The Impact of FedNow on the US Payments Landscape

The EU's open banking model: A catalyst for the US's instant payment revolution.
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Key Takeaways

  • FedNow was inspired by the EU’s successful real-time payment system.
  • FedNow will revolutionize US payments with faster, more efficient transactions.
  • FedNow offers numerous benefits, including reduced costs and fraud, and increased financial inclusion.

What is FedNow?

Last year, the Federal Reserve launched FedNow, an instant payment service expected to revolutionize the US payment landscape. Since its launch in July last year, about 700 banks and credit unions have joined the FedNow network, and this list is expected to grow as the Fed seeks 8,000 financial institutions. The Federal Reserve’s goal is to achieve wide adoption of FedNow over time, much like the Fedwire® Funds Service and FedACH® Services.


Its speed, competitive pricing, and integrated fraud management features are bound to attract a wide network of participating FIs. The Service Provider Showcase on FedNow Explorer includes a growing list of more than 100 payment processors, correspondents, banking operations, and application providers to help financial institutions connect and amplify their network.

FedNow Key features include:

  • Real-time Payments: Enables funds to be transferred instantly, 24/7/365.
  • Accessibility: Available to all banks and credit unions.
  • Interoperability: Designed to work alongside existing payment systems.
  • Integrated Fraud Management Features: Transaction Limits and Negative Lists.
  • Competitive Pricing: Simple, predictable pricing. No ‘pass-through’ fees.

Let’s first explore how initiatives taken by the European Union have inspired the creation of FedNow and then consider the impact this will have on the US economy, particularly on the financial sector.

The EU’s Instant Payment Revolution

The European Union (EU) has promoted financial innovation for decades, setting benchmarks that have inspired other regions to improve their financial infrastructures. Successful pioneers like iDEAL, Sofort, and Giropay launched bank-to-bank payment methods two decades ago in the EU. However, the EU’s journey towards real-time payments across the EUROzone began with establishing the Single Euro Payments Area (SEPA), which harmonized electronic payments across member states, making cross-border transactions as easy and cost-effective as domestic ones. SEPA was first introduced for credit transfers in 2008, followed by direct debits in 2009. Five years later, SEPA was fully implemented, and by 2016, citizens in non-euro area SEPA countries also benefited from SCT Inst. The introduction of the SEPA Instant Credit Transfer (SCT Inst) in 2017 marked a significant milestone. SCT Inst made instant money transfers across the Eurozone possible, 24/7. This development improved convenience and innovated financial services across Europe.

Source: PYMNTS

The success of SCT Inst proved the many benefits of instant payments: enhanced cash flow for businesses, reduced transaction times, and customer satisfaction. Let’s not forget to mention reduced fraud and chargeback figures. These positive developments raised the attention of the US Federal Reserve.

The US Payment Landscape: A Need for Modernization

The US payment system has traditionally relied heavily on checks, ACH (Automated Clearing House) transfers, and card payments. Settlement of these transactions often takes days, which impacts businesses and consumers.

The Federal Reserve developed FedNow, which was designed to facilitate real-time payments across the US. The success of the EU’s real-time payment systems provided a blueprint.

The areas where the EU’s example played a pivotal role are:

Operational Framework: The EU’s SCT Inst provided a transparent operational model for real-time payments, proving how efficient, round-the-clock processing can be managed. This inspired FedNow’s design, which ensures it works 24/7/365.

Regulatory Support: The EU’s approach to creating a supportive regulatory environment for instant payments highlighted the importance of clear guidelines and collaboration between regulators and financial institutions. This prompted the Federal Reserve to engage with various stakeholders in the US to ensure smooth implementation.

Interoperability and Inclusiveness: SCT Inst’s success in fostering inclusivity by enabling all banks, regardless of size, to participate in the real-time payment network was a crucial learning point. FedNow aims to replicate this inclusivity, ensuring even smaller financial institutions can offer instant payment services.

Technological Standards: The EU’s adoption of standardized messaging formats like ISO 20022 for SCT Inst set a technological precedent. FedNow has adopted similar standards to ensure compatibility and ease of integration with existing systems.

Potential Impacts of FedNow on the US Payment Landscape

The implementation and adoption of FedNow is expected to transform the US payment landscape, just as it did in the EU.

  • Enhanced Speed and Efficiency: FedNow will significantly reduce transaction times by enabling real-time payments. Businesses will benefit from improved cash flow management, while consumers will enjoy quicker access to their funds.
  • Improved Financial Inclusion: FedNow aims to allow smaller banks and credit unions to offer instant payment services, promoting financial inclusion. This will be particularly beneficial for underbanked populations who rely on immediate access to funds.
  • Cost Reductions: Instant payments can reduce the costs associated with traditional payment methods, such as check processing and ACH transfers. This can lead to lower fees for consumers and businesses.
  • Stimulated Innovation: The availability of real-time payments will encourage the development of new financial products and services. For instance, businesses could implement real-time payroll systems, and fintech companies could create innovative payment solutions that use the speed of FedNow.
  • Competitive Pressure: The introduction of FedNow will create competitive pressure on existing payment systems, such as The Clearing House’s RTP network. This competition could drive further improvements and cost reductions across the board.
  • Card Brands Feel the Heat: By providing a faster, more efficient alternative, FedNow could reduce reliance on traditional card networks, potentially lowering transaction fees and increasing competition. Enhanced convenience and cost savings may encourage wider adoption of instant payments, shifting consumer and merchant preferences away from card-based systems toward direct bank-to-bank transfers.
  • Shift in Consumer Expectations: As instant payments become more prevalent, consumers will begin to expect this level of service to be the norm. Financial institutions that do not adopt FedNow may find themselves at a competitive disadvantage.
  • Economic Impact: Faster payment processing can enhance economic activity by enabling quicker transactions and reducing delays in the financial system. This can contribute to overall economic growth.
  • Reduced Chargebacks and Fraud: Instant Pay by Bank payment methods have proven to reduce chargebacks for reasons we have explained in our earlier blogs about Pay by Bank and Chargebacks. Even though 100% risk-free payment methods do not exist, instant Pay by Bank payment methods have proven to be more fraud-resistant.


The EU’s pioneering efforts in real-time payments have provided a valuable blueprint for the US, inspiring the development of FedNow. By adopting lessons from the EU’s SCT Inst and other initiatives, the Federal Reserve is set to transform the US payment landscape, making transactions faster, more efficient, and more fraud-resistant. As FedNow becomes operational, its impact will be felt across various sectors, driving innovation, enhancing financial inclusion, and benefiting the US economy, shoppers, and consumers. The journey towards a real-time payment system underscores the importance of global collaboration and shared knowledge to improve financial technologies (fintech) and enhance secure and convenient payment methods worldwide.

For more information about this topic, feel free to contact Segpay’s payment experts via:


This blog has been written by @SandeCopywriter on behalf of Segpay Europe.

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