What the FedNow Instant Payment System Means for Americans


The Federal Reserve recently announced the FedNow service, which it says will be rolled out in stages, with a target service date of 2023 or 2024.

What is FedNow? FedNow is a “new 24/7 real-time gross settlement interbank service with clearing functionality to support instant payments in the United States,” according to the Fed.

The service will allow instant end-to-end payments in the United States.

“This flexibility in turn can help ease the lags between when incoming funds are available for use and when those funds are needed for other purposes,” according to the Fed.

As part of the FedNow service, the Fed will support liquidity and ensure network security between banks.

Why this is important: Instant payments would be a game-changer for many people trying to access their money.

Transferring money between banks can take a business day or more.

For many Americans, this delay is costly. If they deposit a check and have to wait even a day for the check to clear for availability of funds, they often accumulate overdraft fees, depending on their financial situation.

In 2019, Americans paid more than $ 1 billion in overdraft fees, 9% of which paid more than 84% of the total, according to a study published by the Center for Responsible Lending.

Many FinTech companies are focused on getting money in US accounts faster, often using peer-to-peer loans. Square (NYSE: SQCashApp from) and Apple (NASDAQ: AAPL) both offer peer-to-peer loans that allow instant account transfers for a nominal fee.

They also have a no-charge option which can take one to three business days for the money to be transferred to a registered account.

Benzinga’s point of view: The FedNow system shows promise, with the potential to help many individuals and businesses.

As society moves towards more online transactions, government support for this change is vital.

There is concern as to whether the banks might impose their own requirements on transactions; don’t expect banks to voluntarily give up income from overdraft fees.

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