FedNow is an instant payment service developed by the Federal Reserve for depository institutions in the United States, which allows individuals and businesses to send and receive money. The service launched on July 20, 2023. Banks will be able to build products on top of the FedNow platform.
Operation
FedNow was scheduled to begin formal certification of participants of the program in April 2023, with a formal launch planned done in July 2023. It operates on a 24-hour, 365-days-a-year basis, as opposed to the older FedACH system that is closed on weekends and holidays. FedNow charges a transaction cost of $0.043, compared to the average ACH transaction cost of $0.26 – $0.50.
Instant payments with FedNow can accomplish many of the improvements for which a central bank digital currency (CBDC) was proposed. However, FedNow is not a CBDC, because it is not a liability of the federal government.
The Federal Reserve published a list of all financial institutions and fintech vendors that were certified and have live Send and Receive on launch day.
History
In 2017, The Clearing House Payments Company, a private entity owned by an association of large US banks introduced Real Time Payments (RTP), which is a similar instant payment system that is also available to all US financial institutions.
In 2020, Lael Brainard announced the upcoming FedNow service would provide "a neutral platform on which the private sector can build to offer safe, efficient instant payment services to users across the country", after in 2018 the European Central Bank launched the TIPS instant payment settlement system.
In the lead up to its release scheduled for July 2023, Moody's Investor Service released a report discussing potential issues with the service. It noted incumbents in the payments space could see revenue declines, those participating could be forced to make upgrades in technology and staff, and there was a greater possibility of bank runs, even with potential benefits like lower costs and more efficiency in the payments ecosystem.
See also
Depository Trust & Clearing Corporation
Fedwire
Single Euro Payments Area
Pix (payment system) Ripple Unified Payments Interface Real time gross settlement