If you have been keeping up to speed with advances in US finance lately, you may have already heard of FedNow, the real-time payment system, and the seismic changes it’s bringing to money management in the US.
The speedy financial transfer system, which launched in July 2023, is said to be making big waves in the US banking system for businesses and consumers alike. But what exactly is FedNow, how does it work, and will it replace some of our best-loved quick payment services (e.g., e-wallets such as PayPal)?
In this article, we’ll walk you through exactly what FedNow is, how it works, who benefits from the system, and how you can put it to good use.
FedNow in brief
FedNow is the Federal Reserve’s new infrastructure development, facilitating immediate payments between individuals and businesses. It first debuted on July 20, 2023, as a hyper-efficient interbank clearance service.
No matter the time or day, you can send and receive money instantly – surprisingly, a novelty for many people in the US, even though such functionalities have been available in the UK, Europe, India, and other countries.
For so long, having to wait for your bank to process ACH transfers stateside has been a bit of a nightmare. In this fast-paced world, it still holds the US back, especially considering other countries worldwide have had faster payment systems in place for a while.
Now, banks and credit unions nationwide can sign up and use FedNow. Sure – there are still online services like Zelle or PayPal that work pretty fast – but FedNow is supposed to be highly accessible across the board.
To see a list of organizations that support FedNow, please scroll to the end of the article.
FedNow also reportedly offers users additional fraud prevention features and payment controls. In time, it’s thought more features and benefits will roll out to users across the US.
How does FedNow work?
The key goal of FedNow is to help payments reach their destinations faster – and who doesn’t want that?
Payments via FedNow can either take place via closed or open loops. For example, in a closed-loop system, payments complete through one single provider. Ergo, both the sender and the receiver must have an account with the same provider. PayPal and Venmo, for example, are both closed-loop systems.
In an open-loop system, payments take place between disparate accounts, even from different banks. You do not need to share a bank with the person you send or receive money from.
Instead, the payments are made using the same network, i.e., FedNow – therefore, businesses can make instant payments and receive money instantly from banks signed up to the FedNow infrastructure. If a bank isn’t signed up to FedNow, the transfer won’t work – that goes for the bank sending and receiving the money.
There is no FedNow app, so don’t try hunting one down! Instead, the Federal Reserve provides banks and credit unions that have signed up with FedNow with the ability to make and receive instant payments as standard – it’s an opt-in program.
And, as long as your bank and the recipient’s banks are fully registered for FedNow, all you need is your bank’s mobile app to make payments as you normally would. Your funds will reach them straight away. It’s about time… literally!
How do I sign up for FedNow?
As mentioned above, there is no app that you can download for FedNow, and, as a consumer, you cannot simply sign up for it as you please! Instead, you simply have to ask your bank if they have signed accounts up to FedNow as standard. They will let you know if you can send and receive payments instantly.
Remember that while multiple banks nationwide have already signed up to use FedNow, it is still a relatively new system. Even if your bank has not signed up for it yet, that does not mean that it won’t, even in the near future. Give things a little time to settle – or, if you’re really eager to try FedNow out, look for banks and services that prioritize it.
There are far too many different banks that are certified for FedNow to list in this guide, so make sure to look at the official list of certified providers.
FedNow and other services
While FedNow is considered something of a revolutionary system, many still do not see what separates it from faster payment options such as ACH and Zelle.
Yes – while you can transfer funds between accounts fairly swiftly using e-wallets and other services, there are a few distinctions worth keeping in mind.
I’ve done some digging, and I’ve come up with a few comparisons between FedNow and other services you might be familiar with.
What’s the difference between ACH and FedNow?
For us as users of the two systems, the key difference between ACH (Automated Clearing House) and FedNow is speed. ACH transfers are usually processed in batches and can take multiple days to process and complete.
FedNow gives the sender and receiver the ability to make and receive payments instantly. Whatever time or day it is (even including national holidays and non-business days), FedNow allows you to make instant transfers – with ACH, you’ll need to wait.
What’s the difference between Real-Time Payments and FedNow?
When it comes to FedNow and Real-Time Payments (RTP), there are a few differences to bear in mind.
For example, FedNow has set a transaction limit of $500,000 (for financial institutions), whereas RTP’s limit remains $1 million.
RTP is the branded service operated by a company called The Clearing House. Real-Time Payments is also operated by a mix of multiple large banks, whereas FedNow is operated solely by the Federal Reserve Bank. There are various pros and cons to using either option, depending on how much you’d like to transfer and for what purpose.
What’s the difference between Zelle and FedNow?
Again, Zelle and FedNow have a few key differences. While Zelle-to-Zelle payments appear to be instantaneous, there’s some gymnastics that go on in the background.
First of all, Zelle uses ACH to make the actual money transfers, so payments can take up to three days to finalize, whereas FedNow transactions are instant by design. While Zelle may show the funds moving instantly, from a technological perspective, it is still the same as ACH.
Zelle is also a private company that is used only by certain financial institutions, whereas FedNow is federal and already has a long list of participating providers. Zelle has also faced some flack in the past as some unsuspecting customers were scammed into making transfers.
What’s the difference between Venmo and FedNow?
Venmo is a money e-wallet and allows transfer of money instantly between these wallets. However it does not allow instantaneous transfer of money between two proper bank accounts.
FedNow is a service that allows you to transfer money instantly between bank accounts. You do not need to use an intermediary app or service to perform the transfer.
Will FedNow replace PayPal?
No, FedNow will not replace PayPal. In fact, according to the Federal Reserve Bank, that isn’t their goal either. Their aim is to work alongside all current private sector systems.
Do also remember that PayPal is used in countries around the world and even offers users the ability to send money to other territories, completing the currency exchange on their behalf.
However, FedNow remains a US-based system that can only be used by banks and institutions within operating states.
That being said, given how quick and reliable FedNow is said to be and that PayPal can take a few days to process payments, it is too early to tell whether or not FedNow will be a big threat to PayPal.
PayPal will surely have to adapt to FedNow’s arrival, but for now, the two seem to work well alongside each other – why not let us know in the comments if you have a preference?
Which Organizations Support FedNow
In the long run most, if not all, banks and financial institutions in the US are expected to support FedNow. However as this is a new service, adoption will take time. As of August 2023, here are the organizations that support FedNow.
Banks that support FedNow
Here’s a list of banks and financial institutions that are participating in FedNow.
| Bank Name |
|---|
| 1st Source Bank |
| Adyen |
| Avidia Bank |
| BNY Mellon |
| Bridge Community Bank |
| Bryant Bank |
| Community Bank of the Bay |
| Consumers Cooperative Credit Union |
| Corporate America Credit Union |
| Eastern Corporate Federal Credit Union |
| First Internet Bank of Indiana |
| Global Innovations Bank |
| HawaiiUSA Federal Credit Union |
| INB |
| JPMorgan Chase |
| Mediapolis Savings Bank |
| North American Banking Company |
| Peoples Bank |
| Pima Federal Credit Union |
| Salem Five Bank |
| Star One Credit Union |
| United Bankers’ Bank |
| U.S. Bank |
| U.S. Department of the Treasury’s Bureau of the Fiscal Service |
| Veridian Credit Union |
| Wells Fargo Bank, N.A. |
So if you’re wondering whether JP Morgan supports FedNow or Wells Fargo supports FedNow, fear not! They’re in the list!
Other Organizations that Support FedNow
Besides banks, there are many institutions that help support the financial economy in the US and keep the back-end plumbing running. It’s important for these institutions to also sign up to the program. Here’s a list (current as of August 2023) that shows organizations – settlement agents, liquidity providers, and certified service providers – that are participating in in FedNow.
| Settlement Agents & Liquidity Providers | Certified Service Providers |
|---|---|
| Alloya Corporate Federal Credit Union | ACI Worldwide Corp. |
| Atlantic Community Bankers Bank | Alacriti |
| BNY Mellon | Aptys Solutions |
| Bankers’ Bank of the West | BNY Mellon |
| Catalyst Corporate Federal Credit Union | CSI |
| Community Bankers’ Bank | ECS Fin Inc. |
| Millennium Corporate Credit Union | Finastra |
| PCBB | Finzly |
| Quad City Bank & Trust | FIS |
| The Bankers Bank | Fiserv Solutions, LLC (Fiserv NOW, Fiserv Payments Exchange) |
| Vizo Financial Corporate Credit Union | FPS Gold |
| Jack Henry | |
| Juniper Payments | |
| Open Payment Network | |
| Pidgin, Inc. | |
| Temenos | |
| Pidgin, Inc. |
FAQs
Is FedNow available outside the US?
FedNow is not available outside of the US. It is a system created and run by the Federal Reserve Bank in the US and can only work with banks and financial institutions within the country. If you want to make transfers to people outside the US, I highly recommend using Wise.
What banks will use FedNow?
There are multiple banks around the US already using and set to use FedNow. These include Wells Fargo and JPMorgan Chase. It’s still early days for FedNow at the time of writing and ultimately more banks will sign on to the program.
Is there a limit to how much can be sent via FedNow?
At the time of writing, there is an absolute maximum transfer limit of $500,000 for FedNow transfers. However, this appears to only be accessible to financial institutions, with everyday users having access to a limit of $100,000.
However, as with other elements of the FedNow service, this will be subject to review. Therefore, don’t be surprised if limits change with the markets in the months and years to come.
Is FedNow free to use?
For customers, the cost of using FedNow will depend on the fee charged by your bank. Banks will have to pay a nominal fee to FedNow for each transfer, so it depends on whether they decide to pass along this fee to the customer or whether they absorb it and make it free. Your mileage may vary based on which bank you use and what tier of service you have with them.
How to invest in FedNow?
FedNow is a service offered by the US Federal Reserve, which is a government organization. It is not a private company and so you cannot invest in FedNow.
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