The Federal Reserve has officially launched FedNow, its first instant payment service, aiming to revolutionize the U.S. payment system. FedNow allows financial institutions to send and receive funds almost instantly, reducing the waiting time for payments and enabling individuals to immediately receive paychecks and businesses to access funds instantly upon invoice payment.
The service is expected to generate competition in the industry and offers a new payment rail that can support any type of payment.
As of its launch, FedNow has 35 banks and credit unions, along with 16 service providers, certified to use the service, including both community banks and major lenders such as JPMorgan Chase and Bank of New York Mellon. The goal is to offer faster and more convenient everyday payments over the coming years.
While the U.S. already has the Real Time Payments (RTP) system owned by The Clearing House, FedNow is government-created and provides an alternative option for banks, particularly those who have been reluctant to join the RTP system controlled by larger commercial banks.
Although FedNow offers instant payment capabilities, it will not be directly accessed by consumers through apps like Zelle. Instead, businesses and consumers will experience FedNow through financial institutions or fintech products connected to the service.
Many financial institutions may initially join as receive-only institutions, but over time, more banks and credit unions are expected to participate fully in the system.
However, some smaller banks are still evaluating and upgrading their infrastructure to prepare for joining the FedNow service, which is designed to bring long-delayed modernization to the U.S. payment system.