The Federal Reserve’s FedNow payment rail, heading into its third year, is increasing payments volume and value as it onboards financial institutions, but most join the payment rail in receive-only mode. 

However, FedNow’s send function allows customers to send payments instantly to participating institutions, and there is an opportunity for banks to scoop up that market, Sai Rangachari, chief product officer at tech provider Temenos, told Bank Automation News. 

FIs are “waiting to play” in the send arena and there’s not much competition in the way of send, he said, noting that “banks that can lead here have a lot more to gain.” 

FedNow volume, milestones

Since the FedNow payment rail launched on July 20, 2023, it has grown significantly both in terms of payment volume and number of institutions on the network, Sean Viergutz, partner in the financial services division at consultancy PwC, previously told BAN.  

Launched with 35 FIs, FedNow now has more than 1,400 banks and credit unions, according to the Fed’s latest list, updated July 7. 

Additionally, the number of settled payments in the second quarter reached 2.1 million, up 62% sequentially, according to the Fed. Average daily value of settled payments also surged, reaching $2.7 billion, up 405.7% from Q1 of this year. 

FedNow expanded further in June, when the transaction limit was raised to $1 million, allowing for more business uses for the rail. 

FedNow milestones

SMBs demand instant payments

Clients are asking for instant payments capabilities.  

“Increasing the limits to $1 million is really aimed at going … beyond the consumer use cases, into the B2B use cases,” Temenos’ Rangachari said.  

Small business clients at $1.3 billion Grasshopper Bank, for example, sought ways to get their money faster, Chief Executive Mike Butler told BAN. That demand pushed the digital bank to go live on FedNow earlier this year.  

Small- and medium-sized business banking platform provider Bluevine is adding FedNow capabilities to its roster this year, CEO Eyal Lifshitz told BAN. 

“Our banking partner Coastal Community Bank is in the process to add FedNow and will go live on them as well,” Lifshitz said. “I think it will be quite valuable for small businesses, the ability to send money domestically.” 

FedNow can help businesses manage cash flow better and hold onto their money for longer, Lifshitz said, adding that the increased limit on FedNow will also drive adoption among SMBs. 

Commercial uses include: 

• 24/7 treasury; 

• Domestic wires; 

• Vendor payments; and 

• Implementation of just-in-time inventory, made possible by real-time transaction speed.  

Register here for “Seamless integration: The new frontier in embedded payments,” a free Bank Automation News webinar set for Tuesday, July 22, at 11 a.m. ET.