The Federal Reserve's real-time payment system FedNow officially launched, with 57 participants including Bank of New York Mellon starting to provide services.

The Federal Reserve's long-planned instant payment system, FedNow, has officially launched on 7/20, providing around-the-clock, 24/7 service 365 days a year to meet the needs of businesses and individuals for real-time fund transfers. Fifty-seven organizations, including financial institutions and service providers, have initiated the service, with future plans to expand to ten thousand financial institutions across the United States.

FedNow to Address Existing ACH Shortcomings

The development of FedNow primarily aims to address the shortcomings of the largest retail payment system in the United States, the Automated Clearinghouse (ACH) system. ACH is an electronic transaction method that facilitates the transfer of funds between banks and other depository institutions. Typical ACH payments include salaries, consumer and business bills, interest, dividends, and social security benefits. It is a system commonly used by general consumers in the United States due to its low fees, but it may take up to three business days to settle and be made available to the end-user, with longer delays during holidays.

FedNow, led by the Federal Reserve Banks in the United States, aims to address the delays in financial transaction settlement between institutions by providing a 24/7 service 365 days a year. This is intended to meet the demand for instant fund transfers for businesses and individuals, ultimately creating more economic benefits.

FedNow integrates the financial industry, payment providers, fintech firms, and others to bring instant and convenient payments to individuals and businesses, reducing costs associated with overdrafts and erroneous refunds. According to the President's Economic Report submitted to Congress by the White House Economic Advisory Committee, FedNow is estimated to save over $7 billion annually for American households.

57 Service Certification Organizations Announced

A total of 57 organizations, including financial institutions and service providers, have completed formal testing and certification and have commenced services.

These organizations consist of 41 financial institutions acting as senders, receivers, and/or settlement supporters, 15 service providers, and the U.S. Department of the Treasury. Financial institutions primarily include banks such as BNY Mellon, JPMorgan Chase, Bank of America, and Wells Fargo, while service providers include payment processors and fintech startups like Open Payment Network and Temenos, among others. None of the organizations listed are blockchain-related entities.

In addition to the initial adopters, the Federal Reserve will continue collaborating with financial institutions and service providers planning to join in the future, with the goal of encompassing all 10,000 U.S. financial institutions.

Prior analyses have highlighted the distinctions between FedNow and stablecoins/CBDCs. FedNow, serving as a replacement for the U.S. domestic payment system ACH, does not have an inherent relationship with blockchain technology. Its aim is to establish a more real-time and robust payment network to address the delays in financial transaction settlement between institutions. Systems like the UK's Faster Payments system and the Eurozone's Single Euro Payments Area (SEPA) have been in operation for years, following traditional payment routes without involving blockchain technology.