Federal Reserve Board Invites Public Comment on Proposal that Would Allow U.S. Banks and Credit Unions to Use Intermediaries to Transfer Funds Through the FedNow Service

Why It Matters

Allowing intermediaries expands FedNow’s reach, making real‑time payments viable for international trade and enhancing competition among payment providers. This could accelerate the modernization of the U.S. payments ecosystem and reduce reliance on legacy systems.

Key Takeaways

• FedNow currently limits transfers to two U.S. banks per transaction
• Proposal would let banks use intermediaries for FedNow payments
• Enables FedNow to support correspondent banking for cross‑border flows
• Public comments accepted for 60 days after Federal Register notice
• Added flexibility could spur private‑sector innovation in real‑time payments

Pulse Analysis

The FedNow Service, launched in 2023, represents the Federal Reserve’s answer to the growing demand for instant, 24/7 payments in the United States. Since its inception, more than 7,000 financial institutions have signed on, processing billions of dollars daily. However, the platform’s original design restricts each transaction to a direct link between two domestic banks, a limitation that has constrained its utility for more complex payment pathways, especially those involving multiple parties or international legs.

The Board’s latest proposal seeks to lift that restriction by allowing banks and credit unions to employ third‑party intermediaries—such as payment processors or correspondent banks—to move funds through FedNow. This would effectively turn FedNow into a hub for multi‑hop transactions, enabling, for example, a U.S. bank to settle the domestic portion of a cross‑border payment while a correspondent bank handles the foreign‑currency conversion. By opening the service to private‑sector innovation, the Fed hopes to capture use cases that were previously relegated to the slower Fedwire system or private networks, potentially reducing costs and settlement times for global trade participants.

If adopted, the change could reshape the competitive landscape for real‑time payments. Smaller banks and credit unions would gain access to a broader network without building costly bilateral connections, while fintech firms could develop new products that layer value‑added services on top of FedNow’s infrastructure. Regulators will need to monitor risk exposure, especially around anti‑money‑laundering controls and operational resilience. Nonetheless, the proposal signals a decisive move toward a more open, interoperable payments ecosystem, aligning the United States with other markets that already allow multi‑party instant transfers.