US Federal Reserve launches "FedNow" - the long-awaited instant payments service, modernizing the US banking system

Queue@beehaw.org to U.S. News@beehaw.org – 52 points – Fed launches long-awaited instant payments service, modernizing system
reuters.com

The "FedNow" service, which has been in the works since 2019, will seek to eliminate the several-day lag it commonly takes cash transfers to settle, bringing the U.S. in line with countries including the United Kingdom, India, Brazil, as well as the European Union, where similar services have existed for years.

FedNow is launching with 41 banks and 15 service providers certified to use the service, including community banks and large lenders like JPMorgan Chase (JPM.N), Bank of New York Mellon (BK.N), and US Bancorp (USB.N), but the Fed plans to onboard more banks and credit unions this year.

Unlike peer-to-peer payments services like Venmo or PayPal, which act as intermediaries between banks, payments made via FedNow will settle directly in central bank accounts.

The Fed also operates a real-time payments system called FedWire, but that's reserved for large-scale, mostly corporate payments and is only operational during business hours. While the new FedNow system is for everyone, it's likely to benefit consumers and small businesses the most, analysts have said.

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Extremely important word in the lede: "eventually." This won't be something consumers can use for quite some time. Notable absences from participating banks include Bank of America.

Should I edit the post?

No need ... I just wanted to point out that "launches" doesn't mean what everyone assumes as a hed verb here. Their error, not yours.

Wait... why doesn't the USA have a system like this already?

I always found cryptobro preaching about instant cash transfers perplexing, but this explains a lot.

Financial institutions have been happy with the fees generated by not having this system in place. And the Fed is explicitly not allowed to compete with its member banks.

Isn't ACH a service by the fed? If this is a service for financial institutions, I don't expect them to make it free. I don't see how this changes much except maybe making Zelle obsolete or at least changing the back end of it.

It will likely reduce money transfer fees overall and decrease average processing time dramatically.

Not really. ACH is more of a protocol for non-realtime payments. This is for realtime. While there is a fed ACH the largest ACH provider in the US is The Clearing House LLC. Which, as the name suggests, is a private company.

Digging deeper, the Federal Reserve says this about it:

The FedNow Service went live on July 20, 2023. It is available to depository institutions in the United States and enables individuals and businesses to send instant payments through their depository institution accounts. The service is a flexible, neutral platform that supports a broad variety of instant payments. At the most fundamental level, the service provides 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. Depository institutions and their service providers can build on this fundamental capability to offer value-added services to their customers.

So it’s a system your bank uses to send your money to other people’s accounts at other banks. In my mind it’ll kinda be like bill pay, you’d go to your bank’s website to do it.

It's more of a protocol/standard which can be used to build applications and interfaces. Bill pay will likely be an application and your bank's website will likely have some interface that uses FedNow. But there will be many other applications and interfaces.