Federal Reserve Moves on Real-Time Payments: Use of Intermediaries Proposed

A new rulemaking from the central bank seeks to broaden routing options on its instant payment rail, potentially extending reach to international corridors while keeping core connectivity intact.

Dive Brief

• On Wednesday, the Board of Governors proposed allowing FedNow participants to route transfers through third-party intermediaries, alongside Reserve Banks, to move funds over the service. The central bank also invited public comments on the plan.
• The Fed said authorizing U.S. financial institutions to work with such intermediaries—including a non-U.S. correspondent bank—should enable completion of payments both within the United States and across borders. The Board voted unanimously on Tuesday to advance the proposal.
• The proposal notes that added flexibility would foster new private-sector use cases for the FedNow Service, such as letting U.S. banks interact with correspondent institutions to handle the international segment of a cross-border payment.

Dive Insight

The draft would revise the regulation that put the FedNow Service into operation in July 2023. FedNow is an instant payment service operated by the Federal Reserve that enables participating financial institutions to send and receive credit transfers that settle in seconds, around the clock, every day of the year, with the core purpose of providing a always-on rail for real-time funds movement and final settlement.

In a typical FedNow transaction, a sender initiates a payment through its bank or credit union; the sending institution submits the payment message to the FedNow Service; the service validates and routes it to the receiving institution; settlement occurs in real time on the Federal Reserve’s books (debiting the sender’s and crediting the receiver’s Federal Reserve account); and the receiving institution makes the funds available to the recipient. Key benefits include faster availability of funds, 24/7/365 processing, settlement finality, operational efficiency, and a standardized rail that can support stronger fraud and risk controls at the participating institutions.

Currently, a FedNow transfer may involve only two U.S. depository institutions—whether banks or a credit union—plus a Reserve Bank. That structure limits the service to domestic transactions because participants cannot move funds directly to institutions outside the United States. Under the proposal, FedNow would still settle only between eligible U.S. participants, with any cross-border component occurring through separate “before” and “after” legs handled by intermediaries; the change would depend on a final rulemaking, and the notice does not set a firm date for when cross-border routing would be available.

The Fed indicated that permitting intermediaries would give U.S. participants a pathway to send money beyond national borders.

Enabling intermediaries could let banks extend real-time settlement to the domestic leg of an international transfer while relying on established correspondent channels for the cross-border segment.

According to staff, since FedNow launched, users have expressed strong interest in initiating or receiving cross-border instant payments through the rail to improve the speed and efficiency of international transfers. In cross-border payments, the often-cited “holy grail” is a transfer that is fast, low-cost, transparent, and predictable end to end, with near-immediate settlement and clear compliance checks across jurisdictions rather than multi-day, opaque processing.

The contemplated amendments would not change the payment flow between FedNow participants, nor would they alter which entities are eligible to connect to the service. Participation is generally limited to depository institutions eligible to hold accounts at the Federal Reserve (and certain other eligible entities), while consumers and businesses access FedNow-enabled payments through their bank or credit union rather than connecting directly.

FedNow pricing is set by the Federal Reserve and includes a monthly participation fee of $25 per routing transit number, a $0.045 fee per credit transfer, a $0.01 fee per request-for-payment message, and a $1.00 fee per liquidity management transfer. FedNow also applies a per-transfer limit of up to $500,000 by default, and participating institutions can set lower internal limits to manage risk.

Potential use cases for FedNow include payroll and earned-wage access, bill payments, person-to-person transfers offered by financial institutions, business-to-business payments (including invoice settlement), insurance claims disbursements, and time-sensitive merchant or account-to-account funding scenarios.

FedNow differs from other rails in several key ways: Zelle is a bank-offered consumer and small-business experience that typically rides on existing bank account rails rather than being a central bank settlement service; Fedwire Funds Service is a Federal Reserve real-time gross settlement system generally used for large-value payments during defined operating hours; the Automated Clearing House network is a batch-based system commonly used for payroll and recurring payments with non-instant settlement; and the Swift messaging network primarily provides standardized payment messaging that banks use to coordinate cross-border transfers, while settlement and timing depend on the underlying correspondent and clearing arrangements.

• 1,700 financial institutions live on FedNow.
• Most of the largest U.S. banks are connected.
• Ongoing recruitment of smaller institutions.

The Fed further stated it does not expect the changes to introduce new risks related to money laundering, sanctions evasion, or overall payment system integrity, pointing to Fedwire’s long-standing, successful operation with intermediaries.