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Discovering FedNow Real-Time Payment Service Impact

Discovering FedNow Real-Time Payment Service Impact

Are FedNow Users More Vulnerable to Fraud

As of July 20th, 2023, the Federal Reserve proudly launched FedNow, a real-time payment service that promises to revolutionise the financial landscape for banks, credit unions, online merchants, and other financial entities seeking instant, 24/7/365 payment accessibility. Now that FedNow is live, we’re eager to examine its reception and early impact by addressing some critical questions:

  • How is FedNow utilised following its recent introduction? 
  • FedNow Concerns: Has the Real-Time Payment Service lived up to expectations? 
  • How does FedNow compare to competitors?

How is FedNow utilised following its recent introduction? 

The essence of FedNow’s appeal lies in its fundamental attributes within the real-time payment service:

  • Real Time Payments: Transactions are swiftly cleared and settled in real-time, even when involving diverse financial institutions.
  • Uninterrupted Service Availability: FedNow operates 24/7/365, providing a seamless user experience where transactions can be initiated at any hour—ensuring accessibility every day of the year.

These crucial features expand the spectrum of possible applications for traditional banks, credit unions, online merchants, Fintech companies, and other financial institutions. The Federal Reserve Bank (fed) specifically highlights core utilisation scenarios on its platform, which include:

  • Account-to-Account (A2A)
  • Business-to-Business (B2B)
  • Business-to-Consumer (B2C)
  • Consumer-to-Business (C2B)
  • Consumer-to-Financial Institution
  • Financial Institution-to-Consumer
  • Person-to-Person (P2P)

These versatile use cases empower various applications, ranging from consumer-facing payment solutions to backend payment processing between merchants and financial institutions, as well as facilitating payment processing for government services and initiatives.

FedNow Concerns: Has the Real-Time Payment Service lived up to expectations? 

With FedNow now operational and actively in use, it’s an opportune time to analyse the validity of initial concerns and forecast the future trajectory based on the launch phase and the initial few months.

FedNow Real Time Payment Service Adoption

In today’s tech-driven landscape, major banks tend to take a cautious approach to adopting new technologies, while Fintechs and digital financial solutions embrace innovation rapidly. Larger banks typically evaluate new technologies before fully integrating them, often through trials or internal testing.

The initial adoption of FedNow by smaller financial entities has been slower than expected, despite substantial promotion by the Federal Reserve. At its launch, FedNow had the support of 35 banks and 16 service providers, which has now grown to 44 banks and 18 service providers, including major banks like JPMorgan Chase and Wells Fargo.

Many major banks already participate in The Clearing House’s RTP Network, which means their engagement with FedNow may involve testing against existing alternatives. As more financial institutions implement FedNow, broader acceptance is anticipated, especially as consumer demand for real-time payments continues to rise, aligning with trends observed in other countries. This strategic move helps financial institutions offer superior service and differentiate themselves in the market.

Are FedNow’s Fees & Costs Fair?

The main obstacle to widespread FedNow adoption is the associated costs, which are competitive but slightly higher than some non-24/7 services like The Clearing House’s RTP Network. This premium expense challenges companies considering FedNow adoption.

Passing these costs to end-users may deter adoption, as 24/7 instant payments are not always essential. Alternatively, absorbing expenses is feasible if there’s significant demand or potential to enhance operations.

Most businesses and consumers don’t require instant settlements with added costs. However, they may opt for such a solution if it offers tangible benefits without extra expenses.

Are FedNow Users More Vulnerable to Fraud?

As businesses adopt FedNow, they must address fraud risks in real-time payments, as FedNow lacks built-in fraud protection. Organisations need to optimise their risk management, focusing on AML and real-time fraud prevention. Customised rules and real-time monitoring, as highlighted in a recent survey of 250+ Risk & Compliance professionals, play a critical role.

Fraudsters use social engineering for immediate payments, but Money Service Businesses (MSBs) excel at monitoring transactions and behaviour data, enabling proactive fraud prevention. This modern approach is vital for effective fraud prevention.

How does FedNow compare to competitors?

To demonstrate that their faster payment solution is more beneficial to businesses, retailers, and end users, FedNow competes not only with other real-time payment providers but also with traditional systems as well.

Will FedNow Affect How Credit or Debit Cards Are Used?

Speculations suggest FedNow-powered products might eliminate or reduce the use of debit and credit cards. However, credit card companies, including Visa, exhibit no concern regarding competition from the FedNow Service or any real-time payment system. While Mastercard has adopted real-time payment networks around the globe, it is not yet prepared to join the new FedNow immediate payments system in the United States.

Products using the FedNow Service differ from credit cards, lacking credit features and card benefits. Credit and debit cards offer strong consumer protection, while real-time payment users may have more responsibility for transactions.

Consumer habits and concerns about financial security make changing payment methods challenging. Financial institutions may not have a strong incentive to promote this shift, as they earn revenue from credit card interchange fees, unlike the cost per transaction with FedNow.

Even if FedNow does steer users away from debit and credit cards, this transition will likely be gradual and necessitate significant consumer demand for alternative services.

Do Other Real-time Payment Products Compete with FedNow?

The real-time payment service offered by FedNow is currently subject to intense market competition. While having a direct connection to the Federal Reserve lends credibility and inspires user confidence, FedNow faces competition from other Real-Time Payments (RTP) services that offer enhanced capabilities.

In its present state, FedNow struggles to contend with The Clearing House’s RTP offering due to several key factors. Pricing parity offers no cost advantage to organisations considering FedNow. Additionally, FedNow imposes a transaction cap of $500,000, while the RTP Network supports transactions up to $1,000,000. Crucially, FedNow is limited to domestic “push payments” and lacks the capability to process “pull payments,” a significant distinction as compared to the RTP Network, which accommodates both transaction types.

FedNow’s Impact on Payment Services and Consumer Banking as a Service Solutions

FedNow has the potential to impact payment giants like PayPal, Venmo, CashApp, Zelle, and Stripe. It offers 24/7 instant payments, especially beneficial for traditional banks and credit unions. However, P2P services maintain a cost advantage and direct consumer marketing.

Stripe, while not currently pursuing FedNow-related products, faces anticipation and discussions about its potential impact on the fintech sector. With banks gaining access to FedNow, concerns and opportunities arise for fintech firms. FedNow serves financial institutions, not consumers, and its success depends on consumer choices, costs, and MSB growth.

FedNow can disrupt real-time C2B and B2B payments, but it requires bank account support, consumer apps, and shifts in behaviour. Collaboration is likely, with tech giants like Amazon, Square, and Apple possibly driving disruption and accelerating the move away from checks in some use cases.


As more US customers seek instant payments, businesses will creatively integrate FedNow’s Real-Time Payment service. Organisations should prepare to implement Real-Time Payment options for consumers as they become available. Real-time transaction monitoring is crucial for fraud prevention, allowing companies to detect anomalies and suspicious behaviour.

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