What is the FedNow Service?

The FedNow Service is the Federal Reserve’s new instant payments service, launched in July 2023. Much like the RTP^® network from The Clearing House, the FedNow Service is strictly a payment network, or rail, through which transactions can travel.

According to the Federal Reserve, the FedNow Service is intended to serve financial institutions and their customers regardless of size or geographic location. The Federal Reserve is committed to working with the more than 9,000 banks and credit unions across the country to support the widespread availability of this service for their customers over time.

With real-time payments, financial institutions can enable their customers to send and receive payments within seconds, 24 hours a day, 365 days a year. Full access to those funds is available immediately, with instant finality of payment. Prefunding isn’t required.

 

What isn’t the FedNow Service? 

The FedNow Service is not an app, nor is it consumer facing. There is no user interface for the FedNow Service. (By contrast, Zelle^® person-to-person payments is marketed directly to consumers and small- to medium-sized businesses, and has a consumer-facing app.) 

The FedNow Service is not interoperable with the RTP network, or global instant-payment rails. The systems facilitate real-time payments; however, sending or receiving real-time payments requires both the sending and receiving financial institutions to be connected to the same real-time network.

 

Why should financial institutions offer real-time payment products to their customers?

Put simply, real-time payments present a significant opportunity for financial institutions. Consumers and businesses have made it clear that they want and expect the ability to send and receive funds instantly. 

True enough, consumers and small businesses can access real-time payment services outside their financial institutions (think Venmo and PayPal); however, letting customers and members go elsewhere for access to a service they expect from their financial institution may potentially put the overall client relationship at risk. The more often they access services from outside their bank or credit union, the more likely they may be to perceive their financial institution as inadequate for their needs.

 

 

How should financial institutions decide which real-time capabilities to offer their customers?

If you can imagine a payment use case, chances are that real-time can improve that scenario. That said, it’s important to look first at the customer-facing services your financial institution already offers and determine which ones can be enhanced with faster payments. 

Next, decide which services should be enhanced first. Ask yourself, what does your financial institution want to achieve with its real-time services, both current and future? Some common goals include: 

• Increasing digital engagement with customers so you are top of mind and top of wallet 
• Improving customer retention 
• Increasing customer profitability
• Improving competitiveness and brand attractiveness in the battle for new customers 

With your goals set, you can move on to the question of how your financial institution can improve the real-time capabilities of its services and prioritize future service offerings.

 

What does the FedNow Service offer right now? What’s on the use-case roadmap?

Financial institutions signing up for the FedNow Service must, at a minimum, enable receive-payment capabilities. The FedNow Service has launched with the option for financial institutions to offer send-payment capabilities as well. 

Over time, with the support of private sector providers like Fiserv, the Federal Reserve plans to expand the FedNow Service to cover a full range of payment scenarios, including:

• Person-to-Person (P2P) payments
• Consumer-to-Business (C2B) payments, like bill payment
• Consumer-to-Government (C2G) payments
• Government-to-Consumer (G2C) payments, like tax refunds
• Business-to-Consumer (B2C) payments, such as employee paychecks
• Business-to-Business (B2B) transactions, like supplier payments
• Business-to-Government (B2G) payments

 

Should financial institutions already using the RTP network get on the FedNow Service?

We think the answer to this question is a resounding yes. Connecting to the FedNow Service is one of the best ways to ensure that your financial institution’s customers can receive and send real-time payments from and to as many people and businesses as possible. As noted above, the FedNow Service is not interoperable with the RTP network. That means both sending and receiving financial institutions must be connected to the same real-time network. 

By connecting to both networks, financial institutions may: 

• Expand the reach of real-time endpoints and avoid limiting access to merchants, billers and other financial institutions
• Unlock potential new use cases, including real-time merchant payments, gig worker payments and supplier payments
• Help avoid potential real-time payment gaps

 

How can Fiserv help financial institutions in their real-time journey?

Financial institutions can connect to the FedNow Service either directly, through their core processors, or through a fintech provider like Fiserv. Indeed, Fiserv is at the forefront of real-time payments and is one of the first service providers supporting transaction activity for financial institutions on the FedNow Service. 

Fiserv clients can connect to FedNow Service through the NOW^® Gateway or Payments Exchange from Fiserv. By enabling a single, straightforward point of connectivity to the FedNow Service and other real-time payment networks, Fiserv makes it easier for financial institutions to meet the real-time payment needs of their consumer and small business customers, with use cases ranging from instant receipt of funds to real-time bill payments.

 

Real Time: We’re Only in the Early Stages

Real time is here, but the full story is still being written. The FedNow Service offers an attractive on ramp to the emerging real-time superhighway, and Fiserv is here to help financial institutions of all types and sizes merge safely into the digital stream of traffic.