Federal Reserve Launches Its Own Payment Platform Meant to Make Money Transfers Easier

It's an unfortunate thing that many Americans live paycheck to paycheck with no money in savings to fall back on. As such, when they're due to get paid, they want that money to hit their checking accounts as quickly as possible.

But sometimes, there can be a lag in transferring money, especially when funds are moving from one bank to another. The Federal Reserve, however, is hoping that soon won't be a problem.

The central bank has introduced a new real-time payment system called FedNow. And its goal is to give individual consumers and small business owners alike quicker access to the funds they need.

How it works

Banks that choose to join FedNow will become part of the program's network. And from there, funds can transfer from one bank to another within seconds so that there's no waiting period for recipients.

Right now, that's largely not the case. Let's say you're a freelance contractor and someone has paid you by bank transfer. It could easily take a day or two -- or longer -- for that money to move out of your client's bank and hit your own bank account. With FedNow, that transfer might happen on the spot, giving you access to your money right away.

Similarly, let's say you're a small business owner waiting on payment of an overdue invoice whose funds are necessary for you to cover other pressing expenses. You might receive an apology and a same-day transfer when you call to follow up on that invoice -- but it might still take a few days for the funds in question to clear and hit your bank account. With FedNow, that waiting period could be eliminated.

Another great thing about FedNow? It will operate all the time. This means that the transfer of funds can happen whether it's after hours, a weekend, or a holiday.

However, to be clear, consumers and small business owners can only benefit from FedNow if they bank with an institution that's part of the FedNow network. Also, FedNow is only designed to facilitate the immediate transfer of funds between banks. It won't get you your money sooner if you're a business owner who's waiting for a credit card payment to be processed.

A positive development

Some people are used to the idea of getting instant payments via apps like Venmo. But not everyone uses these apps, and some may be hesitant to start doing so.

The upside of FedNow is that you, as an individual, don't have to download an app to use FedNow. Rather, it's a service you'll get to benefit from by virtue of your bank being part of its network.

So far, 35 banks and credit unions are set up to use the FedNow system, and that number is expected to grow. It's also worth noting that a number of larger, well-known banks have already adopted the system, including JPMorgan Chase and Wells Fargo. And once more banks follow their lead, it could be a real game changer for people who want to get paid ASAP.