The ecosystem of fintech companies developing and trumpeting their capabilities to capitalise on eagerly anticipated US instant payments service FedNow is growing, with its launch just a couple of months away.
FedNow, which will become the Federal Reserve System’s first new payments platform for 40 years, is scheduled to roll out in stages, starting in July. It will offer core clearing and settlement capabilities, with credit transfers completing in seconds making instant payments available round-the-clock.
Plans for the service were unveiled in 2019, with the first FedNow tests taking place 12 months ago as part of a pilot programme featuring more than 100 participating organisations.
As the launch date approaches, a ‘FedNow Service Provider Showcase’ – launched in 2022 to connect financial institutions and businesses with service providers to help them implement and innovate their instant payment infrastructure — has grown to include more than 100 participants.
Financial institutions keen to learn about their options for FedNow implementation and innovation can check out companies’ profiles, with factsheets and videos detailing service providers’ capabilities (all have to meet participation criteria). Profiles reflect a range of service providers and instant payment offerings in areas including: core banking systems; mobile and online banking platforms; payment hubs and gateways; and bill pay and presentment services. Providers supplying materials through the showcase do not have any special or exclusive relationship with Federal Reserve Financial Services.
Fintech companies gearing up
North Carolina-based Finzly announced in February that it had released ‘the world’s first-ever’ API [application programming interface] to connect to FedNow.
S&P 500 Index member Fiserv announced last month that ‘nearly 20’ financial institutions had ‘committed to be part of the FedNow Service pilot program via Fiserv, with a robust pipeline of additional financial institutions.’ The Wisconsin-headquartered company will manage transactions for clients that connect to FedNow through its NOW Gateway platform.
FinTech Automation, a ‘fintech-as-a-service’ company based in the Texas city of Dallas, is also keen to capitalise on the US central banking system’s new service.
“The ability to facilitate secure instant payments through FedNow will be a real game-changer for financial institutions,” said founder and chief executive David Park this week (4 May). “Using our platform, clients will have the ability to deploy this enabling technology quickly without having to touch lines of code.”
‘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, the Fed announced in March. Features and enhancements to the service will be added ‘to continue supporting safety, resiliency and innovation in the industry as the FedNow network expands in the coming years’.
Modernising payments infrastructure
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′), said in March that the US central bank “couldn’t be more excited” about launch of the service, “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.”
“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, also in March. “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.”
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.”
Global Government Fintech’s ‘Payments’ topic section
FedNow US instant payments service to launch in July – our news story (17 March 2023) on to launch date (and other updates)
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