Industry Advice: What U.S. Banks Need to Know About FedNow

Thought Leadership· 6min

July 11, 2022

Bringing the U.S. payments industry into line with that of other advanced economies such as the United Kingdom and Europe has been a priority for the Federal Reserve.

When it launches, FedNow will open up a nationwide real-time payment network available to all the banks that are currently members of the Fed. It will likely be the biggest change to the payments environment since the introduction of the automated clearing house (ACH) network in 1974.

Adoption Questions

FedNow is due to go live at some stage in 2023. The launch will happen in several phases. However, there are still some questions regarding how quickly FedNow is likely to be adopted.

The Clearing House's RTP service launched in 2017 and saw support grow slowly but steadily, so it may be some time before we see FedNow being widely adopted in the U.S. Ultimately, though, consumer demand will be the major driving factor.

The Federal Reserve is not requiring its members to commit to FedNow just yet. Many banks are likely to make their strategic decisions based on what they perceive to be likely consumer demand.

Consumers have become used to having everything they want, right now. Goods can be delivered to their door in minutes. Digital services and information can be accessed instantly. Its only natural that consumers should want to have the payment services they use brought into line with these principles.

They shouldnt have to wait for payments to clear when the goods and services purchased are available instantaneously. Thats a dislocated experience. So the demand for real-time settlement is certainly there, and banks that adopt FedNow will dramatically improve the payment experience for their customers.

Getting Ready

Banks that are planning to join FedNow will be at varying stages of readiness. One of the key areas of concern will be the integration of real-time capabilities into existing infrastructure. Many banks will need to modernize and digitalize their approach to connect to FedNow.

Theyll need to look at using API-based platforms for ensuring the real-time exchange of information. This will enable them to embed the payment experience into other channels so it flows along with what the customer is doing. Infrastructure must be reliable and secure,​ with high levels of resilience and zero downtime to ensure a true 24/7 service.

In summary, wait-and-see is the wrong approach to FedNow

Banks should be aware that the approach they take to implementing FedNow needs to be streamlined and cost-effective. In a challenging economy, internal resources are likely to be stretched, and there may be a temptation to play the waiting game. But the cost of doing nothing will be considerable.

Written by

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Dave Scola Chief Executive - US

Dave joined Form3 in 2022 in order to lead the charge to bring Form3’s platform and capabilities to bear on the US market. 

Dave has worked in transaction banking for over 20 years and has joined Form3 from SWIFT where he was Chief Executive for the Americas, UK and Ireland with responsibility for the company’s largest relationship as well as its global securities business.  

Prior to SWIFT, Dave was the Global Head of Financial Institutions at Barclays, responsible for the bank’s correspondent banking, FI trade, flow FX, and liquidity management businesses for FIs. 

He has also worked at Deutsche Bank and Bank of New York in both product and strategy roles and across various products lines including cash, trade finance, custody and corporate trust. 

Dave holds a MSc in Development Economics from the School of Oriental and African Studies in London, and a BSFS in International Relations from Georgetown University.