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FedNow: What is it and how it works

A new instant payment system for banks that may rival your favorite money transfer app.

Set to launch in July 2023, FedNow allows businesses and individuals to send instant payments nationwide and in near-real time. Normally, bank account transfers can take a few hours or even days to complete, but FedNow hopes to give financial institutions a leg-up by advertising a delivery speed of literally seconds.

What is FedNow?

FedNow is an upcoming payment infrastructure being developed by the Federal Reserve, which will allow bank customers to send and receive money across the US in seconds.

But the only way to access it is if the financial institution or service provider you use signs up for this paid service, which will cost them $25 a month per routing number enrolled. Once signed up, financial institutions can offer their customers “full access to funds immediately, allowing for greater financial flexibility when making time-sensitive payments,” according to the Federal Reserve.

FedNow is designed to accommodate many use cases and supporting applications, namely account transfers and bill payments. One of its main goals is to allow banks and credit unions to innovate around this service, providing their account holders with instant payments to stay competitive with instant transfer apps like Venmo, Zelle and PayPal.

Ken Montgomery is the first vice president of the Federal Reserve Bank of Boston and a FedNow Service program executive. He states, “We couldn’t be more excited about the forthcoming FedNow Service launch, which will enable every participating financial institution, from the smallest to the largest and from all corners of the country, to offer a modern instant payment solution.”

How it works

For customers of banks participating in the FedNow service, it’s a pretty straightforward process and similar to other instant transfer payment services. The idea is that FedNow will integrate with your bank’s mobile app or online portal, allowing you to instantly request to send a payment and have the funds delivered to the recipient instantly. This can be especially useful if you’re trying to quickly transfer funds to your friend or for time-sensitive things, such as car or credit card payments.

FedNow details and costs

Delivery speedInstant, within seconds
Transaction limitsDefault limit of $100,000, which financial institutions can increase or decrease, with the maximum set to $500,000
Domestic or internationalDomestic only
FeesIt’s currently unclear if participating financial institutions will charge customers for this instant transfer service.

These limits were released in early 2022, and the Federal Reserve states these may be adjusted throughout testing and launch stages as needed.

What’s next?

The Federal Reserve is currently focused on engaging and enrolling a wide range of financial institutions and testing the system. Early adopters are already working on their certifications required for validation in June to confirm readiness for the official launch in July.

The new payment system will be deployed in stages. The first launch will have baseline functionality, which will include account-to-account (A2A) transfers and bill payments. Early adopters include many financial institutions and the US Treasury. As of April 2023, over 100,000 participants signed up for FedNow.

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