The U.S. Federal Reserve announced that 57 firms had been certified to utilize its “FedNow” instant payments system after it launched in late July. The Fed did not provide a specific date for the launch, but 41 banks and 15 service providers, including large firms like JPMorgan Chase (JPM.N), Bank of New York Mellon (BK.N), U.S. Bancorp (USB.N) and Wells Fargo (WFC.N), have completed formal testing and will be ready to provide instant payments after the new service is live.
The Fed said its goal is to enable financial institutions of all sizes, including community and regional banks, to offer their customers safe and efficient instant payments in real-time, around the clock, every day of the year. Consumers, businesses, and nonbank payment providers can use FedNow through their banking institution or through one of the many new banks that are not banks but partner with a participant bank.
Unlike popular services like Venmo or Cash App, which are person-to-person money-transfer systems, FedNow is designed to work alongside private companies’ existing money-transmission infrastructure. This could make it easier for millions of people to send and receive instant payments from their bank accounts, even if they don’t have a smartphone.
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A vital feature of the system is that it will allow banks to transfer funds between each other in seconds, compared with several hours for same-day Automated Clearinghouse (ACH) payments and up to two business days for wire transfers. The Federal Reserve says this will boost transparency and reduce costs for everyone. It also will allow businesses to process payroll more quickly and individuals to receive recurring payments, such as utility bills or mortgage payments, more efficiently and inexpensively.
But some industry observers say that FedNow will likely wait to immediately change how consumers, businesses, and communities pay for goods and services. They note that it will take years for the system to be thoroughly tested and adopted by a broader range of financial institutions. The Fed’s early adopters will likely be among the first to implement the new system, but it will take time for other banks to opt-in and adjust their systems to connect with FedNow.
Peter Tapling, a payments industry consultant and managing director at PTap Advisory, LLC, says that the fact that the Treasury Department is on the list of early adopters for FedNow is a promising sign. The agency processes various payment transactions, including tax refunds and Social Security benefits. “Another encouraging sign is that some larger community and commercial banks have expressed a willingness to participate in FedNow,” he said in an email.
Other potential users of the service include agribusinesses and manufacturers that want to get paid faster and utilities that may benefit from the ability to collect payments instantly. Alan McAfee, chief banking operations officer at First Business Bank, a community bank in Oregon, expects businesses to begin to rely on FedNow for things like merchant processing and employee payroll. “Within the next two or three years, I think we’ll see FedNow becoming a commonly used form of payment,” he says.