Federal Reserve Launching ‘FedNow’ Instant Payment Service in July

Posted by Richard Daigle on Apr 13, 2023 9:04:03 AM
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The Federal Reserve recently announced the launch of FedNow, a new real-time payments service that will enable faster and more secure financial payments for consumers and businesses. This system has the potential to revolutionize how people make payments in the US by providing instantaneous transfer of funds between banks in a matter of seconds, available 24 hours a day, 365 days a year.

“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 Federal Reserve Bank of Richmond and executive sponsor of the FedNow program. “This 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.”

As of April 1st, the Fed has started to certify banks to join the program and conduct customer testing. With several banks of varying sizes and the US Treasury already onboard, the Fed is urging financial institutions to join the FedNow service ahead of the launch, as growing the network of participating banks will be key to increasing the program’s value. Many countries already have similar real-time payment systems, including England.

According to analysts, FedNow will have numerous benefits, including:

  • Modernization of the country’s payment infrastructure
  • Immediate availability of funds for consumers living paycheck to paycheck
  • Fewer overdraft fees and late fees for banks and their customers
  • Reduced cash flow constraints for small businesses
  • Timely payments for suppliers
  • Enhanced security and transparency

Potential drawbacks include:

  • If FedNow does not become widely adopted by financial institutions or merchants, its usefulness may be limited
  • Global payments may be slower due to international settlement times

In response to claims on social media that the new service is a step toward digital currency and the end of physical money, the Federal Reserve has reiterated that FedNow is not a form of currency, nor is it a move toward eliminating cash—rather it is an upgrade to a decades old payment system.

While it is true that the US is one of more than 100 countries exploring the creation of digital currency—commonly referred to as a “central bank digital currency” or CBDC—that is a separate endeavor from FedNow. That research is reported to be in early phases and, according to the Federal Reserve website, no decision has been made, or would be made, without clear support from Congress and legislation from the Executive Branch.

FedNow is scheduled to go live in July 2023. If you have questions about how FedNow may impact your business, leave a comment below or feel free to contact me directly, I’m happy to help!

Topics: Regulatory Updates, Business Advisory, Small Business, Banking