FedNow® Instant Payment Service Could be Game Changer

09/14/23

By Brian Ruisinger, President and Chief Executive Officer

In July, the Federal Reserve launched its long-anticipated faster payments system, called FedNow®. It’s the first government-created platform to help banks transfer money in real-time, similar to payment apps like Venmo and Cash App.

With FedNow®, you can make payments — say, on your mortgage — within seconds. You can send funds on the due date rather than having to plan several days out for an online payment to clear, or up to a week for a check to be processed. Business owners can send and receive invoice payments in real-time online.

Who Can Use FedNow®?

Both individuals and businesses whose banks or credit unions offer FedNow® services will be able to send and receive money in real time. For example, if you want to send money to a friend, both you and your friend must bank with institutions that offer FedNow®.

FedNow® is available to more than 10,000 financial institutions operating within the Fed’s network. However, it might take months or years for customers to be able to use this service. It depends on when your bank makes it available.

But FedNow® could be a game changer because, in technical terms, it’s the clearing service for financial institutions to provide immediate end-to-end payments to customers.

What’s the Difference Between FedNow® and Other Apps? 

There are key differences between FedNow® and apps such as Venmo and PayPal. FedNow® is a service offered directly to banks and not to customers, which means FedNow® does not have an app or website where customers will be able to send money to each other. However, once banks have adopted FedNow®, they’re expected to make it available on their websites and apps.

While both FedNow® and Zelle allow customers to make online transactions, there are
differences here as well:

• Zelle is a private app that works with some financial institutions while FedNow® is backed
  by the Federal Reserve and is envisioned to be adopted by the majority of banks in the
  country.
• Zelle lets you send and receive money instantly but the money might not be available for
  customers until days after the transaction. With FedNow®, the Fed says the money will be
  available within seconds.
• Zelle has a customer-facing platform that allows customers to send money through their app while FedNow® will not directly interact with customers but rather offer the services to banks.

RBAZ Eyes Service with Interest

Republic Bank of Arizona has applied for FedNow® access and is evaluating its compatibility with our core system so our roll-out to our customers can be seamless. Given our commercial focus, RBAZ has elected not to join the Zelle and Venmo networks due to themhigh cost of membership and a lack of significant usage.

We have had our eye on the FedNow® project for a few years monitoring its progress and launch as a solution for our customers to have the security and stability of Federal Reserve backing at a much lower cost to the Bank and our customers.