- The US Federal Reserve says its FedNow digital payments service is faster and safer than traditional banking.
- FedNow will give financial institutions an opportunity to innovate enabling their customers to send and receive money instantly.
- The FedNow Service will be deployed in phases, with the initial launch taking place in July 2023
The 21st century presents a fast-paced world where time is money. The financial world is multifaceted and has become more interconnected, with payments being made across sectors and borders. As such, “people, businesses, and organizations” are increasingly “demanding instant payments,” says the United States Federal Reserve.
That is why the central bank is developing the FedNow service, which it describes as a “safe and efficient” instant payment infrastructure that will “modernize the US payment system.”
FedNow Payments System – Receive Money Instantly
The FedNow system is designed to give financial institutions a novel solution to their payment challenges. It will allow these institutions to innovate by enabling their customers to send and receive money in seconds.
In a video posted on the US financial regulator’s official website, the Fed explains that its digital payments service will enable US citizens to instantly “send and receive money 24 hours a day, 365 days a year,” with funds being settled between financial institutions in real-time.
According to the Fed, this means:
“Financial institutions and their service providers can use the service to provide innovative instant payment services to customers, and recipients will have full access to funds immediately, allowing for greater financial flexibility when making time-sensitive payments.”
This is because there will be no built-up complications since end users will access their funds within seconds after they are sent or processed.
According to the regulator, the service will be designed to be far-reaching and flexible, catering to potential use cases where banks, credit unions, and other industry providers can “use it as a springboard for innovation to support a range of applications such as an account to account transfers and bill pay.”
The Fed added that with the FedNow service:
“Banks and Credit Unions can remain competitive by offering the type of payment options customers increasingly expect in today’s fast-paced world.”
The FedNow service will also support flexible adoption allowing financial institutions the “option to work with aggregators, processors, and correspondents to adopt the service.” The Federal Reserve also gives banks and Credit Unions a choice between adopting the complete set of FedNow capabilities or just signing on as a “receive-only participant.”
On March 15, the Federal Reserve announced that its long-awaited instant-payments service FedNow would be launched in July. The digital payments service will be deployed in phases after the launch.
“The initial launch of the FedNow service will focus on core clearing and settlement capabilities. Additional features will be released in phases to meet evolving industry demands and technological changes,” the video added.
It would be interesting to see how the FedNow service will be received by the market, with the Fed saying that “many early adopters” have “declared their intent” to start using the payments service when it is rolled out.