FedNow FAQs: What The Fed’s New Instant Payments System Is—And Is Not (2024)

The Federal Reserve has launched its long-anticipated faster payments system, called FedNow. It’s the first government-created platform to help your bank transfer money in real time, similar to what the private sector has created through payment apps like Venmo and Cash App that send funds almost instantly but outside of bank accounts.

FedNow, which is in a soft launch as of Thursday, July 20, has been years in the making. Its potential impact on the global banking industry—with thousands of financial institutions able to access the system—has generated not only praise but also concerns and confusion about what FedNow will actually do. So let’s set the record straight.

What Is FedNow?

FedNow is the first U.S. government-created and -backed portal allowing banks to send and receive funds almost instantly.

The Fed already has a payments portal but it doesn’t operate in real time, unlike Venmo, Cash App and other money transfer apps that allow users to instantly send money between app accounts. But to receive money in your bank account—whether from a check, direct deposit or payments app—you may have to wait a few business days, or bide your time over holidays or weekends.

With FedNow, you can make payments—say, on your mortgage—ideally within seconds. You can send funds on the due date rather than having to plan several days out for an online payment to clear, or up to a week for a check to be processed.

Also, business owners can send and receive invoice payments in real time online.

Will FedNow Replace Cash?

No, the FedNow system won’t replace the dollar, or digital currency for that matter. Think of it as a platform that will transfer your dollar online, the same way popular money apps transfer funds. The promise of FedNow is that it will allow financial institutions to make those transfers happen between bank accounts, and in the blink of an eye.

And while there have been claims on YouTube and TikTok and other social media that FedNow will replace the dollar with a new digital currency, these claims are false.

As the Fed puts it, “The FedNow Service is neither a form of currency nor a step toward eliminating any form of payment, including cash.”

Will FedNow Create a Digital Currency?

Critics have speculated that FedNow will create a digital currency, but the Fed has tried to dispel this false assumption by flatly saying, “FedNow is not related to a digital currency.”

Part of the confusion stems from separate discussions on whether the Fed should create what’s called a central bank digital currency (CBDC). The Fed has clarified that it has made no decision on issuing a CBDC, and that it would “only proceed with the issuance of a CBDC with an authorizing law.”

Issuing a CBDC is “something we would certainly need congressional approval for,” Fed Chair Jerome Powell told the House Financial Services Committee in March.

Countries including the Bahamas, China, India and Nigeria have launched CBDCs, and more than 100 other nations are exploring the idea, according to the international policy think tank the Atlantic Council.

Some countries are looking at whether a central bank digital currency could be a safer, faster way of transferring funds between banks. Others are considering whether to offer a CBDC as fiat money for the public, with the accounts held at a central or commercial bank.

Does FedNow Replace Money Apps like Venmo and Cash App?

The Fed has made clear that FedNow is not intended to kill or replace other money transfer options like Venmo, Cash App, PayPal or Zelle. Rather, it is meant to work alongside the current systems built by the private sector.

But FedNow could be a game changer because thousands of banks already using the Fed’s current, slower payments system may see FedNow as a safe and faster option that has government backing. There are 35 banks and credit unions as well as 16 payment-processing service providers that are participating in the soft launch, the Fed said in a news release.

There already is a Real-Time Payments (RTP) network, a private service launched in 2017 and used by more than 100 financial institutions to offer instant funds transfers. Zelle is the only app-based payments system that operates within the RTP network. That’s why you might see Zelle’s service offered directly when you log into your bank or credit union.

The financial institutions using the RTP Network can also opt into the FedNow system.

How Will FedNow Work?

In technical terms, FedNow is the clearing service for financial institutions to provide immediate end-to-end payments to customers. The key difference between this service and the Fed’s previous system is that FedNow will be online 24/7, processing transactions in real time.

The FedNow service is available to more than 10,000 financial institutions that operate within the Fed’s network. The banks can opt into FedNow—they won’t be forced to join the platform.

Financial institutions participating in FedNow can opt into different services within the system; they might, for example, elect to send funds back and forth across financial institutions, or choose to receive funds only. They can also opt into settlement service transfers and high-dollar credit transactions called liquidity management transfers.

Will FedNow Dominate the Global Payments System?

Not any time soon. While FedNow will have a significant impact on the global payments system of money transfers among bank accounts throughout the world, it will take years for the platform to be fully tested and adopted by financial institutions.

The Fed’s participating institutions must first opt in, begin testing out FedNow and then adjust their own systems to fully adopt it.

Some banks are likely to want to stand by to see how adoption pans out for the early adopters. This means might not see any immediate change in how you send and receive moneyin the coming months until the system is fully implemented across banks.

“Over time, as more banks choose to use this new tool, the benefits to individuals and businesses will include enabling a person to immediately receive a paycheck, or a company to instantly access funds when an invoice is paid,” said Fed Chair Jerome Powell in the launch announcement on July 20.