The Federal Reserve has announced that the launch date of its real-time payment and settlement service FedNow has moved one year closer to ‘now’ in its latest update on development of the US’s new faster-payments plumbing.
The central bank announced the launch of FedNow in August 2019, at the time saying the service would launch to financial institutions in ‘2023 or 2024’. The Fed has now amended the launch timing to 2023, narrowing the delivery timeframe by up to 12 months.
The updated timescale will be welcomed by those who criticised the original proposed timings as not being quick enough, given the relatively rapid speed of innovation in payments.
“Over the last several months, we’ve made significant strides toward our milestones,” said Esther George, president and chief executive of the Federal Reserve Bank of Kansas City and executive sponsor of the FedNow programme. “Based on the FedNow team’s progress, we are pleased to share this updated timeline so the industry can continue to prepare for the adoption of FedNow.”
Rollout in stages
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.
The new service will be rolled out in stages. Its initial launch will include core clearing and settlement functionality, as well as features such as a request-for-payment capability and tools to support reconciliation. There will be ‘extensive testing’ by more than 110 organisations.
FedNow programme executive Ken Montgomery, who is first vice-president and chief operating officer at the Federal Reserve Bank of Boston, said those involved in creating the service were “working hard to respond to the industry’s call for urgency and growing demand, which is evident in the widespread response to our call for pilot participants.”
‘Scale and reach’ incomparable
Central banks in other countries have moved more quickly to create faster payments infrastructure – a state of affairs that the Fed has acknowledged and is precisely seeking to address through FedNow.
The FedNow team will “continue to provide updates and further narrow our launch window as we achieve additional programme milestones,” Montgomery said.
In an interview with American Banker published last week, 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.”