Fed launches FedNow instant payment service

The Federal Reserve has launched its instant payment service, FedNow, for direct deposits and transfers between individuals' bank accounts. Yahoo Finance Fed Reporter Jennifer Schonberger details the difference between FedNow and peer-to-peer services like PayPal and Venmo as banks slowly adopt the service.

Video Transcript

SEANA SMITH: The Federal Reserve finally launching its instant payment service FedNow. Jennifer Schonberger is here to explain how it all works. Hi, Jen.

JENNIFER SHCHONBERGER: Hey, Seana. It's official, the Fed finally launching its long-awaited instant payment service dubbed FedNow, which will allow consumers and businesses to send and receive payments in seconds. The system will allow you to pay for groceries instantaneously, businesses to pay suppliers, and people to pay each other. It will be available 24/7 over seven 365 with full access to funds immediately.

Here's how it will work. FedNow isn't offered directly to individuals and businesses through an app like Venmo. Instead, it serves as the basis for instant payments by linking banks. Transactions occur between bank accounts, enable funds to be transferred from a sender's bank account to a receiver's bank account immediately.

FedNow is different from apps like Venmo, which require holding balances in the app rather than sending and receiving money directly to or from your bank account. And Venmo isn't instantaneous. It doesn't do real-time settlement. There's a lot of gymnastics behind the scenes needed to settle the payment.

When FedNow is fully available and widely used individuals will be able to instantly receive their paychecks and use them the same day. It could also help workers who aren't on a regular payroll, like gig workers and Uber driver for instance get access to their wages faster.

Now, people would use the service through their banks apps or websites. It's very much in its early innings right now, only 35 banks and credit unions, including JPMorgan and Wells Fargo have signed up for the service. The Fed hopes to get more on board soon. Back to you.

ALEXANDRA CANAL: So Jen, if you're interested in using this payment platform, how can you check to see if your bank is partnered with this?

JENNIFER SHCHONBERGER: Hey, there. It's great to see you at the anchor desk.

ALEXANDRA CANAL: Thank you.

JENNIFER SHCHONBERGER: So, so you would really need to contact your bank individually. You could also check the Fed's website. They have a list of the banks that have signed on. There are some regional banks that have actually signed on. The two major biggest national banks I mentioned, JPMorgan and Wells Fargo, are the go-tos for the major banks if folks bank with some of those major banks. But again, I would ask your bank directly, or I would check the Federal Reserve's website.

SEANA SMITH: All right. Jennifer Schonberger with the latest there about FedNow, thanks.