An update on the Federal Reserve’s Instant Payments Service: FedNow

The payment system is a crucial part of the infrastructure of the U.S., and a well-functioning and secure payment system is vital for a sound economy. The Federal Reserve System has responsibility for fostering a safe, efficient, and widely accessible payments infrastructure, and the Reserve Banks have provided payments and settlement services alongside the private sector for more than 100 years. The Fed has this responsibility because as the country’s central bank, it can uniquely provide interbank settlement without introducing liquidity or credit risks. Settlement refers to the debiting and crediting of accounts to transfer funds for a payment. Settlement is the foundation for most payment systems, allowing the sender’s depository institution to settle a payment by moving funds to the receiver’s depository institution. The Fed’s payment services include check processing, automated clearinghouse (ACH) services, and wire transfers. In addition to settlement, these services include clearing, which refers to the exchange of information about a payment.

The Fed offers its payment services on behalf of the public in competition with and in support of similar services provided by the private sector. Unlike central banks in other countries, the Fed has not been given complete regulatory or supervisory authority over the U.S. payment system. But by offering payment services, the Fed has been able to promote accessibility, safety, efficiency, and innovation in the payment system.

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