The US Federal Reserve System has issued an update on institutional take-up of its ‘FedNow Service’ one year after its launch.
FedNow is an interbank infrastructure to enable credit transfers to complete in seconds and make instant payments available ‘around the clock’. It is the Fed’s first new payments platform for more than 40 years.
Twelve months after going live, the service has notched up a participant total of more than 900 financial institutions, up from 35 on the first day, according to an announcement (1 August) from Federal Reserve Financial Services.
FedNow has amassed a ‘diverse’ participant line-up from institutions with less than $500 million in asset size to some with more than $3 trillion, according to the announcement, which states that community banks and credit unions comprise 78 per cent of the total number.
“We are encouraged by the remarkable momentum of the FedNow Service and are excited to see individuals and businesses start to reap the benefits of instant payments, such as gaining more control over cashflow and precisely timing payments,” Federal Reserve Financial Services chief payments executive Mark Gould said in the announcement.
RELATED ARTICLE FedNow is here (now): US instant payments service goes live – a news article (24 July 2023) on FedNow’s launch (Global Government Fintech listed all ‘early adopter’ companies in the article)
Playing catch-up
Plans for FedNow were unveiled in 2019, with the first FedNow tests taking place in 2022. The service is being launched in stages.
Until its launch the Fed’s payment rails had only been available on weekdays, with transactions potentially taking several business days to be finalised. That said, a private-sector real-time payments system developed by The Clearing House – a consortium owned by more than 20 major banks including JP Morgan Chase and Wells Fargo – has been live since 2017.
Central banks in other countries have moved significantly more quickly to create faster payments infrastructure – a state of affairs that the Fed has acknowledged and has sought to address by developing FedNow. The Financial Times reported on 20 July 2023 that some critics had labelled FedNow ‘FedYesterday’.
Fintech companies have been eager to capitalise on FedNow, which is operating alongside pre-existing Fed payment services such as Fedwire and FedACH (where ‘ACH’ stands for ‘Automated Clearing House’). For example, North Carolina-headquartered Finzly announced in February 2023 that it had released ‘the world’s first-ever’ application programming interface (API) to connect to FedNow.
The number of service providers certified to support payment processing for financial institutions has doubled since launch from 16 to 32 organisations.
RELATED ARTICLE Fintech ecosystem gears up for FedNow launch in US – an article (5 May 2023) as the clock ticked down towards launch
Use cases ‘gaining traction’
A series of achievements are highlighted in the one-year-on announcement.
First, use cases are ‘gaining traction’. The announcement lists digital wallet funding and defunding, instant payroll, bill payment, real-estate transactions, microdeposit account verification and online marketplace seller payouts.
Second, a ‘FedNow DevRel online resource’ (‘developer resource’) has been released to help application developers and technologists to build instant payment solutions via the service.
Third, a ‘FedNow User Group’ is helping to encourage collaboration between Federal Reserve Financial Services and participants to inform future innovations.
‘As the FedNow Service enters its second year, the Federal Reserve is focused on growing the FedNow Service network, ensuring a smooth, efficient onboarding process for participants, and building new features and functionality to further enhance the service,’ the announcement states.
Global Government Fintech’s ‘Payments’ topic section
‘Momentous transition’
“While we’re still early on the road to instant payment ubiquity, we are working with the industry toward the ultimate goal of making instant payments available to individuals and businesses in every part of the country,” said Gould in a further FedNow one-year-on communication (published on 22 July).
“We remain committed to engaging with FedNow participants and the industry broadly in the coming years as they embark on the momentous transition to instant payments and create new value-added services that will bring benefits across our economy,” he added.
The Fed is making two new risk management features available in ‘2024-25’. There are also plans to offer what are described as ‘informational’ FedNow application programming interfaces (APIs) in 2025 to allow participants to exchange information with the service.
Gould also features in a video (2min38 sec) promoting the one-year milestone.
Federal Reserve Financial Services executive vice-president Shonda Clay also appears in the video, providing examples of FedNow use. For example, she describes a partnership between a financial institution and a fintech company that is “giving businesses the opportunity to pay employees immediately after their work shift”.