It can take days to transfer money or make payments from your bank account, even as apps like Venmo, Cash App and Zelle make such transactions nearly instant. That’s because the federal government has no digital payments system for the entire banking system to utilize in real-time. But that’s about to change.
According to Forbes, The Federal Reserve plans to launch its own real-time payments system, called the FedNow Service (FedNow), this summer. Though FedNow is years behind tech-based private-sector competitors, it will be a game changer for transactions in the U.S. It will be the first—and only—digital instant-payments system that is both created and backed by the government. As a result, many banks will see it as a larger, safer system able to transfer money faster for consumers and businesses.
FedNow “will enable all the banks—any bank in the United States, not just the big ones—to offer instantly available funds in real-time payments to their customers,” said Fed Chair Jerome Powell before the House Financial Services Committee on March 8. “That’s a great thing.”
FedNow is the first government-created system for financial institutions to send and receive funds almost instantly. Ideally, FedNow would ensure you’d no longer have to wait a few business days, or bide your time over holidays or weekends, to receive your money.
This means you can make payments—your mortgage, for example—ideally within seconds. You could opt to send funds on the due date rather than having to plan several days out for an online payment to clear, or up to a week for a check to be processed.
For business owners, too, this means faster and smoother operations. They will be able to send and receive invoice payments, for instance, in real-time online.
FedNow acts as the clearing service for financial institutions’ transactions so they can provide immediate end-to-end payments to customers. The key difference between this service and the Fed’s current system is that FedNow will be online 24/7, processing transactions in real-time.
The FedNow service is open to more than 10,000 financial institutions that operate within the Fed’s network. Private money-transfer apps like Venmo and Cash App are not part of that system. That’s one reason it takes a few days for you to transfer money from these apps to your bank account: The bank has to “clear” the funds.
Financial institutions participating in FedNow can opt into several different services within the system, including sending funds back and forth across financial institutions or choosing to only receive funds. They can also opt into settlement service transfers and high-dollar-limit credit transactions called liquidity management transfers.