Federal Reserve Launches FedNow For Instant Payment Transfers
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The US central bank, the Federal Reserve, has released an instant payment system that will allow users based in the United States to transfer money through electronic platforms. The Chair of the US Federal Reserve, Jerome Powell, noted that the FedNow system will boost convenience and speed in everyday payments.
Federal Reserve launches FedNow
The instant payment system launched by the Federal Reserve is known as FedNow, and it has been in development since 2019. This platform supports instant payment transfers for amounts worth up to $500,000.
The maximum amount that can be processed through this system is significantly lower than the estimated $5 million worth of average value of the transactions processed on the main money transfer system of the central bank.
The real-time payment solution is targeting some of the largest financial institutions in the US, such as JPMorgan Chase and Wells Fargo. In total, 35 banks will be part of this payment solution.
The central bank expects that as a large number of lenders sign up for this real-time payment system, it will reach a wide range of businesses and consumers. The platform will change how payments are processed, and it could end up gaining much adoption.
Individuals can use the platform to receive their paychecks instantly and use them within the same day. On the other hand, small businesses can use the platform efficiently to manage their cash flows without any delays in processing
The Federal Reserve noted that it anticipated this new system to gain much adoption. The institution said that it anticipates that over 9,000 banks and credit unions across the US will start using FedNow. This new payment system is also expected to complement the existing payment services being used by the Federal Reserve, including Fedwire.
“The Federal Reserve built the FedNow service to help make everyday payments over the coming years faster and more convenient. Over time, as more banks choose to use this new tool, the benefits to individuals and businesses will include enabling a person to immediately receive a paycheck or a company to instantly access funds when an invoice is paid,” Powell said.
FedNow is competing against other payment services
The FedNow payment system will be competing against the other payment services that are currently available in the market. The tool is expected to increase competition across the US credit card space, where some of the largest banks in the country have launched similar services.
JPMorgan, which is currently the largest bank in the US, has released a similar service that allows instant digital payment settlement. The service was launched in 2022, and it targets institutional clients.
Clearing House, an electronic payment system, also released a real-time payments network in 2017 that seeks to support daily financial transactions, including bill payments, invoice issuance, and payroll processing. The launch of these offerings will see real-time payment systems become increasingly popular across the US and place the country at par with other developed countries.
