FedNow, the impending real-time payment service from the Federal Reserve, was formally introduced to the merchant-acquiring industry Thursday at the annual Northeast Acquirers Association conference.
Expected to launch in July, FedNow will enable participating banks to offer instant payments with a default limit of $100,000 per transaction and stretch to a maximum of $500,000, said Allison Baller, vice president of FedNow industry readiness, told attendees at the Boston event. That limit is less than the $1 million per transaction limit set by The Clearing House Payments Co. LLC for its 5-year-old Real Time Payments network, which, like FedNow, was built as a new payment infrastructure. The Fed is charging a monthly $25 fee per routing number.
“Today’s economy is all about on-demand,” Baller said. Consumers want to know where their money is in an instant just as they want to know where their food delivery is in an app, Baller said. Fed officials intend to monitor how customers react to FedNow, she said.
Baller expects a subset of the approximately 120 financial institutions in the FedNow pilot to go live in July with another group she characterized as fast followers later. The pilot, which began in 2021 after more than 110 organizations expressed interest in it, included financial institutions of all sizes, which the Fed says will be reflected in the initial early adopters group, along with large processors and the U.S. Treasury. More than 300 financial institutions are in TCH’s Real Time Payments network.
The expectation is that financial institutions and service providers will create applications that incorporate FedNow, she said, adding, “We do not build the application for the end user.”
What those applications may be could be based on use cases that require immediate payment, such as account-to-account transfers, bill payments, or peer-to-peer payments, as outlined on a FedNow education site.
When asked by attendees how FedNow might benefit acquirers, Baller said it could help their merchants, especially ones very dependent on cash flow, to retain their cash until the last moment before paying an invoice. It could speed up refunds to consumers or complete instant payouts, she said. “Rebates and refunds are another use case.”
FedNow also will provide ubiquity in real-time payments to financial institutions and service providers, Baller said, and it creates redundancy in offering an alternative real-time payments network.