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Fed to Develop a Faster Payments Infrastructure

  • By Andrew Deichler
  • Published: 8/6/2019

The Federal Reserve said Monday that it is developing a round-the-clock, real-time payment and settlement service to support faster payments efforts in the United States. Dubbed the FedNow℠ Service, it will likely make its debut in 2023 or 2024.

In a statement, the central bank said that the rapid evolution of technology has presented the Fed and industry stakeholders with an opportunity to modernize the U.S. payments system. The Fed acts as a provider of payment and settlement services to more than 10,000 financial institutions across the nation, and believes that its broad reach will help FedNow support a nationwide infrastructure for faster payments.

In a speech, Federal Reserve Board Governor Lael Brainard said that FedNow will permit banks of every size to provide real-time payments to their customers. “With a Federal Reserve real-time retail payment infrastructure, the funds would be available immediately—to pay utility bills or split the rent with roommates, or for small business owners to pay their suppliers,” she said. “[G]etting immediate access to funds from a sale in order to pay for supplies can be a game changer for small businesses, potentially avoiding the need for costly short-term financing.”

She added that FedNow came after sifting through more than 350 comments about potential actions the Fed could take to support interbank settlement for faster payments. An overwhelming 90 percent of respondents called on the Fed to operate a real-time service for faster payments. “Support came from a wide range of stakeholders, including individuals, merchants, fintech firms, and banks,” she said. “Commenters observed that a Federal Reserve real-time retail payment service would increase competition, decrease market concentration, and provide a neutral platform for innovation.”


Brainard noted that early adopters of faster payments services are relying on legacy infrastructure that does not have the bandwidth to support real-time payments. This disparity in technology presents substantial risks to the payments ecosystem. “For example, some services offer real-time funds availability to certain consumers, but they conduct interbank settlement on a deferred basis using legacy systems,” she said. “This type of settlement entails a buildup of obligations—like IOUs between banks—that could present real risks to the financial system in times of stress. These are not resilient long-term solutions for our dynamic economy and the banks that support it.”

Conversely, some companies are looking to bypass banks and traditional infrastructure, like Facebook with its Libra virtual currency. Consumers and businesses want real-time payments in some shape or form, and innovations like Libra present a different risk to banks and companies if they do not keep up with the times. “To provide everyone with the ability to send and receive funds securely on a 24x7x365 basis, banks need to embrace and invest in real-time innovations, and the Federal Reserve needs to provide a safe and efficient real-time interbank clearing and settlement service accessible to all banks,” she said.

However, it is important to note that the Fed is looking to support private sector efforts here and not simply replace them. As PYMNTS pointed out, under the Monetary Control Act, for the Fed to create its own system, it must establish that it is providing a service that the private sector cannot.


The announcement was met with acclaim from multiple stakeholders. The Merchant Advisory Group (MAG) praised the announcement in statement, agreeing that Fed’s efforts will spur innovation and competition throughout the payments sector.

“This new service will bring the nation’s payment infrastructure into the 21st century and allow merchants and banks to settle transactions quickly,” said John Drechny, CEO of MAG. “In today’s economy, consumers expect to send and receive payments instantly. The Fed’s decision to serve as an operator of real-time payments will create reliability and competition into the critical payment systems within the U.S.,” MAG CEO John Drechny said.

AFP also strongly supports the Fed’s efforts and has been active on the faster payments front for some time. Jim Kaitz, AFP’s president and CEO, was recently named to the Board of Directors of the U.S. Faster Payments Council. And the Payments Track at AFP’s annual conference regularly features multiple sessions on corporate treasury use cases for faster and real-time payments.

“The Fed’s announcement of the FedNow Service is one more step towards empowering all types of businesses in the marketplace to fully realize the benefits of real-time payments,” said Kaitz. “AFP fully supports a competitive payments ecosystem, and believes that FedNow will enable the development of new real-time, B2B payments solutions that will meet the business requirements of corporate end-users.”


FedNow is still in the early stages; the Fed is currently requesting comment on how the service should be designed to most effectively support industry stakeholders at large. It is also exploring the expansion of the Fedwire Funds Services and National Settlement Service hours, up to 24x7x365 to facilitate liquidity management in private sector, real-time gross settlement services for faster payments, as well as support other payments activities.

For more insights on faster and real-time payments, check out the Payments Track at AFP 2019.

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