Is FedNow Mandatory? What You Need to Know

Summary: FedNow is an instant payment system by the Federal Reserve, offering real-time, 24/7/365 transactions. While it’s not mandatory, its adoption is growing among banks and credit unions. Businesses should assess its benefits and consider potential expectations from vendors and customers.

Key Points:

• What is FedNow? A real-time, 24/7/365 payment service from the Federal Reserve for individuals, businesses, and government entities.
• Adoption Rate: Over 1,000 financial institutions are participating as of October 2024, but many are yet to adopt it.
• Compatibility: Both banks and credit unions can implement FedNow.
• Mandatory Use: FedNow is not required, but businesses may face some expectations to offer it over time.
• Optimizing Payments: Swipesum provides expert assistance in improving payment systems and reducing costs.

FedNow is a new instant payments service developed by the Federal Reserve and released in 2023. As FedNow becomes a more common payment option for businesses, government agencies, and individuals, some important questions naturally arise.

Is FedNow mandatory? Do you have to use FedNow? Who owns FedNow?

Looking for answers to these questions? Keep reading to find them as we review key information about this new option for instant payments.

Looking for help with reducing processing fees, putting the best possible payments tech in place, and optimizing your company’s overall approach to payments? Swipesum is here to help you do exactly that at no additional cost to your business. Set up your free consultation to learn more.

All About FedNow: Answers to Frequently Asked Questions

What is FedNow?

FedNow is an instant payments service offered to financial institutions by the Federal Reserve. The service offers real-time payment and receipt of payments through bank accounts for individuals, businesses, and government entities.

The real-time factor and ability to make payments on a 24/7/365 basis are crucial. These benefits set FedNow apart from electronic money transfer options that include delays in processing, like ACH payments. FedNow’s low costs, convenience, and high degree of security are also attracting users.

Are Credit Unions Using FedNow?

Credit unions are similar to banks in the basics of how they serve their customers, although there are key differences between the two types of institutions. For example, credit unions are not-for-profit entities, which can reduce fees, and often offer lower interest rates on loans as compared to banks.

Those factors, and others, make credit unions attractive to some business owners as a provider of business bank accounts. If your company uses a credit union, does it need to worry about compatibility with FedNow?

The good news is that FedNow is available to credit unions as well as banks. Credit unions are implementing this service and making it available to their customers.

What Banks Are Not Participating in FedNow? And What Banks Do Offer this Service?

Since debuting in 2023, the Fed’s new service has started to catch on with eligible financial institutions. As of early October 2024, more than 1,000 financial institutions are on the network.

That’s impressive growth, but perhaps not surprising considering the many benefits that come along with this instant payments service offered by the Fed.

However, the number of participating institutions is only a fraction of the total number across the US. According to 2023 data from Statista that counted banks and credit unions, there are roughly 9,300 of these institutions in total.

It’s very likely that FedNow will continue to be adopted by more banks and credit unions, but it will take time for a majority of them to do so.

Do You Have to Use FedNow? Is FedNow Mandatory?

We know FedNow taps into an important payments industry trend driven by consumer and business sentiment: a desire for reliable and secure real-time payment services.

Because this service is a major upgrade over many other payment options and is offered by the Federal Reserve, some individuals and business owners are wondering if it’s mandatory. In other words, if they have to use FedNow.

The simple answer is no. FedNow is not mandated by law or regulation for use by any business or individual consumer.

With that in mind, it’s important to consider how FedNow might become an expectation on the part of some consumers, vendors, and other business partners.

Take ACH transfers as an example. This type of payment isn’t mandatory either, but some vendors and business partners expect their clients to use it. Those organizations might shy away from doing business with a client who refuses to use ACH payments in certain situations.

Over time, similar expectations could arise related to FedNow. While it’s incredibly unlikely that any state or federal law or requirement will force businesses or individuals to use FedNow, businesses may feel pressure from vendors, partners, and even individual customers to offer or use this service in certain situations.

Making the Most of Your Payments Infrastructure

Optimizing your overall approach to payments makes sense for your company and every business. The are almost always opportunities to reduce costs, improve payments technology, find better service providers, and realize a better workflow for payments from start to finish.

The complexity of the payments industry makes it difficult to navigate for those without deep experience. That’s where our team of payments experts steps in. With Swipesum on your side, you can transform your payments strategy at no additional cost to your business. Book your free consultation!