FedNow Launch in 2023 Will Transform US Instant Payments Forever
The US Federal Reserve is set to launch its instant payment system, FedNow, in mid-2023. This move aims to catch up with other developed countries that already offer real-time gross settlement systems, enabling 24/7 instant payments between bank accounts. Over 120 organizations have signed up for the FedNow Pilot Program, which is currently in its onboarding stage.
FedNow's introduction comes as countries in Southeast Asia link instant payment systems to replace correspondent banking systems for cheap, instant transfers. Meanwhile, Australia's New Payment Platform processes billions of transactions annually and is on track to offer cross-border functionality by 2023. While FedNow represents a significant step for the US, its success relies on banks adapting to the new system and potential interoperability with the existing Real-Time Payments (RTP) network.
Banks and financial institutions can leverage FedNow to provide instant payment services, open new revenue streams, and minimize settlement risks. However, questions remain about FedNow's compatibility with RTP, the speed of bank adaptation, and its potential for cross-border functionality. Unlike the US, European countries are advancing unified digital payment solutions like Wero through the European Payments Initiative (EPI) and exploring blockchain-based digital cash for cross-border transactions. The G20 has also established a roadmap to improve cross-border payments, though progress varies across regions.
FedNow's launch in mid-2023 will make instant payments available to more US banks than ever before. As the US catches up with other countries in instant payments, banks and financial institutions can benefit from new services and reduced risks. However, the success of FedNow depends on bank adaptation and interoperability with existing payment systems.
