The Federal Reserve Board on Wednesday invited public comment on a proposal that would allow U.S. banks and credit unions to use intermediaries to transfer funds through the FedNow Service. The proposal marks a significant expansion of the instant payments platform that launched in July 2023 as the central bank seeks to broaden adoption and enable new use cases for real-time payments.
This additional flexibility would support new private sector use cases for the FedNow Service. For example, it would allow U.S. banks to use FedNow to transact with correspondent banks to facilitate the international portion of a cross-border payment.
Currently, a transfer of funds sent through the FedNow Service can include only two U.S. banks. The proposed change would eliminate this restriction, potentially opening the door to more complex payment chains involving multiple financial institutions.
According to the Federal Reserve’s proposal notice, FedNow participants are currently not allowed to use intermediaries other than Reserve Banks. As a result, U.S. banks are unable to send payments to banks outside the country through the system.
The FedNow Service has experienced steady growth since its launch approximately 18 months ago. According to Federal Reserve data, the service now includes participants from all 50 states. The service was designed to compete with The Clearing House’s RTP network, which has operated since 2017 and serves approximately 400 financial institutions according to industry data.
Fed officials have indicated that usage has expanded beyond basic transfers. During recent Federal Reserve communications, officials noted growing adoption for use cases including payroll disbursements, auto loan distributions, and various commercial applications across industries including real estate and insurance.
The central bank has steadily upgraded the service to meet commercial demand. On November 12, the FedNow Service network transaction limit increased from $1 million to $10 million, according to a Federal Reserve announcement. This increase enables financial institutions and businesses to support higher-value use cases such as corporate payroll, vendor payments, and real estate transactions.
The timing of the proposal reflects growing demand for instant payment options among businesses and consumers. Federal Reserve research has indicated strong interest in real-time payment capabilities, particularly among younger demographics who increasingly expect immediate transaction settlement.
Fed Chair Jerome Powell has emphasized the inclusive nature of the service in congressional testimony. “What FedNow will do is it will enable all the banks, any bank in the United States — not just the big ones — to offer instantly available funds and real-time payments to their customers,” Powell told the House Financial Services Committee during a 2023 appearance.
The cross-border capability enabled by the proposal could position FedNow to compete more effectively with established international payment networks. Currently, banks seeking to facilitate cross-border payments must rely on correspondent banking relationships and traditional wire transfer systems, which can take days to complete and involve multiple intermediaries.
The proposal reflects broader central bank efforts to modernize payment infrastructure. The Fed has been working to expand instant payment access to the nation’s approximately 9,000 banks and credit unions, many of which lack the resources to build proprietary real-time payment capabilities.
For community and mid-size banks, the intermediary capability could prove particularly valuable. These institutions often rely on correspondent banking relationships for specialized services and could benefit from the ability to offer instant cross-border payments to commercial customers without direct international connections.
The change could also help address operational challenges that have slowed adoption among smaller institutions. By allowing intermediaries, banks could potentially leverage existing correspondent relationships to offer FedNow services without building entirely new operational frameworks.
Comments on the proposal are due within 60 days after publication in the Federal Register, according to the Fed’s announcement. The proposal is expected to face scrutiny from various stakeholders, including banks concerned about operational complexity and potential compliance requirements for intermediary relationships.
Consumer advocates may also examine the proposal for potential impacts on fees and service access, particularly regarding how intermediary arrangements might affect the cost structure of instant payments for end users.
If implemented, the change could accelerate adoption of FedNow among institutions that have been slower to join the network. The ability to use intermediaries may reduce technical and operational barriers that have prevented some banks from participating directly in the instant payments system.
The proposal also positions the Fed to capture a larger share of the growing instant payments market as businesses and consumers increasingly expect real-time settlement capabilities across both domestic and international transactions. The expansion comes as competition intensifies in the instant payments space, with various private sector providers also seeking to capture market share.
The Federal Reserve’s move signals continued commitment to building comprehensive instant payment infrastructure that can serve institutions of all sizes while potentially enabling new cross-border payment capabilities that could compete with existing international transfer systems.