Federal Reserve Champions Real-Time Transfers to Lower Consumer Costs

On a podcast from the Federal Reserve Bank of Boston, payments analyst Brian Clarke, the deputy director for regional and community outreach, discussed always-on payment services, consumer costs, and forthcoming research on how people use their bank accounts.

Key Takeaways: Instant Payments and Consumer Fees

• Encouragement for financial institutions to build immediate payment services to help customers avoid service fees.
• Survey findings: 90% would use their bank account more with real-time payments, and 55% paid at least one overdraft fee in the past year.
• Concerns about fraud with instant transfers and the Fed’s anti-fraud teams.

Why Speed Matters: FedNow Service and Financial Inclusion

Clarke said broader access to instant payment services would materially benefit people who are unbanked or underbanked, many of whom turn to alternative service providers and short-term credit such as payday loans or pawn transactions to bridge timing gaps. Those options tend to cost more, yet they exist because money often needs to move fast.

Offering real-time payments gives banks a strong case to bring these customers fully into the banking system by lowering their everyday cost to transact.

FedNow is an instant payment service operated by the Federal Reserve. It enables real-time, 24/7/365 payments between participating financial institutions, allowing funds to move and settle immediately instead of waiting for the next banking window.

A typical FedNow transfer works in a straightforward sequence: a sender initiates a payment through their bank or credit union; the sending institution submits the request over the FedNow service to the recipient’s institution; the payment is validated and processed; and settlement occurs instantly, with confirmation sent back to both institutions. Because it runs 24/7/365, the same flow can happen on nights, weekends, and holidays.

Instant settlement can reduce timing gaps that lead to overdrafts and late fees, while giving banks clearer confirmation that a payment has posted.

FedNow is not replacing ACH; it is designed to complement existing rails. ACH is commonly used for batch processing and scheduled transfers that can take longer to complete, while FedNow is built for immediate posting and time-sensitive use cases.

FedNow is also different from PayPal. FedNow is an interbank settlement service that participating financial institutions use to move money and confirm settlement in real time, while PayPal is a consumer-facing platform that sits on top of underlying funding and payout methods.

Compared with Fedwire, FedNow is designed for always-on, instant payments, while Fedwire is typically used for high-value transfers and operates on a different availability schedule. In practice, institutions may rely on multiple systems—FedNow for immediate retail-style payments, ACH for routine batch transfers, and Fedwire for certain large or time-critical wires.

FedNow is a real-time payment system, but it is not the only one. Another real-time payment network is RTP by The Clearing House; FedNow and RTP share the goal of instant payments, but they are distinct systems with different operators and participation models.

Benefits of using FedNow can include instant settlement, fewer timing-related fees when funds post immediately, broader access to fast payments for customers who otherwise rely on higher-cost alternatives, and support for fraud controls and operational practices that help institutions manage risk in always-on payments.

Common use cases include payroll, bill payments, person-to-person transfers, business-to-business payments, and emergency or disaster relief, where speed and immediate confirmation can be especially important.

FedNow costs are paid by participating financial institutions under a fee schedule for using the service. What a consumer pays—if anything—depends on the policies of their bank or credit union and how that institution chooses to price related account services.

The Boston Fed is highlighting the advantages of faster settlement as the central bank works to bring more institutions onto its FedNow service. Last year, the network surpassed 1,500 participating financial institutions. In 2025, PNC Bank and Capital One Financial joined; Capital One is a participating institution, while Bank of America had not yet enrolled as of the latest information discussed on the podcast.

New applications for the FedNow service continue to roll out, widening access to the real-time payment system for businesses and consumers.