Instant payments will arrive in the US next summer, the Federal Reserve has announced.
The FedNow payments system — designed to overhaul and enhance the payments infrastructure used by banks, merchants, and other financial system stakeholders — will be rolled out for general use between May and July 2023.
Ken Montgomery, vice president at the Federal Reserve Bank of Boston and program executive for the FedNow system, said instant payments would “be critical for financial institutions to remain competitive.
“Next year, financial institutions will be able to use the FedNow service as a springboard to provide innovative solutions to their customers,” he added.
Payments made through the FedNow system will be processed instantly, allowing money to pass through the financial system at any time of day, all year round, regardless of an organization’s size or location.
Addressing early adopters of FedNow in Illinois via a webcast, Fed vice chair Lael Brainard said the service would “transform the way everyday payments are made throughout the economy”, aiding households and businesses by making funds immediately available to recipients.
“Immediate availability of funds could be especially important for households managing their finances paycheck to paycheck or small businesses with cash flow constraints,” Brainard said. “Having the capacity to manage money in real time could help households avoid costly late payment fees or free up working capital for small businesses to finance growth.
“Indeed, during the pandemic, we witnessed how essential rapid access to funds can be, as many households started spending emergency relief payments on the day they were received.”
More than 120 organizations across the country have been involved in the pilot, and the Fed is starting to engage with other organizations to prepare them for onboarding. Participants must complete a certification process to ensure readiness.