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The US Federal Reserve is narrowing the timing of the launch of FedNow and says it will roll out the new instant payment platform at some point between May and July next year.
Lagging behind its European and UK counterparts, the US central bank now says it will launch its instant payment service in “mid-year 2023”, specifically targeting a production rollout in the May to July timeframe.
“The FedNow Service will transform the way everyday payments are made throughout the economy, bringing substantial gains to households and businesses through the ability to send instant payments at any time on any day, and the funds being immediately available to recipients to make other payments or manage cash flow efficiently,” said Lael Brainard, vice chair of the Fed Board, in a speech.
Although The Clearing House (TCH), owned by the largest US banks, already offers an instant payment service called RTP, that network is mostly used by large financial institutions and it currently reaches 61 percent of all US deposit accounts.
Once rolled out, FedNow will be accessible to financial institutions of any size and broaden the reach of instant payments to communities nationwide.
The new platform will have a cloud-first design, a unique feature among central bank instant payment services, according to Brainard, which “positions us for the future by enabling not only the throughput and scalability required for high-volume retail transactions but also broad geographic points of resiliency to ensure continuous service”, the governor added.
Cloud-first design affords other key technology components such as self-healing processes and automation, which add to operational resiliency.
To align with international trends and facilitate interoperability, FedNow will adopt the data-rich ISO 20022 messaging standard. The central bank has also worked closely with the private-sector RTP instant payment service on message specifications to support routing interoperability and facilitate nationwide reach.
"The benefits of instant payments are increasingly important to consumers and businesses, and the ability to provide this service will be critical for financial institutions to remain competitive," said Ken Montgomery, Federal Reserve Bank of Boston first vice president and FedNow Service program executive.
"Next year, financial institutions will be able to use the FedNow Service as a springboard to provide innovative solutions to their customers," he added.
Along with the announcement of the proposed launch date, the Fed has also stated that FedNow pilot participants will start the technical testing of the platform in September.
Currently, there are more than 120 organisations participating in the pilot, including large banks JP Morgan, Wells Fargo and Citi, fintechs Fiserv, Square (Block) and Shazam, and the Treasury’s Bureau of the Fiscal Service.
These organisations will complete a certification process to ensure operational and messaging readiness and then move into production once the service is launched.
As the pilot programme moves into the testing phase, the Federal Reserve is beginning to engage non-pilot financial institutions and service providers interested in being early adopters of the service.
“The shift to real-time payment infrastructure requires a focused effort, but the shift is inevitable,” Brainard emphasised.
“The time is now for all key stakeholders — financial institutions, core service providers, software companies and application developers — to devote the resources necessary to support instant payments,” she added.
This means upgrading back-office processes, evaluating accounting procedures to accommodate a seven-business-day week, arranging liquidity providers, deploying a new customer-facing application and promoting instant payments for key use cases to customers.
