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What Is FedNow? The First Official Government Instant Payment Service Has Just Gone Live

What Is FedNow?

The Federal Reserve launched the first real-time payment service. It’s FedNow. FedNow makes money transfers and bill payments nearly immediate. Dozens of banks and commercial organizations debuted the service Thursday, July 20. Most financial institutions will adopt the new fast payment method in the following months and years.

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

About the government’s real-time payments.

What is FedNow?

FedNow is the Fed’s 24/7 instant-payment system. FedNow will not be an app like Venmo, PayPal, or Zelle, which allow quick peer-to-peer payments. It’s more like an instant payment infrastructure for banks.

Over 50 financial institutions are FedNow “early adopters” and will participate immediately. JPMorgan Chase, Wells Fargo, and Peoples Bank are popular partners. FedNow is only available to users of banks that adopt the new system. Anyone can download and sync PayPal to their bank account. The Fed says all 10,000 banks it regulates can join, but none are required.

FedNow is expected to streamline money management for regular people. If your bank offers the option, you can pay your mortgage on Christmas Day without worrying about it being late. Transferring money between bank accounts, including checking and savings, is instantaneous.

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How does FedNow Work?

Banks, credit unions, and other financial institutions use FedNow. It lets FedNow-enabled institutions’ customers rapidly access their money for various payments. Banks are not compelled to join, although most or all will to enable quick payments to customers.

“At the most fundamental level, the service will provide interbank clearing and settlement that enables funds to be transferred from the account of a sender to the account of a receiver in near real-time and at any time, any day of the year,” the Fed said.

The Federal Reserve will give banks more tools to combat fraud and manage cash flow. The Fed promises more features. “The FedNow service is designed to exist alongside private-sector options,” the Fed said.

How financial institutions implement FedNow and what that means for consumers is unknown. The Fed wants the service integrated into their bank’s app.

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When is the FedNow Launch Date?

FedNow began on July 20, 2023, but few institutions are early users. The Fed said it plans to integrate “all 10,000 U.S. financial institutions” this year and beyond.

Who will benefit from FedNow?

A FedNow-like instant-payment service benefits the whole U.S. financial system. Consumers, corporations, and the government may instantly send and receive money under such a system. The Fed reports that over 50 countries, including China, Sweden, India, and the U.K., have similar systems.

U.S. payments have lagged behind. A real-time payment system exists here, but it’s not widely available. The Clearing House, a private corporation owned by more than a dozen big banks, runs a comparable network, but it’s only open to commercial banks.

However, other experts believe that widespread instant-payment systems could promote fraud. More processing time allows verification and security procedures to stop malicious actors. Some claim that moving huge amounts of money out of bank accounts instantly could cause banking system instability. Silicon Valley Bank failed partly because depositors withdrew $40 billion in one day.

Will FedNow Replace Venmo and Zelle?

FedNow won’t compete with Venmo, PayPal, Zelle, or Cash App because it’s not a consumer app. FedNow’s system allows instant payments from employers, friends, family, accounts, and more.

It should revamp the U.S. payment system. The Fed claims the service will spur competition for end-user services like payment apps. Now that banks can construct their own versions of PayPal or Venmo within their banking apps, the leading cash-sending providers may change.

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