The Federal Reserve’s FedNow payments network, launched nearly seven months ago, has signed up almost as many financial institutions as The Clearing House’s Real Time Payments platform has in seven years. 

“This is the first time that there’s actually been an upgrade in the plumbing [of the financial network] in nearly 50 years,” Mark Donovan, senior vice president and chief operating officer at INB Bank, told Bank Automation News. He added that the network will have a monumental and lasting impact for the financial services industry. 

As of Feb. 1, 474 financial institutions, including BNY Mellon, Citigroup, JPMorgan and Wells Fargo, have signed on with the FedNow payments rail, according to the Federal Reserve’s website. 

“These are still early days for the FedNow service, and we are pleased with the robust level of adoption over the first few months as we transition from launch phase to standard operations,” Ken Montgomery, first vice president of the Federal Reserve Bank of Boston and FedNow program executive, said in a Dec. 14 Federal Reserve release. 

FedNow launched on July 20 with 35 institutions. It is now nearly tied with the RTP platform, which has 509 institutions on the rail, a spokesperson from The Clearing House told BAN. 

Smaller FIs gravitate toward FedNow

As major FIs including BNY, Citi and JPM signed on with the pilot of FedNow, smaller institutions are now starting to make the move. 

For community banks, RTP can be more costly and difficult to roll out, now the cost of FedNow is more manageable, David Culbertson, chief executive at payments service provider CSI, told BAN. 

Said INB’s Donovan: “The Clearing House is owned and controlled by some of the largest banks. The Federal Reserve’s initiative here is really an attempt to democratize the fastest payment channel and give an avenue for smaller institutions to be able to compete with those bigger guys.” 

Smaller FIs have trust in the Fed, “which is difficult to quantify, but it exists” and the comparatively lower costs due to subsidies are some reasons why regional and community banks are picking FedNow over RTP, Donovan said. 

The following are smaller FIs that have joined the FedNow rail: 

• $75 million Bank of Burlington; 
• $493 million Lone Star Capital Bank, N.A.; 
• $10.2 billion Bank of North Dakota; and 
• $12.6 billion FirstBank. 

CSI has more than 100 financial institutions including $630 million River Valley Bank and $476 million The Callaway Bank using its services like payments processing, core banking and cybersecurity solutions, Culbertson said, noting that nearly 75% of their customers are signed up for FedNow. 

Smaller financial institutions are taking a step-by-step approach to going live on FedNow, Donovan said. 

“I think a lot of them are going to just sign up to receive only on the FedNow network, understand the traffic and get the staff trained,” Donovan said. “And then ultimately, roll out the request for payment, [which will be] the most important and final step of that.” 

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