How Instant Payments Will Change America’s Banking System

Instant payments will come to the United States next summer, the Federal Reserve has announced.

The FedNow payment system – designed to overhaul and improve the payment infrastructure used by banks, merchants and other financial system participants – will be rolled out for general use between May and July 2023.

Ken Montgomery, vice president of the Federal Reserve Bank of Boston and program manager for the FedNow system, said instant payments would be “be essential for financial institutions to remain competitive.

“Next year, financial institutions will be able to use the FedNow service as a springboard to deliver innovative solutions to their customers,” he added.

Payments made through the FedNow system will be processed instantly, allowing money to flow through the financial system at any time of the day, all year round, regardless of the size or location of the organization.

Addressing the first users of FedNow in Illinois via webcast, Fed Vice Chairman Lael Brainard said the service would be “transform the way everyday payments are made across the economy”, help households and businesses by immediately making funds available to beneficiaries.

“The immediate availability of funds could be particularly important for households managing their paycheck finances or small businesses with cash flow constraints,” said Brainard. “Having the ability to manage money in real time could help households avoid costly late payment fees or free up working capital for small businesses to fund their growth.

“Indeed, during the pandemic, we have seen how critical quick access to funds can be, as many households began spending emergency relief payments the day they were received.”

More than 120 organizations across the country have participated in the pilot, and the Fed is beginning to engage with other organizations to prepare them for the integration. Participants must go through a certification process to ensure they are ready.


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