Last updated on September 6th, 2023
The United States Federal Reserve is taking a huge step towards combatting rising interchange fees. Earlier this month, the Fed announced its new instant payments platform, the FedNow service, which aims to provide banks and credit unions with tools to instantly transfer money to their customers, any time of the day, on any day of the year.
What is FedNow?
What makes the launch of the FedNow service so interesting is that it operates as competition for the other available instant payment system, operated by The Clearing House. While the two payment systems aren’t interchangeable, adding another option for banks and credit unions is a source of hope for the U.S. consumer, with fees of all sorts continuing to climb – including interchange fees on credit card purchases.
As an interbank payment system, the FedNow Service operates alongside other longstanding Federal Reserve payment services such as Fedwire® and FedACH®. The Federal Reserve is committed to working with the more than 9,000 banks and credit unions across the country to support the widespread rollout.
FedNow launched with 35 early-adopter banks, including the U.S. Department of the Treasury’s Bureau of the Fiscal Service. Beyond banks acting as payment processing partners, these banks include:
|Early Adopter Financial Institutions|
|1st Source Bank||Bridge Community Bank||Corporate America Credit Union||HawaiiUSA Federal Credit Union|
|Adyen||Bryant Bank||Eastern Corporate Federal Credit Union||INB|
|Avidia Bank||Community Bank of the Bay||First Internet Bank of Indiana||Chase|
|BNY Mellon||Consumers Cooperative Credit Union||Global Innovations Bank||Mediapolis Savings Bank|
|North American Banking Company||Salem Five Bank||Pima Federal Credit Union||United Bankers’ Bank|
|Peoples Bank||Star One Credit Union||Veridian Credit Union||Wells Fargo|
|U.S. Department of the Treasury’s Bureau of the Fiscal Service||U.S. Bank|
“Immediately Receive a Paycheck” and More
“The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient,” said Federal Reserve Chair Jerome H. Powell in a press release. “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.”
When fully available, instant payments will provide substantial benefits for consumers and businesses, such as when rapid access to funds is useful or when just-in-time payments help manage cash flows in bank accounts. This process is already widely used in Europe, South America, and parts of Asia, but the American consumer has been slow to come around to instantaneous payments. Still, there is plenty for the average consumer to like because the average credit card interchange fee is nearly seven (7X) times higher than instantaneous bank transactions.
According to the Fed, over the coming years, customers of banks and credit unions that sign up for the service should be able to use their financial institution’s mobile app, website, and other interfaces to send instant payments quickly and securely.
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