The Federal Reserve has made headway in adding banks to its new FedNow system, with a tally of 400 participating financial institutions, but some of the biggest U.S. banks are still on the sidelines six months after the instant payments service launched.
Bank of America, Citigroup, PNC and Capital One Financial, all among the nation’s 10 largest banks, still haven’t signed on to FedNow, according to the Fed’s latest list of participants.
FedNow launched last July, promising to speed up transactions for consumers and companies. It’s only available through banks so the Federal Reserve and its FedNow staff have been on a campaign, including via webinars and public communications,to encourage more banks to hook up to the system.The more financial institutions join, the more attractive the network becomes because of increased reach.
In response to a request for comment, a Fed spokesperson, Cassie Burica, noted that some non-participant banks were involved with FedNow’s prior pilot program, suggesting they’ll eventually join. Burica also noted that the CEOs of two banks, Citi and Bank of America, said during a Senate Banking Committee hearing last month that their banks plan to sign on “in the coming months.”
A spokesperson for Citi suggested the same. “We are highly supportive of FedNow and it was always part of our plan to participate,” said Karen Kearns, a spokesperson for the New York-based company. “We plan to be ready to go live on the platform in the first half of 2024.” Kearns also noted that Citi has invested “heavily in instant payments with direct access across 65 countries,” including via FedNow’s U.S. rival, the RTP network.
A spokesperson for Bank of America declined to comment. PNC and Capital One didn’t immediately respond to a request for comment.
To be sure, the biggest U.S. bank, JPMorgan Chase, was connected to FedNow early on, and Wells Fargo and U.S. Bank have also joined the network, so there is support from major U.S. institutions.
Still, FedNow has been getting traction only slowly.There are nearly 10,000 banks and credit unions across the country, so the bulk of them are not on board. And of the ones that have connected, many are only receiving payments and haven’t set up their systems to send payments.
While the start of FedNow is also prompting more adoption at the rival RTP network, which was launched in 2017, the U.S. still lags behind other countries in fostering instant payment systems. Some of those countries, including India and Brazil, have made progress by mandating use of the real-time systems.
“We are kind of taking this laissez-faire market approach, but right now it’s kind of a mess,” said Peter Tapling, an industry consultant based in the Chicago area.“We lag woefully behind,” he said of the U.S.
It might seem that two systems would be better than one in playing catch-up, but that’s not necessarily the case because the competition could be causing some banks to drag their feet on FedNow. That’s partly because The Clearing House, which operates RTP, is owned by a pack of big U.S. banks, including Citi, PNC, Capital One and Bank of America. “There is going to be a period of time where people will pick sides,” Tapling said.
And RTP isn’t the only payments service that may face competition from FedNow. Debit and credit card transactions could ultimately be reduced if instant payments catch on and that may eat into the interchange fees that banks derive from the cards they issue.
“To the extent that FedNow creates the possibility to go around the card networks, that represents a competitive threat,” said Jim Angel,a Georgetown University professor who served on a U.S. faster payments task force.
Some banks will wonder why they should rob RTP of revenue and take on the additional cost of adding FedNow when the government system doesn’t even have a rich set of financial institutions using it yet, Tapling explained.“Volumes on these networks are so low,” Tapling said, estimating thousands of transactions occur daily on FedNow.
Aside from that lack of benefit in hurrying to join FedNow, there are also likely bugs in the system that have yet to be worked out.“Let other people incur the teething costs” is how some banks are likely to see the situation, Angel said. They’ll watch other banks test the system, and then join FedNow when it has critical mass and they can benefit from second-mover advantage, he predicted.
FAQs
The Federal Reserve is building up bank participation in FedNow, but big financial institutions such as Bank of America, Citi, PNC and Capital One, remain on the sidelines — for now.
Which banks are not using FedNow? ›
Bank of America, Citigroup, PNC and Capital One Financial, all among the nation's 10 largest banks, still haven't signed on to FedNow, according to the Fed's latest list of participants. FedNow launched last July, promising to speed up transactions for consumers and companies.
How will FedNow affect banks? ›
Last November, the Federal Reserve set the prices that banks pay for its new instant payment system. For 2023, the 12 regional Federal Reserve banks will waive the monthly participation fee for banks. In 2024, banks will pay $25 per month per routing transit number to use the FedNow service.
How many banks live on FedNow? ›
About 470 banks and credit unions have joined the FedNow network as of early February 2024. (There are more than 9,000 banks and credit unions in the U.S.) Many of the current FedNow participants are regional and community institutions, whereas many bigger banks, including online banks, haven't signed on yet.
Does Chase bank use FedNow? ›
The major banks that have adopted FedNow currently include JPMorgan Chase and Wells Fargo Bank. You can check out the list of all the supporting banks here. Where can I learn more about FedNow? The Federal Reserve has an information video, which is embedded below.
Is Fifth Third Bank using FedNow? ›
Maria manages Fifth Third Bank's Instant Payments product, which includes Real Time Payments (RTP), Request for Payment (RFP) as well as the future build out of FedNow.
Will Navy Federal be using FedNow? ›
Getting RTP Instant Payments into Action at Navy Federal
The good news is that having built the “subdivision” to handle RTP, much of the work that will be required to also offer FedNow instant payments has been done. Navy Federal intends to offer access to both networks eventually.
Will FedNow replace Zelle? ›
FedNow is not replacing PayPal and other apps, such as Venmo, Cash App and Zelle. Still, the service's availability will depend on whether your bank opts in. Here's a breakdown of what FedNow is and how it works.
What is the downside of FedNow? ›
FedNow's real-time payments offer many advantages, but they also create unique fraud challenges. The instantaneous movement of funds means there will be little to no time for traditional fraud detection methods to identify and halt suspicious transactions.
Will FedNow replace credit cards? ›
There is speculation that FedNow-powered products could replace—or at least reduce—the use of debit and credit cards. But credit card companies aren't worried; Vasant Prabhu, CFO of Visa, said that Visa doesn't fear competition from not only the FedNow Service, but any real-time payment system.
That means Zelle is only available to customers using those banks or other FIs that partner with Zelle's parent company, Early Warning Services. FedNow is owned by the Federal Reserve, meaning it is available to every financial institution in the United States and, by extension, all their customers.
Who is the owner of FedNow? ›
The FedNow Service is a new instant payment infrastructure developed by the Federal Reserve that allows eligible depository institutions of different sizes across the U.S. to provide instant payment services.
Will FedNow replace ACH? ›
No, the FedNow Service will not replace the Automated Clearing House Network (ACH); instead, it is expected to complement ACH services. A bit of background: ACH is a U.S.-based electronic funds transfer network for consumers, businesses, and federal, state and local governments.
Who supports FedNow? ›
Individuals, businesses, and government entities with accounts at participating banks have access to FedNow. The Fed has relationships with over 10,000 different financial institutions, and all financial institutions eligible to hold accounts at Reserve Banks will have access to FedNow.
Will PayPal use FedNow? ›
FedNow will not officially replace PayPal or other instant payment services including Venmo, Zelle, or RTP.
How much is FedNow monthly payments? ›
The FedNow system has a few fees for participating banks: A $25 monthly participation fee (waived for 2023) $0.045 per credit transfer. $0.045 per credit transfer return (return of previously received funds)
What banks are testing FedNow? ›
First Republic Bank, Tri Counties Bank, Silicon Valley Bank, Pacific Coast Bankers' Bank and First Foundation Bank will be the banks testing the program, while CUs participating are Excite Credit Union, Farmers Insurance Federal Credit Union and Star One Credit Union, according to the report.
Will PNC bank use FedNow? ›
PNC will continue to expand capabilities utilizing the current RTP system and will also continue to monitor the progression of FedNow and provide periodic updates to clients.
Are all banks controlled by the Federal Reserve? ›
National banks must be members of the Federal Reserve System; however, they are regulated by the Office of the Comptroller of the Currency (OCC). The Federal Reserve supervises and regulates many large banking institutions because it is the federal regulator for bank holding companies (BHCs).
Are all banks regulated by the Fed? ›
Banks in the United States are regulated on either the federal or state level, depending on how they are chartered. Some are regulated by both. The federal regulators are: The Office of the Comptroller of the Currency (OCC)
