July 20, 2010 The central bank announced on Thursday that the US Federal Reserve has begun its long-awaited opening.
In the year The “FedNow” service, which has been in operation since 2019, seeks to eliminate the multi-day delay that typically occurs with money transfers, bringing the U.S. into line with countries that have had similar services for years, including the United Kingdom, India, Brazil and the European Union.
FedNow has 41 banks and 15 service providers certified to use the service, including community banks and large lenders such as JPMorgan Chase ( JPM.N ), Bank of New York Mellon ( BK.N ) and US Bancorp ( USB.N ), but the Fed plans to add more banks and credit unions this year.
The Fed said in a statement Thursday that 35 banks and credit unions are using the service, as well as the Treasury’s Office of Financial Services.
The service competes with private sector real-time payment systems, including The Clearing House’s RTP network, and was initially opposed by the big banks. But many have agreed to participate as FedNow allows them to expand the services they can offer to customers.
“For us, FedNow is a way to really expand our reach,” said Anu Somani, head of global payments and embedded payments at US Bank.
Unlike peer-to-peer payment services like Venmo or PayPal, which act as intermediaries between banks, payments made through FedNow are deposited directly into central bank accounts.
The Fed also operates a real-time payments system called FedWire, but this is reserved for large, mostly corporate payments and only works during business hours. While the new FedNow system is for everyone, analysts say it may benefit more than consumers and small businesses.
“We want our clients to benefit from these capabilities, and we want this to be a competitive edge for us,” said Carl Slabicki, co-head of global payments for BNY Mellon’s Treasury Services.
Smaller banks, which are often connected to FedWire by larger lenders, encouraged the Fed to develop FedNow, arguing that it would allow them to access real-time payments without paying larger competitors for the service.
“Having the Fed in place ensures that our members have their needs met and are treated fairly in terms of pricing,” said Lance Nogg, senior vice president of operations and senior regulatory counsel at American trade group Independent Community Bankers.
FedNow doesn’t charge consumers, though it’s unclear how participating banks will pass on any costs associated with the service.
Democratic Sen. Chris Van Hollen, who urged the Fed to develop a real-time payments system, said in a statement that the launch of FedNow is “good news for American consumers and our economy.”
“The launch of Fed Now will put Americans in control of their money — when they need it, instantly, in real time — and save consumers billions of dollars a year,” he said.
Some market participants have raised concerns that FedNow could cost a runaway bank by facilitating rapid spending from financial institutions, a concern exacerbated by the collapse of Silicon Valley Bank earlier this year.
But Fed officials downplayed those concerns, saying banks have the tools to weather the storm of outflows.
Initially, FedNow will have a maximum payout limit of $500,000, but banks can choose to lower that cap if necessary.
Reporting by Hannah Lang in Washington; Editing by Michelle Price and Andrea Ricci
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