The Fed Sets a May to July 2023 Window for Its Launch of the FedNow Real-Time Service

The Federal Reserve Board on Monday afternoon narrowed the window for the launch of FedNow, its real-time payment service, to the weeks between May and July of 2023. The announcement, which came in a short address by Fed Vice Chair Lael Brainard, is the latest in a series of updates in which the Fed has gradually zeroed in on its deadline for launch of the instant-payment service.

Brainard, who has shepherded the service since the Fed first intimated in 2019 that it would create a real-time payments platform, said that the service’s success will depend on support from U.S. banks and other financial-services companies. “Just as the Federal Reserve has made a substantial commitment to our new instant payment infrastructure, we are calling on industry stakeholders to do the same,” she said in her remarks Monday.

Specifically, she warned that service providers will be expected to make substantial investments in marketing, technology, and other key factors to support FedNow and the demands of instant funds availability—a service that had been available in the United States only in limited applications up until The Clearing House Payments Co.’s launch of its private-sector Real Time Payments network in 2017.  

“The time is now for all key stakeholders—financial institutions, core service providers, software companies, and application developers—to devote the resources necessary to support instant payments,” Brainard said. “This means upgrading back-office processes, evaluating accounting procedures to accommodate a seven-business-day week, arranging liquidity providers, deploying a new customer-facing application, and promoting instant payments for key use cases to customers.”

With the new, narrower target date of spring next year for its launch, Fed Now may make heavy demands on financial institutions, technology providers, and other key suppliers, but the service’s momentum is now such that service providers have little choice but to support real-time processing, Brainard said. “The shift to real-time payment infrastructure requires a focused effort, but the shift is inevitable,” she told listeners.

Still, the rewards will be substantial, she argued, especially as the Fed has worked with TCH on message specifications to enable interoperability between the two systems. And FedNow has adopted a “cloud-first design,” which she said is “unique among central-bank instant-payment services.” So-called cloud technology enables payments and related functions to be managed centrally without the need for local software.

Nor did Brainard shrink from proclaiming what will be the ultimate rewards of real-time funds availability for consumers and businesses. “The FedNow Service,” she argued, “will transform the way everyday payments are made throughout the economy.”

Observers who have closely followed FedNow since the concept’s announcement argue that, for all its advantages, the Fed will face stiff competition from the private sector.

“The bad news is that its principal targeted competitor, TCH’s RTP network, will reach many more banks and [demand-deposit accounts], will have more direct and indirect live applications by banks and their clients, and more experiential capital in its network,” notes Eric Grover, principal at Intrepid Ventures, a financial-services consultancy. “Still, the country’s most systemically important financial institution, the Fed, is not going to be denied. One way or another it will muscle its way into the market and take share.”