Government pitches disaster relief as a use case for FedNow

• Key insight: FedNow is adding disaster government-powered recovery payments to its real-time rail. 
• What's at stake: Disaster recovery is key for payment financial services firms.
• Supporting data: FedNow, which launched in the summer of 2023, has about 1,500 financial institutions on board, up about 60% over 2024.

A lack of payments technology hindered government Covid-19 relief payments, a gap that FedNow's operators say has been bridged enough to provide a lure for banks to adopt real-time payments.  

The government-operated instant processing system has added disaster relief as a real-time payment option via the U.S. Treasury, which will support the Fed's rail. FedNow is positioning emergency relief as a "differentiator" for financial institutions that enable access through the payment system. Disaster recovery is a key way to draw attention to a firm's responsiveness to consumers under duress, as payment companies and banks have leaned into hurricanes, wildfires and other crises to provide relief, the Fed says.

"Modern payments technology, including real-time payment rails like Venmo, Zelle, digital wallets and instant verification systems, transform disaster relief from the monthslong delays during Katrina and weekslong delays experienced during 2020 COVID checks into same-day or even same-hour disbursements," Daniel Aldrich, Dean's professor of resilience at Northeastern University, told American Banker. "These systems enable faster delivery, greater accuracy through real-time account verification, better fraud prevention and broader inclusion by offering multiple channels such as direct deposit, digital wallets and virtual cards that reach broader populations." 

'Speed of need'

To access the FedNow real-time disbursement platform, financial institutions need to be in the FedNow network, which launched in 2023, joining the bank-operated RTP network in the U.S. FedNow is working through a 2-year-old partnership with the Treasury's Bureau of the Fiscal Service, which disburses and collects money on behalf of U.S. government and federal agencies. The service, Digital Pay, is an online disbursement tool that enables recipients to choose how and when they get their funds, managing security and processing to make funds available in less than five seconds. 

"There is a material improvement in payment technology over the pandemic," Mark Gould, chief payments executive of Federal Reserve Financial Services, told American Banker. "One of the challenges in disbursements is simply having the information to enable payments." 

Gould said getting funds to recipients quickly will be a "differentiator" for financial institutions that enable access through FedNow, which is in the midst of building scale for its network. FedNow has about 1,500 financial institutions on board, up about 60% over 2024. There are about 5,000 potential members of FedNow.

As FedNow has grown it has added payment options and recently raised its limit to $10 million, in line with The Clearing House's RTP rail, in a move to enable larger payments to flow through the network. In the past year, the average daily value of FedNow payments increased 400% to $2.7 billion, and has added use cases including off-cycle payroll and earned wage access; auto loan disbursements, real estate escrow payments, small-business payments and online marketplace seller payments. 

"Since the beginning for FedNow to reach ubiquity, it will be driven by the early adopters, then by FOMO," Gould said. "Disaster recovery is the perfect case for moving money at the 'speed of need.'"

Banks getting warm

FedNow is adding new payment types as real-time payments become more popular with banks. Forty-three percent of banks are investing in real-time payments in 2025, according to American Banker research, making it the second highest payment priority, following digital wallets, which came in at 51%. Adding emergency disbursements and other new use cases such as real estate and supply chain payments to real-time rails could help banks explain the benefits of real-time payments to their clients. 

"While technology of course is moving forward, what is more important here is reach and process," Erika Baumann, director of commercial banking and payments at Datos Insights, told American Banker, noting real-time processing for account-to-account payments has been available since before the pandemic. 

Disbursements for emergencies are also picking up steam for the RTP network. A number of insurance companies are using RTP to send instant payments to customers, TCH said in an email, adding these are property and casualty insurance companies, so the payments could be for property/homeowner claims or auto insurance claims. 

While the volume of insurance payments over RTP has increased during the past 12 months, it is not as large as digital wallets, instant payroll/earned wage access or some of the other common use cases for the RTP rail, TCH said. RTP is also expanding more broadly, recently setting a new single-day record by processing more than 1.8 million payments valued at more than $5.2 billion on Oct. 3. RTP is now averaging more than 1.3 million payments daily. 

"The announcement of disaster relief payments moving to FedNow (where possible, not every bank is connected), is not surprising as this was always the message from the Fed," Baumann said. "I think that the industry thought it would have come sooner, but anytime payments are made more efficiently it is a win for the industry and for both the sender and the recipients."