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FedNow Real-Time Payment Service Launches: A Game Changer in the U.S. Financial System

News | Jul 21, 2023

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The Federal Reserve, the nation's central banking system, has recently launched its first real-time payment service, FedNow.

What is FedNow and how does it work?

  • FedNow officially launched on July 20, 2023, with only a small portion of banks among the early adopters of the service. The Federal Reserve is working to onboard additional institutions throughout the year and beyond, aiming to reach all 10,000 U.S. financial institutions.
  • FedNow is not a consumer-facing app like Venmo, PayPal, or Zelle. Instead, it is a payment infrastructure that allows banks to move money instantly. More than 50 financial institutions are early adopters of FedNow, including popular banks like JPMorgan Chase, Wells Fargo, and Peoples Bank.

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  • FedNow is a service and suite of tools available to banks, credit unions, and other financial service companies. It allows the customers of the institutions that choose to implement FedNow to instantly access their money to make payments in a variety of situations.
  • The Federal Reserve will also offer an additional suite of tools to the banks to allow them to prevent fraud and better manage their cash flow.
  • This innovative service is set to make money transfers and bill payments almost instantaneous, even on weekends and holidays. The service was launched with numerous banks and financial institutions as partners, with many more expected to join in the coming months and years.

What are the anticipated benefits?

  • The benefits of FedNow are expected to be significant for everyday people. For instance, you could pay your mortgage bill on Christmas Day without worrying about it being delayed or late because of the holiday.
  • Transferring money between different banks could be done instantly. Gig workers like Uber drivers could get paid immediately after each completed ride.
  • The entire U.S. financial system stands to gain from a universal instant-payment service like FedNow. Under such a system, consumers, businesses, and the government would be able to send and receive money instantly. More than 50 countries already have similar systems, including China, Sweden, India, and the U.K.

What are the implications?

  • Some experts worry that a widely used instant-payment system could increase fraud. More processing time, the argument goes, means more time to allow verification and security measures to stop bad actors.

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  • Similarly, some argue that being able to move large sums of money out of bank accounts immediately could introduce instability in the banking system.
  • The Fed says the service is intended to generate competition for additional providers to create end-user services — such as additional payment apps.
  • Now that banks have the capabilities to essentially build their own versions of PayPal or Venmo within their own banking app, it's possible that the dominant cash-sending companies will look much different in the years to come.

Will the new FedNow service have a significant impact on your payment workflow?

  • In conclusion, FedNow is a revolutionary step towards instant payments, promising to make managing money much easier and faster for everyday people. As more financial institutions adopt this service, the benefits to individuals and businesses will be significant, enabling immediate receipt of paychecks and instant access to funds when an invoice is paid.

NCFA Jan 2018 resize - FedNow Real-Time Payment Service Launches: A Game Changer in the U.S. Financial SystemThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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