FedNow Hits The Market: Set To Revolutionize US Financial Infrastructure With Instant Payment Services

The Federal Reserve released its much anticipated “FedNow” on Thursday, a service that will revolutionize the financial infrastructure of instant payments in the United States.

This cutting-edge service will allow every Americans to send money across the country in mere seconds, all day, 24/7. After being in development since 2019, FedNow aims to eliminate the delays in cash transfers that often take several days to settle.

FedNow is currently being employed by 35 early-adopting banks and credit unions, along with the U.S. Department of the Treasury’s Fiscal Service Bureau. Additionally, there are 16 service providers poised to assist with payment processing for these financial institutions.

High-profile banks such as JPMorgan Chase & Co. JPM, Bank of New York Mellon BK, and US Bancorp USB are among the users. The Fed, however, plans to include more banks and credit unions later this year, aiming to encompass all 10,000 financial institutions.

Also Read: Jobless Claims Fall More Than Expected, But Investors Still Expect Fed Hike Next Week

Consumers and Small Companies Are Likely To Benefit The Most

Instant payments have many practical applications such as buying groceries, splitting the bill at a restaurant, or funding a company.

In contrast to peer-to-peer payment services such as PayPal Holdings Inc‘s PYPL Venmo, FedNow will directly resolve payments in central bank accounts, circumventing intermediaries. This move is likely to help consumers and small companies the most, as it will provide them access to real-time payments without having to pay bigger competitors for the service.

While the Fed already has its real-time payments system called FedWire, it’s mainly for the big guns, handling corporate payments during business hours. FedNow, on the other hand, caters to everyone, opening doors of opportunity for the masses, especially consumers and small businesses,

FedNow’s creation was also in response to the challenges of smaller banks, which often rely on larger lenders to connect to FedWire.

Risks Of Bank Runs Are Reduced By A Payment Cap

Despite worries that FedNow may contribute to a bank run by allowing rapid withdrawals from financial institutions, Fed officials have reassured the public that banks have the appropriate instruments to avoid such threats.

FedNow will start with a maximum payment limit of $500,000, which institutions can modify as required.

Read now: Elon Musk Says Cybertruck Ramp Will Be As Fast As The Slowest Element Of The Supply Chain

Photo: Shutterstock

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