Federal Reserve launches FedNow, a 24/7 instant payment service streamlining transactions for consumers and businesses alike.

The Federal Reserve has officially introduced its much-anticipated instant payment service, FedNow, which is designed to allow consumers and businesses to send and receive money within seconds, this service is set to transform day-to-day transactions.

Unlike services directly provided to individuals and businesses, FedNow will operate as a fundamental infrastructure for immediate payments. It will achieve this by linking banks, enabling transactions between bank accounts, and ensuring funds are transferred from the sender’s to the receiver’s account instantaneously.

Initially, the transaction limit will be set at $100,000 per customer, with plans to increase this limit to $500,000 in the future. The service caters to all types of transactions, be it consumer-to-consumer, consumer-to-business, or business-to-business.

According to Federal Reserve Chair Jerome Powell, “The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient.” As the system sees increased use by banks, Powell predicts individuals will be able to receive paychecks immediately, and businesses will be able to access funds the moment an invoice is paid.

Contrary to popular payment apps like Venmo, FedNow provides real-time settlement, as Rusiru Gunasena, SVP of RTP Product Management and Strategy at The Clearing House, points out. Unlike Venmo, which requires funds to be held in-app, FedNow offers direct transactions to and from your bank account.

At its launch, 35 banks of various sizes, including industry giants JPMorgan and Wells Fargo, along with several credit unions, have partnered with the service. The Fed’s primary focus is on boosting the number of institutions that use FedNow for payments.

Adopting this service, however, may require some banks to update their existing payment infrastructures and back-office processes to accommodate the expanded 24/7 operating hours. Despite this, the Fed believes that once FedNow is fully available and widely adopted, individuals will have immediate access to their paychecks, and small businesses can efficiently manage cash flows without delays.

The Fed also hopes that immediate access to funds will help Americans living paycheck to paycheck and small businesses struggling with cash flow by avoiding late fees and freeing up working capital.

Industry analysts believe that the advent of FedNow may also reduce the demand for payday loans, as consumers won’t have to wait for checks to clear.

This groundbreaking service follows the private sector instant payment service, The Clearing House’s Real-Time Payments (RTP), established in 2017. However, with an anticipated large-scale launch in 2024, the FedNow system is poised to make a considerable impact on the speed and efficiency of financial transactions for years to come.