FedNow, the eagerly anticipated round-the-clock real-time payment and settlement service being developed to support faster payments across the US, is to launch in July, according to an announcement this week.
Plans for the service – which will become the Federal Reserve System’s first new payments platform for 40 years – were unveiled in 2019, with the first FedNow tests taking place almost a year ago as part of a pilot programme featuring more than 100 participating organisations.
Formal certification of participants will start in the first week of April and certified participants will conduct ‘production validation activities’ in June ahead of the service going live the following month, according to the Fed’s announcement.
Early adopters will complete a customer testing and certification programme, informed by feedback from the pilot programme, to prepare for sending live transactions through the system. Certification encompasses a ‘comprehensive testing curriculum’ with defined expectations for operational readiness and network experience.
“We couldn’t be more excited about the FedNow launch, which will enable every participating financial institution – the smallest to the largest and from all corners of the country – to offer a modern instant payment solution,” said Ken Montgomery, first vice-president of Boston Fed and FedNow programme executive (and who was included in Global Government Fintech’s ’23 people to watch in 2023′). “With the launch drawing near, we urge financial institutions and their industry partners to move full steam ahead with preparations to join the FedNow Service.”
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‘Resilient, adaptive and accessible’
‘Many’ organisations plan to start using FedNow as soon as it launches, including a ‘diverse mix’ of financial institutions of all sizes, the largest processors and the US Treasury, according to this week’s announcement.
In addition to preparing the organisations for the July launch, the Fed ‘continues to engage a range of financial institutions and service providers to complete the testing and certification programme and implement the service throughout 2023 and beyond’.
Growing the network of participating financial institutions will be important to increasing the availability of instant payments for consumers and businesses, Montgomery noted.
FedNow will launch with a ‘robust’ set of core clearing and settlement functionality and ‘value-added’ features, the Fed states. More features and enhancements will be added in the future ‘to continue supporting safety, resiliency and innovation in the industry as the FedNow network expands in the coming years’.
“With the FedNow Service, the Federal Reserve is creating a leading-edge payments system that is resilient, adaptive and accessible,” said Tom Barkin, president of the Richmond Fed and FedNow programme executive sponsor. “The launch reflects an important milestone in the journey to help financial institutions serve customer needs for instant payments to better support nearly every aspect of our economy.”
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Live for the weekend(s)
Central banks elsewhere have moved more quickly to create faster payments infrastructure – a state of affairs that the Fed has acknowledged and is precisely seeking to address by developing FedNow.
The current Fed payment rails are only available on weekdays, with transactions potentially taking several business days to be finalised. When FedNow goes live, any financial institution with an account at one of the Fed’s regional banks will be able to use the service to process payments at any time.
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.”
An industry working group was formed last year to establish voluntary principles for a consistent end-customer experience for solutions leveraging FedNow request-for-payment (RFP) functionality, and to ‘consider other practices or standards that may be useful to encourage broad adoption of RFP functionality across the industry’. RFP will be one of the main features of FedNow. The FedNow RFP working group, is meeting monthly.
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