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The U.S. Federal Reserve has officially started onboarding pilot participants onto the FedNow Service, signaling that the initial testing phase of the FedNow Pilot Program is underway. The Federal Reserve Banks are developing the FedNow Service to facilitate nationwide reach of 24/7/365 instant payment services by financial institutions - regardless of size or geographic location. A few organizations have now successfully connected and delivered test messages over a pilot version of the FedNow Service, which remains on course to launch in 2023. In total, the FedNow Pilot Program now numbers more than 120 organizations, including Square Financial Services.

"Although FedNow is not a CBDC, that's not to say there is no reason to object to it. Faster payments are needed in the United States, but FedNow is not the only option. FedNow was announced in 2019, but that was two years after the Clearing House (TCH) introduced the Real‐​Time Payments (RTP) Network. In fact, while not offering instant payments, even just expanding the operating hours of Fedwire and the National Settlement Service (NSS) to run 24x7x365 would have improved the U.S. financial system. Yet, the Federal Reserve seems to have chosen to ignore the simpler option and walk over the private sector. Both choices are grounds for fair and longstanding objections to FedNow."

The Clearing House, an entity owned by 23 of the largest US banks, operates RTP. They reported that there were 41.2M instant payments transactions in Q2 2022 worth $18B. FedNow is a second U.S. Instant Payment rail that will be offered by the Federal Reserve by July 2023. Any financial institution can become a part of either RTP or FedNow, but none are obligated. FedNow was driven by the Federal Reserve primarily as a real-time payment option for smaller banks who were reluctant to do business with RTP, a company run by the largest U.S. banks. The key difference between the two schemes is that RTP requires FIs to provide up-front funding to enable transactions. With FedNow, FI's can use the funds in their master account already on deposit with the Federal Reserve.

The FedNow is an instant payments service provided by the U.S. Fed, launching in July 2023. It will be available to U.S. depository institutions, such as banks and credit unions, and will enable individuals and businesses to send payments through their depository institution accounts 24/7, so that the receiver of a can use the funds almost instantly.  FedNow is like other Fed payments services, such as Fedwire and FedACH. To be absolutely clear, FedNow is neither a form of currency nor a step toward eliminating any form of payment, including cash.

"Since the launch of FedNow, the adoption of TCH-RTP has also intensified. As non-compatible networks, TCH-RTP and FedNow must compete for bank adoptions. At the moment, TCH-RTP has a larger network and offers more services than FedNow. But FedNow might still win out - even if it shouldn't."

"The Federal Reserve has released message specifications for the initial launch of its FedNow Service for instant payments based on the standard set by the International Organization for Standardization, or ISO. The FedNow ISO 20022 specifications define the message flows and formats that the service will leverage when operational in 2023."

"A few lines buried in the legal terms for the FedNow service, which is now live, create an important opportunity for digital wallet and payment app providers. While the new FedNow legal regime creates significant business opportunities for all players in this space, emerging nonbank payment providers may have the most to gain from this change. Early-stage startup founders and investors in particular should take note. These provisions allow nonbank providers access to FedNow under a remarkably open approach, with only a few requirements imposed on their relationships with customers and a back-end bank. The effect is to allow these nonbank providers to increase their reach beyond their own user base (as they are limited today) and potentially also enable payment flows across other apps and wallets and payment networks."

"At scale, the FedNow Service will facilitate an efficient payment system by making instant, irrevocable payments an affordable and accessible option for many types of transactions. The opportunities are really endless - it could speed wage payments to gig workers, enable customers to avoid late fees by paying bills instantly, and create a new payment platform for future innovation by other firms. The FedNow Service will also provide choice in the market for clearing and settling instant payments, as well as promote resiliency through redundancy. "

Many of the challenges that Fedcoin fans say the central bank digital currency (CBDC) will solve will be addressed by the upcoming FedNow payment service, according to US Federal Reserve Governor Michelle Bowman. "FedNow will… allow consumers and businesses to make payments conveniently, in real time, on any day, and with immediate availability of funds for receivers. Our assessment of these benefits has not changed even as we consider whether a CBDC might fit into the future U.S. money and payments landscape… Completing and implementing FedNow is a high priority, and we expect it to be available by mid-2023."

The US Federal Reserve (FRB) announced that its new system for instant payments, the FedNow® Service, is now live. Banks and credit unions can sign up and use this tool to instantly transfer money 24/7 for their customers. To start, 35 early-adopting banks and credit unions, as well as the U.S. Department of the Treasury's Bureau of the Fiscal Service, are ready with instant payments capabilities via the FedNow Service. In addition, 16 service providers are ready to support payment processing for banks and credit unions.

The US Federal Reserve announced that the FedNow Service will start operating in July and provided details on preparations for launch. FedNow Service to facilitate nationwide reach of 24/7 instant payment services by financial institutions - regardless of size or geographic location. Businesses and individuals will be able to send and receive instant payments at any time of day, and recipients will have full access to funds immediately, giving them greater flexibility to manage their money and make time-sensitive payments.

However, the Federal Reserve has been blocking non-lending banks from accessing Fed payment systems, though, which means the "safe banks" either cannot operate at all or cannot provide the very "safe banking" services that consumers want. Custodia Bank is one such bank, and its CEO Caitlin Long makes an interesting point about the soon-to-be-launched FedNow fast payments platform: "In the thick of today's social media-accelerated, online-banking accelerated banking crisis, the "borrow short-term and lend long-term" model is less stable than it has ever been. And it's about to become even less stable - because the speed of money movement in the U.S. is scheduled to accelerate this July, when the new FedNow payment system comes online. Intended to replace Fedwire, FedNow will allow depositors to access their bank deposits 24/7/365. Just imagine how much worse today's banking crisis would be if panicked depositors could move their funds during the news-filled weekends. [

FedNow will promote financial system resiliency. As we discovered in 2008, big banks can fail. The Fed cannot. Unlike Facebook's proposal, which would have used a distributed ledger to move funds, risk in the TCH network is heavily centralized. Any failure to fund the joint account or compromise of the ledger could impact the entire system. Instead of criticizing the Fed, the big banks should be applauding FedNow as parallel system that could serve as a backup to their own.

The road to real-time settlement systems in the U.S. has been a long one. Whereas the UK introduced Faster Payments in 2008, it took another decade for RTP to be built, and five years on top of that for FedNow. Alas, the path to actual usage of these new real-time systems will be even slower, given the diffuse nature of the U.S. banking system and the hesitation effect that comes with having two competing networks.

"The diffuse nature of U.S. banking (and the concentrated nature of Canadian banking) will play into the upcoming launches of FedNow and Real-Time Rail (RTR), two instant retail payments system belonging to the Federal Reserve and Bank of Canada, respectively. I'd expect RTR usage to amp up quickly, given that Canada's big-5 banks will likely help sponsor it. FedNow adoption will lag. It's just not that easy to get 9,466 institutions on the same page."

The Federal Reserve Banks have narrowed the timing of the FedNow Service launch to mid-year 2023, specifically targeting a production rollout of the service in the May to July timeframe. This further defines the previously communicated 2023 launch window for the anticipated instant payments service and comes as the FedNow Pilot Program prepares to enter technical testing for the service starting in September.

"The Fed's new instant-payments system FedNow can be a game changer, giving people and businesses immediate access to their money and slashing fees that make it expensive to be poor in America. But for FedNow to work, banks must use it. Unfortunately, right now they aren't. Less than 1% of banks and credit unions have signed up, and many of these charge a lot for the service. "

"It's time for the U.S. to update its payments infrastructure to better reflect how financial products are currently used. Allowing access to Federal Reserve payments services for nonbanks will bolster the success of FedNow and bring our country closer to others on payments modernization."

"In addition to the initial adopters, the Federal Reserve continues to work with and onboard financial institutions and service providers planning to join later in 2023 and beyond, as the initial step to growing a robust network aimed at reaching all 10,000 U.S. financial institutions."

The Fed's offering, called FedNow, will challenge a competing service already offered by The Clearing House, a private company owned by many of the country's largest banks. The Fed, which expects to launch its service in 2023 or 2024, said a publicly run offering is needed to ensure the entire nation can reap the benefits of real-time payments.