The Federal Reserve has launched an instant payment system that enables users in the US to transfer money electronically. In a statement released today (Thursday), Fed's Chair Jerome Powell said that the new system makes everyday payments faster and more convenient.

Dubbed FedNow, the payment system, which has been in development since 2019, allows instant transfers for amounts of up to USD $500,000. However, the amount is below an estimated USD $5 million in the average value of transactions processed on the central bank's main money transfer system, Fedwire.

Fed Targets Major Banks

The top financial institution in the US, including JPMorgan Chase and Wells Fargo, are among the 35 banks that have signed up for FedNow. The central bank expects that as more lenders sign up for the real-time payment system, it will be able to reach more consumers and businesses.

During the unveiling of the new system, the Federal Reserve said that it expects more than 9,000 banks and credit unions across the country to use FedNow. The new system will reportedly complement the central bank's existing payment services, such as Fedwire.

"The Federal Reserve built the FedNow service to help make everyday payments over the coming years faster and more convenient," commented Powell. "Over time, as more banks choose to use this new tool, the benefits to individuals and businesses will include enabling a person to immediately receive a paycheck or a company to instantly access funds when an invoice is paid."

FedNow Spurs Competition

FedNow is expected to intensify competition in the US credit card sector, where major banks have launched competing services. For instance, JPMorgan launched an instant digital payment service last year targeting institutional clients.

Similarly, the Clearing House, an electronic payment system owned by a group of large banks in the US, launched a real-time payment network in 2017. The system enables everyday financial transactions, such as paying bills, issuing invoices, processing payroll and settling insurance claims.

For quite some time, the US has lacked a widespread real-time payment system, unlike other developed economies, the Financial Times reported. For instance, in the UK, the Bank of England operates the Faster Payment System (FPS), which facilitates electronic payments between banks.