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FedNow, the real-time payments network operated by the Federal Reserve, announced late Tuesday it has 400 financial institutions participating as senders or receivers after six months of operation.
The much-anticipated Fed service launched last July with 35 participating financial institutions. Participating institutions range in size from less than $500 million to more than $3 trillion in assets, the Fed said.
The number of participants in FedNow puts the network on par with the other national real-time payments system, the Real Time Payments (RTP) network, which last July reported it had more than 350 participating financial institutions. In addition, New York City-based RTP has more than 20 payment processors and fintechs facilitating real-time transactions over the network. Launched in 2017, RTP is operated by The Clearing House Payments Co. LLC, which could not be reached for comment regarding the FedNow milestone.
“These are still early days for the FedNow Service, and we are pleased with the robust level of adoption over the first few months as we transition from launch phase to standard operations,” Ken Montgomery, first vice president of the Federal Reserve Bank of Boston and FedNow program executive, says in a statement “We commend the growing number of financial institutions, service providers, and other organizations in the payment ecosystem that are embracing the vast potential of this modern instant payments system.”
The number of participating financial institutions in FedNow is viewed as a very good start for the network given that it has genuine competition from the RTP network, which is seen as more of a “big bank solution,” Steve Mott, principal at payments-advisory BetterBuyDesign, says by email.
“While many of the big banks are keeping FedNow at arm’s length, in an effort to keep ‘innovation’ under control by sticking with TCH RTP, most smaller banks and credit unions appear to be fully aware that FedNow is their lifeline to the future,” Mott says. “It will be a go-to network for innovative FIs.”
The growing demand for real-time payments is leading to a host of use cases, according to FedNow. For example, open-banking provider Plaid Inc. is using FedNow through partner financial institutions to facilitate instant payouts for investments, payroll, loan disbursements, and insurance claims, as well as instant microdeposits, according to FedNow. Before the availability of real-time service, microdeposits often took days to settle using traditional payment networks, FedNow says.
Another growing use case for FedNow is the disbursement of payments to charitable organizations. Virginia’s Treasury Department is collaborating with its human-resources agency to facilitate such transactions. Other prominent use cases for real-time payments include account-to-account transfers to friends and family, earned wage access, auto purchases, and business payments.
