Federal Reserve Announces FedNow Real-Time Payment Service Development
On August 5, 2019, the Federal Reserve announced its decision to develop the FedNow Service, a new interbank real-time gross settlement service for instant payments in the United States. The service is designed to allow depository institutions of all sizes to provide safe and efficient real-time payment services around the clock, every day of the year. The Fed's decision to build its own real-time payment infrastructure came after extensive public consultation and debate about whether the central bank should compete with The Clearing House's existing RTP network.
The announcement has broad implications for the BaaS and embedded finance ecosystem, as real-time payment rails are a critical enabler for fintech platforms offering payments, accounts, and payroll services. By creating a Fed-operated alternative, smaller banks and BaaS sponsor banks gain a pathway to offer instant payments without relying solely on private-sector infrastructure. The FedNow Service was expected to be available in 2023 or 2024, representing a multi-year development timeline.
- Creates a Fed-operated real-time payment rail that reduces dependency on private-sector networks for BaaS providers and sponsor banks
- Levels the playing field for smaller banks serving as BaaS sponsors, enabling them to offer instant payments competitive with larger institutions