Yesterday, the US Federal Reserve officially launched FedNow, a new system that has been rolled out to 35 early adopting banks and credit unions for processing instant payments between financial institutions. The Fed’s goal is to eventually connect more than 9,000 banks and credit unions across the country, do away with the legacy payment system and support faster payment processing between all U.S. institutions.
If FedNow becomes popular enough, it could one day spell trouble for apps like PayPal and Venmo, which serve as intermediaries to make quick payments between banks. Cash apps can eventually seem so slow or unnecessary that they become obsolete. For now, though, peer-to-peer payment apps seem safe, as analysts told NBC News that FedNow is “likely to benefit consumers and small businesses the most.”
“The Federal Reserve built the FedNow service to make day-to-day payments faster and easier for years to come,” Federal Reserve Chairman Jerome Powell said in a press release. “Over time, as more banks choose to use this new tool, the benefits for individuals and companies will include an individual receiving an immediate paycheck or a company having instant access to funds when an invoice is due. paid.”
Ars reached out to institutions large and small that were on the Fed’s early adopter list to find out how they are using the new payment technology.
Among the major banks listed as early adopters are Wells Fargo and JPMorgan Chase. Wells Fargo declined to comment, but a JPMorgan Chase spokesperson confirmed that FedNow already enables one of the world’s leading financial services companies to “deliver faster, seamless and more efficient payment services” to its customers.
As the Federal Reserve tries to expand adoption, major banks like JPMorgan Chase can serve as an important model to prove the benefit of moving to FedNow’s direct payment rails. JPMorgan Chase’s spokesperson told Ars that the financial giant also expects that “given the rapid pace of innovation, our participation will help us learn, grow and, as a result, better serve our customers.”
Many smaller regional banks and credit unions that signed on early helped test FedNow ahead of launch and form a foundation for the nation’s first government-built instant payments system. Others are still waiting to see how FedNow works before adopting it. Financial advisory firm Cornerstone Advisors reported that nearly a quarter of financial institutions said they were waiting for FedNow to launch before even considering hatching their own instant payments strategies.
Massachusetts-based Avidia Bank’s press release says it is “positioned to provide consumers and businesses with the ability to move money instantly, offering the choice of sending and receiving payments to manage money, pay bills and avoid late fees.” That press release included a statement from the first vice president of the Federal Reserve Bank of Boston and FedNow program director Ken Montgomery, who said banks like Avidia are “paving the way for progress across the industry and setting an example for others who have a role to play.” want to play in supporting a modernized US payment infrastructure.”
The more financial institutions that participate in FedNow, the more opportunities Americans have to move money instantly. Currently, FedNow has set a default transaction limit of $100,000, but individual banks can adjust it up to $500,000, Forbes reported. A press release from another early adopter, BNY Mellon, said the Fed would continue to onboard more institutions for the rest of this year.
