What is FedNow?

FedNow is an instant payment system operated by the Federal Reserve that settles transfers between US banks in seconds, operating 24/7/365 with transaction limits up to $500,000 per transaction.

Launched in July 2023, FedNow provides banks and credit unions with infrastructure for real-time payments without requiring membership in private networks. The system processes payments individually rather than in batches, enabling immediate settlement at any time including weekends and holidays. As of late 2024, over 700 financial institutions have adopted FedNow, with adoption accelerating as banks integrate the infrastructure into their existing systems.

How does FedNow work?

FedNow enables immediate bank-to-bank transfers through the Federal Reserve's payment infrastructure. When a customer initiates a FedNow payment, their bank sends the transaction to the Federal Reserve, which validates the payment details and simultaneously debits the sender's bank account and credits the receiver's bank account.

The system operates on an irrevocable settlement model. Once a FedNow payment completes, it cannot be reversed or recalled, similar to wire transfers but unlike ACH transactions which allow reversals. This finality protects recipients from payment disputes while requiring senders to verify payment details carefully before initiating transfers.

FedNow costs and limits

FedNow pricing is set by the Federal Reserve with costs passed through by individual banks:

• Per-transaction fee: $0.045 per transaction for the sending bank (receiving bank pays no fee)
• Monthly participation fee: $25 per month for banks to access the network
• Transaction limit: $500,000 per transfer (the Federal Reserve may increase this limit over time)

Individual banks determine what fees, if any, they charge customers for FedNow transfers. Some banks offer FedNow at no cost to customers as a competitive feature, while others may charge $0-$5 per transaction.

FedNow vs other payment rails

Understanding how FedNow compares to other payment infrastructure helps businesses choose the right rail for specific use cases. Each system offers different trade-offs in speed, cost, transaction limits, and geographic coverage.

• FedNow vs RTP: The Clearing House operates RTP (Real-Time Payments), a private instant payment network launched in 2017. Both settle in seconds 24/7/365 at similar costs. RTP has broader current adoption with over 500 participating banks, but FedNow's Federal Reserve backing may drive faster long-term adoption. RTP supports $1 million transaction limits compared to FedNow's $500,000 limit.
• FedNow vs ACH: ACH settles in one to two business days (same business day for Same-Day ACH) while FedNow settles in seconds. ACH costs are comparable ($0-$5) but ACH only processes during business hours and allows transaction reversals. Use FedNow for urgent payments requiring immediate settlement, ACH for routine transfers where timing is flexible.
• FedNow vs wire transfers: Domestic wire transfers settle in hours during business hours and cost $15-$35. FedNow settles in seconds 24/7/365 at $0.045 per transaction. Wire transfers support unlimited transaction sizes while FedNow caps at $500,000. For most domestic payments under $500,000, FedNow provides faster settlement at lower cost.
• FedNow vs stablecoin payments: Stablecoin rails like USDC settle globally in seconds, while FedNow operates only within the US banking system. For domestic US payments, FedNow offers instant settlement with traditional bank account access. For cross-border payments, stablecoin infrastructure enables instant settlement across multiple countries without correspondent banking networks.

When businesses use FedNow

Common FedNow use cases include:

• Emergency disbursements: Insurance claims, disaster relief, urgent employee advances
• Time-sensitive B2B payments: Just-in-time inventory payments, same-day supplier settlements
• Gig economy payouts: Instant contractor and freelancer payments
• E-commerce refunds: Immediate refund processing to improve customer satisfaction
• Account funding: Instant transfers between customer accounts at different banks

FedNow adoption continues growing as banks implement the infrastructure and businesses discover use cases where instant settlement provides competitive advantage.

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