The United States Federal Reserve has confirmed the launch of its long-awaited instant payment system, FedNow, in July of this year.
This instant payment network aims to reduce the gap in payment time between US financial institutions and will settle payments in seconds, supporting transactions between consumers, merchants, and banks.
FedNow was announced in 2019 as a way of funneling commercial bank money from one sender to its recipient by providing round-the-clock, real-time gross settlement. It also has built in features such as fraud risk management that can help protect against malicious activity.
The Federal Reserve is working towards onboarding as many financial institutions as possible and making the FedNow Service available across the whole country.
@federalreserve @frbservices announce July launch for the FedNow Service: https://t.co/a7kPqxkS7Q
— Federal Reserve (@federalreserve) March 15, 2023
Early adopters will complete a customer testing and certification program in April to prepare for sending live transactions through the system.
In June, the Federal Reserve and certified participants will conduct production validation activities to confirm readiness for the July launch.
Many early adopters have declared their intent to begin using the service in July, including a diverse mix of financial institutions of all sizes, the largest processors, and the US Treasury.
The Federal Reserve outlined that it will push to onboard as many financial institutions as possible following the official launch to increase the availability of instant payments.
The FedNow Service will launch with a robust set of core clearing and settlement functionality and value-added features, and more features and enhancements will be added in future releases to continue supporting safety, resiliency, and innovation in the industry as the FedNow network expands in the coming years.
FedNow is seen as a potential solution for tackling the same issues that stablecoins and central bank digital currencies (CBDC) are trying to solve. However, unlike these alternatives, it does not utilize blockchain technology.
Just recently, one of the major banking payment rails servicing U.S. crypto companies, the Silvergate Exchange Network (SEN), was forced to shut down following its parent company’s collapse, Silvergate Bank.
This leaves SigNet from Signature Bank as one of the few remaining alternatives for business customers, though its future is uncertain.
https://twitter.com/damonnam/status/1636150037657837568?
Some have suggested that FedNow could be an alternative to a CBDC, although Federal Reserve Vice Chair Lael Brainard has highlighted that it would take five years for FedNow to be ready due to the necessary security and design considerations.
Fed Chair Jerome Powell has also said that the U.S. is not quite ready yet for its own CBDC, though he noted that “we’ll have real-time payments in this country very, very soon”.