Here’s good news for American consumers and businesses: The Federal Reserve’s new instant payment service, FedNow, is set to transform the speed and efficiency of money transfers, promising faster and more accessible money transfers, bridging the gap between the traditional Automated Clearing House (ACH) system and instant digital payment methods.
Currently, banks use the ACH system, which can take about three days to clear and settle a money transfer. Banks exchange information about a payment and check for fraud (clearing) and then they move the money (settlement).
With FedNow, consumers and businesses can enjoy near-instantaneous payments, as transactions will be processed and settled in real-time. Plus, money transfers will be available at any time, including weekends or holidays.
As a consumer, you won’t sign up for FedNow — your bank has the option to do that. It will cost your bank to sign up, but no one knows how many banks will pass the cost onto consumers. Consumers with FedNow banks could have the ability to pay bills instantly and the day they are due, reducing instances of overdrawn accounts and enhancing time-sensitive transactions.
It could also reduce consumer dependency on cash and checks.
FedNow was launched at the end of July, although about 120 banks have been testing the system since 2021.
For now, the FedNow system will only be used for domestic money transfers.