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FedNow goes live for banks, credit unions

The Fed’s long-awaited instant payments system is arriving right on time this month, giving consumers and businesses a new route for speedier transactions.

The Federal Reserve Board announced Thursday that its new instant payments system FedNow is live, allowing banks and credit unions to sign up for the real-time service.

“The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient,” Federal Reserve Chair Jerome H. Powell said in a Fed release regarding the start. “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.”

FedNow has been in the works since 2019 as the biggest upgrade to the U.S. payments system in a half-century. It’s expected to not only speed up payments through banks, but also help the U.S. catch up with other countries, including India and Brazil, that already have such systems in place.

It’s a “big step” for the Fed to take in implementing the new system, said Reed Luhtanen, who is executive director of the Faster Payments Council, which has been investigating and advocating for speedier payments in the U.S. since 2018. The council has done that work alongside the Fed, which is a member of the organization.

The Fed said it expects that widespread use of the system will eventually allow for payments advances like workers getting paychecks faster and small businesses being able to better manage cash flow.

While the Fed has pointed to July as the launch month for the new system since earlier this year, it had been mum about the exact date that it would flip the service on. So far, it has flagged 52 banks, service providers and other entities as being involved as early certification participants in the system. It has also been piloting FedNow with some of them since 2021.

Those involved as early adopters include JPMorgan Chase, the biggest U.S. bank, as well as the U.S. Treasury Department and smaller banks such as Star One Credit Union and Bridge Community Bank. 

Service providers such as ACI Worldwide and the giant processors FIS and Fiserv were also certified early, as were some companies based outside the U.S., including Dutch payments processor Adyen and Swiss financial services company Temenos.

Payments professionals who have worked closely with the Fed on the system say they don’t expect the central bank to herald the start of FedNow with a lot of fanfare, but see the Fed saving that kind of celebration for a few months as the system works out any kinks.

That said, the Fed has been marketing the new service extensively for months, as it looks to attract banks and credit unions to sign up so that they can provide the service to their customers. The around-the-clock service promises to deliver payments in 20 seconds or less via bank channels, improving on processes today that can take hours or days. It has the potential to speed up not only bill payments, but also business-to-business transactions.

Still, with nearly 10,000 financial institutions in the U.S., and only a relative handful now signed up to offer the service, there are no illusions about ubiquitous service happening anytime soon. That may be part of the reason the Fed won’t be grand-standing about FedNow’s start.

“From their perspective, they don’t send out the message ‘mission accomplished’ just because they turned it on,” Luhtanen said.

The Fed signed up more than 100 companies and organizations to work on the pilot program over the past couple of years, and then further fine-tuned with a smaller number of entities seeking early certification to use the system.

For California-based Star One Credit Union, the development process has been a smooth one, said CEO Gary Rodrigues. The credit union was testing in what felt like a live environment last week and then the Fed shut that off this week as it began to prepare its system for the go-live date, he said in an interview.

“We always knew there were going to be some changes that we were going to have to make,” Rodrigues said in an interview this week. “So far, I think it’s gone well.”

As far as changes on the Fed end, he said those have been relatively “minor” tweaks mainly with respect to the information the central bank was providing to participants of the new system.

“It feels like a new product,” Rodrigues said. “Overall, I think the Fed has done just an outstanding job.”

Star One is working with the Portland, Oregon-based digital banking services firm Tyfone to get its operations equipped to handle both the sending and receiving of instant payments on the new system, he said. Many banks will start with receive-only, because that comes with less risk, specifically with respect to fraud, he added.

For Star One, its Santa Clara County clients expect it to be more progressive and adopt the most innovative service possible, Rodrigues explained.

The Fed is particularly keen to attract smaller U.S. banks to FedNow as they haven’t readily connected to the existing RTP real-time payments network available since 2017. Industry executives say that smaller institutions have been less interested in that option because RTP is operated by The Clearing House, a company owned by their larger bank rivals. While FedNow and RTP will be rivals, their pricing will be similar, at least at the start.

Some top financial executives were quick to voice their support for the new system Thursday. JPMorgan Chase’s head of payments and commercial solutions, Max Neukirchen, touted his company’s participation on LinkedIn, saying: “What does this mean for our clients? With connectivity to both real-time rails – The Clearing House RTP rail (TCH RTP) and FedNow – we can provide our clients expanded reach to more accounts across the U.S.”

One payments software CEO noted how faster payments will be a boost for the overall economy. “Everyone benefits when economies are more efficient and instant payments are a pillar of a more efficient money movement ecosystem,” Modern Treasury CEO Dimitri Dadiomov said by email. “The launch of FedNow will make instant payments more widespread and accessible to all kinds of consumers and businesses.”

All in all, it’s a “great beginning” with a diverse set of financial institutions from banks to credit unions, Luhtanen said. That diversity is more important than the number of institutions participating early on because it will offer the Fed more diverse learnings based on the type, location and size of the institutions, with “lots of different perspectives,” he said.

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