Just over a year ago, the Federal Reserve launched its FedNow® Service, enabling individuals and businesses to send and receive money in real-time, 24/7/365. As we celebrate the first anniversary of the FedNow Service, let's examine its accomplishments so far and its future direction.
Launched in July 2023 with great fanfare, the widely anticipated FedNow Service has had a successful first year.
Consider the following:
800+ Participants. The FedNow Service has excelled in establishing connections with financial institutions. Over 800 financial institutions—including Corporate One and more than 150 credit unions—are connected to FedNow, up from 35 at launch on July 20, 2023.
Empowering Small and Mid-Size Financial Institutions. The FedNow Service has also experienced instant payment connectivity to small and mid-size financial institutions, which is crucial for the widespread adoption of instant payments in the United States. Most of the financial institutions connected to FedNow are small to mid-size.
Credit Unions are Joining. To date, 163 credit unions have joined the FedNow Service, which is 20 percent of the 800 financial institutions on the network.
The Future is Bright. The Federal Reserve predicts that adoption will continue to gather speed, with forecasts suggesting the number of participants will grow to around 1.5K by the end of the year.
What’s Next for FedNow?
Although the Federal Reserve has yet to release FedNow Service payments data, transaction volume is estimated to be relatively low as it is still in its infancy. Currently, only a limited number of financial institutions participating in the FedNow Service have enabled the sending of payments. Most institutions are in receive-only mode, which means their customers can receive money but cannot send it. However, it is crucial to remember that building volume for a new payment rail takes time as users adopt it and use case enablement grows. The other U.S. real-time payments rail, the Clearing House’s RTP® network, launched in 2017 and has seen 15% growth per quarter on average since 2019, processing more than 82 million payments in Q2 2024. It’s safe to anticipate that FedNow Service volumes will increase as the service matures and onboards more senders.
As a result, the future of the FedNow Service is promising, driven by a growing demand for instant payments and the benefits they offer:
High Adoption Rates: According to a May 2024 Fed survey, 86% of businesses and 74% of consumers used faster or instant payments in 2023. Moreover, 74% of businesses and 79% of consumers actively seek these services from their financial institutions.
Customer Experience Focus: A recent American Banker survey revealed that 95% of banks and 100% of credit unions cited improvements in customer experience as a key reason for supporting instant payments.
The Fed has already taken several steps to support growing demand, including creating a new user group to promote collaboration on payment technology among network members, establishing a digital onboarding process to speed adoption, and adding security controls to mitigate fraud.
Further positive signs for FedNow growth are the growing number of use cases for instant payments. Such use cases include account-to-account payments, digital wallet funding, instant insurance disbursements, and B2B payments. Market forces, driven by business and consumer demand, are driving innovation around additional use cases, which all bode well for FedNow’s future as a growing payment rail.
The shift in payments is a journey, and the Federal Reserve's involvement is crucial. My conversations about the FedNow Service are increasing daily, and institutions like Corporate One are actively connecting credit unions to the service, with implementation queues continuing to grow.
As financial institutions adapt and create innovative products, the vision of seamless instant payments is becoming a reality and a necessity for your credit union to remain competitive and relevant to your members. For now, it is worth celebrating FedNow's successful year and welcoming more credit unions to the instant payments rail in the months ahead.
Corporate One is ready to help your credit union:
Connect to the FedNow Service through simplified API integration to your core processor or digital banking provider.
Manage your FedNow Service Participant Profile.
Provide effortless 24/7/365 cash management and settlement of instant payment transactions.