Fed Launches New Payments System That Lets You Send Money In Seconds
Fed Launches New Payments System That Lets You Send Money In Seconds
Jennifer Schonberger·Senior Reporter Thu, July 20, 2023
The Federal Reserve Thursday officially launched its long-awaited instant payment service FedNow, which allows consumers and businesses to send and receive money in seconds. The system lets Americans pay for groceries instantly, businesses pay their suppliers, or people pay each other. It will be available 24 hours a day, every day of the year, with full access to funds immediately.
FedNow isn’t offered directly to individuals and businesses, but it will serve as the basis of infrastructure for instant payments by linking banks. Transactions occur between bank accounts and enable funds to be transferred from a sender’s bank account to a receiver’s bank account immediately.
The limit per customer credit transaction will be $500,000, but the initial setting of the transaction limit will be $100,000. The money can move from consumer to consumer, from consumers to businesses, or from business to business.
"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 Powell.
"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."
Federal Reserve Chairman Jerome Powell speaks during a meeting at the Spain's Central Bank in Madrid, Spain, Thursday, June 29, 2023. Federal Reserve Chair Jerome Powell says the central bank may have to tighten its oversight of the American financial system after the failure of three large U.S. banks this spring. (AP Photo/Manu Fernandez)
FedNow is different from apps like Venmo, which require holding balances in the app rather than sending and receiving money directly to or from your bank account. And it isn’t instantaneous.
"Consumers might also have the impression that sending money through Venmo is instant, but Venmo doesn’t do real-time settlement," said Rusiru Gunasena, SVP of RTP Product Management and Strategy at The Clearing House. "There’s no money in hand in your wallet. There’s a lot of gymnastics behind the scenes needed to settle the payment, and thus [it's] not true real-time payment."
FedNow is also different from traditional payment rails of check, ACH, and wire services. ACH transfers are electronic bank-to-bank money transfers processed through the Automated Clearing House network.
The service launches with the participation of 35 banks of different sizes, including JPMorgan and Wells Fargo as well as credit unions.
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