FedNow, the Fed's instant payments system, is live

Bloomberg

The Federal Reserve launched its much-anticipated real-time payments system on Thursday.

The FedNow Service will settle payments between banks and other financial institutions 24 hours a day, seven days a week, with transactions clearing in seconds. The system went live with 35 banks and credit unions set up to use it directly and 16 service providers capable of using it on behalf of banks. 

"The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient," Fed Chair Jerome Powell said in a statement. "Over time, as more banks choose to use this new tool, the benefits to individuals and businesses will include enabling a person to immediately receive a paycheck, or a company to instantly access funds when an invoice is paid."

The 51 counterparties represent most of the 57 institutions who participated in the Fed's pilot program for the system and were designated early adopters. Officials have long maintained that the system would rollout with a relatively small pool of users that would grow steadily over time. 

Transactions will be capped at $500,000 for the initial rollout period, but participating institutions will start out with a $100,000 limit, which they can choose to increase. Those figures could change as the system matures.

The rollout of FedNow is the culmination of a process that began in 2013, when the Fed first announced its intention to create a real-time payment system. At the time, it noted that it expected the facility to launch in 2023 or 2024. Work on FedNow began in earnest in 2019.

The Fed has faced criticism from consumer advocates for years for falling behind global peers on the incorporation of real-time payments in the U.S. banking system. The U.K.'s Faster Payments Service, for example, was rolled out in 2008. But the Fed has maintained that it prioritized getting the system right, rather than getting there first.

Would a digital dollar make FedNow obsolete?

More recently, FedNow has been the subject of a public misinformation campaign, with social media influencers and even prominent politicians — including presidential candidate Robert F. Kennedy Jr. — stoking fears about the program being used to monitor consumer spending activity. The claims are baseless, as the system would still be intermediated in the same way as the Fed's current payments systems, including the Automated Clearinghouse Service and Fedwire.

Others in and around the banking sector have questioned whether the system might increase instances of fraud or exacerbate bank runs — which are already proving capable of faster velocities thanks to the advent of mobile banking. But payments specialists say these are merely extensions of issues banks and credit unions are already trying to grapple with.

FedNow is expected to compete with and complement the current, private instant settlement service: Real Time Payments, or RTP, which is operated by The Clearing House, which is itself owned by the largest banks in the country. Pricing for the two services will be largely the same.

While RTP has been available to banks and other institutions since 2017, some smaller banks have been skeptical of using a platform owned by their larger competitors. The rollout of FedNow is seen by many as a necessary step to making instant payment settlement ubiquitous throughout the U.S. banking system.

Early adopters for FedNow include:

• 1st Source Bank
• Adyen
• Avidia Bank
• BNY Mellon
• Bridge Community Bank
• Bryant Bank
• Community Bank of the Bay
• Consumers Cooperative Credit Union
• Corporate America Credit Union
• Eastern Corporate Federal Credit Union
• First Internet Bank of Indiana
• Global Innovations Bank
• HawaiiUSA Federal Credit Union
• INB
• JPMorgan Chase
• Mediapolis Savings Bank
• North American Banking Company
• Peoples Bank
• Pima Federal Credit Union
• Salem Five Bank
• Star One Credit Union
• United Bankers' Bank
• U.S. Bank
• U.S. Department of the Treasury's Bureau of the Fiscal Service
• Veridian Credit Union
• Wells Fargo Bank, N.A.

Institutions able to serve as settlement agents and liquidity providers include:

• Alloya Corporate Federal Credit Union
• Atlantic Community Bankers Bank
• BNY Mellon
• Bankers' Bank of the West
• Catalyst Corporate Federal Credit Union
• Community Bankers' Bank
• Millennium Corporate Credit Union
• PCBB
• Quad City Bank & Trust
• The Bankers Bank

Service providers who can serve banks and credit unions through FedNow include:

• ACI Worldwide Corp
• Alacriti
• Aptys Solutions
• BNY Mellon
• CSI
• ECS Fin Inc.
• Finastra
• Finzly
• FIS
• Fiserv Solutions, LLC (Fiserv NOW, Fiserv Payments Exchange)
• FPS Gold
• Jack Henry
• Juniper Payments, a PSCU Company
• Open Payment Network
• Pidgin, Inc.
• Temenos
• Vertifi Software, LLC