Home Payments US real-time payments service FedNow testing underway

US real-time payments service FedNow testing underway

Quicker dollar delivery: FedNow aims to speed up payments across the US | Credit: pasja1000; Pixabay

The first set of tests have been completed using FedNow – the new round-the-clock real-time payment and settlement service that the Federal Reserve Banks are developing to support faster payments across the US – according to an announcement this week.

The Fed announced plans for FedNow – the first new business line for the Federal Reserve System in 40 years that aims to be transformative for US payments – in 2019 and presented an update 15 months ago, stating that the service would launch in 2023. FedNow pricing details were announced this January, along with an online ‘FedNow Service Provider Showcase’ to connect financial institutions and businesses seeking to adopt FedNow with service providers offering instant payments solutions.

The US market for faster payments is still in relatively early stages of development and 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 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.

‘A few’ organisations have now successfully connected and delivered test messages over a pilot version of the service, which remains on course to launch next year, according to the Fed’s new update.

During the coming months, pilot organisations will continue onboarding with the service, establishing connectivity and performing technical and operational tasks that will ‘lay the groundwork for full-scale, end-to-end testing later this year’, according to the Fed.

More than 120 organisations participating

It was announced in January last year that more than 110 organisations were participating in the FedNow pilot programme. ‘Several’ further organisations have recently joined the pilot, including Square Financial Services and Q2 Holdings, taking the total number of participants to more than 120, according to this week’s announcement. All organisations satisfied pilot criteria surrounding instant payments readiness.

“The pilot participants, including financial institutions of all sizes, processors and correspondents, have been working hard at every step of this journey,” said FedNow’s senior vice-president and business executive Nick Stanescu. “Though much work remains, this progress sets the stage for thousands of financial institutions to be up and running with instant payments in the near future, including those that work with third-party payment providers.”

When the central bank announced the launch of FedNow, it said the service would launch to financial institutions in ‘2023 or 2024’. In February 2021 it amended the launch timing to 2023, narrowing the delivery timeframe by up to 12 months.

The service is to 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.

In an interview with American Banker published in February last year, FedNow programme executive Ken Montgomery (first vice-president and chief operating officer at the Federal Reserve Bank of Boston – he is now also interim president and chief executive of the Boston Fed), 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.”


‘US instant payments system FedNow to launch in 2023’our news story (10 Feb 2021) on the Fed announcing that the launch date of its real-time payment and settlement service FedNow 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