellon
- ECS Fin Inc.
- Fiserv Solutions LLC (Fiserv NOW, Fiserv Payments Exchange)
- FPS Gold
- Jack Henry
- Juniper Payments, a PSCU Company
- Open Payment Network
- Vertifi Software LLC
FedNow financial institutions and service providers list sourced from FRB Services (20 July 2023)
Global Government Fintech’s ‘Payments’ topic section
US real-time payments service FedNow testing underway – our news story (4 May 2022) on the pilot programme
US instant payments system FedNow to launch in 2023 – our news story (10 Feb 2021) on the Fed announcing that FedNow’s launch had moved one year closer to ‘now’
US Federal Reserve to launch instant payments system FedNow – our news story (19 Aug 2019) on Fed governor Lael Brainard’s announcement of the service