The FedNow Service: One Year After Launch

In the “Harry Potter” book series, characters and their belongings can travel instantly to a predetermined place by touching an enchanted object called a portkey. It can be any inanimate object — a dinner plate, a book, even a shoe. They can also use floo powder — a green substance that can be thrown into any fireplace within the “floo network” — to reappear in another floo-connected fireplace anywhere in the world.Disappointingly, people and objects can’t travel quite so quickly and magically around the real world. The Federal Reserve’s instant payments network, the FedNow® Service, comes pretty close, though. The increasing adoption of the service is easing money’s progress between the growing ranks of community financial institutions (CFIs) that have onboarded with the new instant payments rail.The FedNow Service is an instant payments network that lets financial institutions move money instantly, 24 hours a day, 7 days a week, and 365 days a year. Not surprisingly, it’s popular with banking customers who need quick and certain transaction settlement, often outside standard banking hours. It lets employers pay workers on a specific date, helps people pay their bills precisely when those bills are due, and gives payees immediate access to their funds.FedNow Service Users Double So Far This YearAfter starting in July 2023 with just 35 participating financial institutions, the FedNow Service has nearly 800 CFI participants. That number has doubled since the beginning of the year. The Federal Reserve predicts that adoption will continue to gather speed with forecasts suggesting the number of CFI participants will grow to around 1.5K by the end of the year. “We’re seeing a spike in adoption,” says Minal Gupta, Senior Vice President of Operations at Star One Credit Union in Sunnyvale, California. "We see a lot of appetite for it." If CFIs don’t join FedNow soon, she adds, "they'll be left behind."A growing share of the public is interested in making and accepting fast, accurate, immediately available payments. A whopping 83% of American businesses, as well as 75% of consumers, already use faster payment forms, and 66% of businesses and 61% of individuals say that their use of faster payments will probably ramp up in the future. Barriers and the Path to AdoptionSome financial institutions are concerned about cybersecurity in this new and unfamiliar setting, but fraud mitigation tools have helped push many forward into adoption. One such tool is the cool-off period, which gives a financial institution an extra beat to vet a new recipient or email address and either affirm a legitimate transaction or send up a red flag at a potentially fraudulent request.Even more common are concerns about having the technical expertise to implement the FedNow Service. These can be navigated by partnering with a correspondent bank that can help you with crucial integrations and other onboarding steps. As a certified settlement and liquidity provider for the FedNow Service, as well as a participant in the Fed’s pilot program for the payment rail, PCBB can answer any questions you have about how to get set up with the FedNow Service. The Fed published a readiness guide that outlines more information about how FedNow works and what you’ll need to consider before getting started.