(21 July 2023 – United States) The highly anticipated US Federal Reserve Board instant payment system, FedNow, launched on July 20 enabling real-time clearing and settlement of payments 24 hours a day, 365 days a year.
The service is designed to underpin much need modernisation of the US financial services sector with 57 financial institutions (FIs) ready to enable the real time payments (RTP) service having met the formal testing and certification criteria.
After first being announced in 2019, FedNow is an ambitious new payment rail but not the first instant payments system in the US. The Clearing House’s (TCH) RTP has been live since 2017 and other payment services such as Venmo, CashApp and Zelle are fast enough for consumers even if they do not clear and settle in real-time like FedNow and The Clearing House RTP.
Major stakeholders appreciate it will take time to have a discernible impact due to the scale and scope of financial services in the US, costly legacy system upgrades and a deeply embedded aversion to risk. Most of the 4000 FIs in the US will not be connecting directly to FedNow – instead they will be waiting for their core system providers to enable them to integrate the capability.
“Hopes for FedNow are high, but industry members and observers remain cautious. It will take major effort by both the Fed and the early adopters to ensure it gains traction” commented Fintech and Insurtech Strategist Sarah Kocianski for The Banker.
“FedNow is critical payment infrastructure allowing the US to finally move closer to the 70 plus other countries supporting real-time gross settlement capabilities. Unfortunately, due to the long-tail market of financial institutions and deliberately slow pace of change, I fear the launch will be less felt than the industry hopes for the next several years” commented Valley National Bank Head of Partner Banking, Walt Cox.