From the early beginnings of the Information Age in the 1990s, technology has revolutionized the way society operates. One of the most notable changes has been the speed at which people live and work.
From food to research, the demand for instantaneous communication and response continues to grow, especially for companies that turn to innovation to keep a competitive edge. For those businesses, an immediate payment service launched by the Federal Reserve now delivers a way to ensure cash flow is keeping pace with the rest of the operations.
The FedNow Service enables credit transfers and debit transactions to move directly between participating bank accounts. The service, which is made available to every financial institution in the U.S. to adopt, can be used 24 hours a day, every day of the year, making it faster and more convenient for companies to conduct financial transactions. The FedNow Service is an alternative payment rail to the 2017-established Real-Time Payments (RTP) from The Clearing House, which operates similarly.
Using FedNow, companies or individuals make a payment through their financial institution which then communicates to the FedNow service of the Federal Reserves Fedline network. FedNow validates the transaction and sends it to the financial institution. The transaction is made and completed in real time, meaning the payment is sent by the payer and the funds are available for the payee almost immediately.
1st Source Bank, which is headquartered in South Bend and operates 78 locations, was one of the first banks to implement the FedNow Service when the tool went live in 2023. Since then, Andrea Short, President & CEO of 1st Source Bank, said the service has been gaining traction around the country, as business leaders look for ways to further innovate and keep up with rising demands.
“People want their money as soon as possible, so we wanted to make that happen for our customers. We are always looking for ways to deliver what customers need and make them more efficient,” she said. “We want to help them run their business more smoothly. As the payment industry is ever-changing, we are driven to make it easier for businesses by finding ways to simplify payments.”
In the first quarter of 2025, about 40 financial institutions in Indiana offer the FedNow instant payment service.
More than Convenience
The FedNow Service differs from other available payment service options like ACH transfers or credit card payments. Payment platforms like PayPal and Venmo were developed and intended for peer-to-peer transactions rather than bank-to-bank business operations. While all of those payment platform options are convenient by the use of an app, none of them clear instantly and take time to process and settle.
Jim Hunt, Head of Cards & Payments for 1st Source, said aside from other payment platforms being more consumer-centric, the FedNow Service solves pain points specifically for businesses, including higher credit transfer limits. Currently, financial institutions can set their credit transfer limit to $500,000 and the Federal Reserve has announced that later this year, the transaction limit will increase to $1 million.
“The other platforms are consumer applications, sending money back and forth for something like a lunch. But there was a need for a similar solution for businesses to move larger amounts of money in real-time,” said Hunt. “When we looked at the business model of the FedNow service, we knew there was an opportunity to satisfy the need on the business side.”
Customizable for Financial Institutions
In terms of risk mitigation, the service offers flexibility for financial institutions when determining transaction limits. Banks can vary those limits depending on the comfort with the customer. Hunt also said that the level of fraud monitoring with FedNow is an appealing aspect of the service, keeping safety and security at the forefront for businesses.
The adoption of the service by banks and credit unions allows the financial institutions to remain competitive in the industry. They can choose to implement the full capabilities of the service, enabling customers to send and receive or elect to offer to members the receive-only services.
Purdue Federal Credit Union recently signed on with FedNow Service as a receiving financial institution. That means that members who use providers that offer the FedNow send functionality can receive those funds directly into their Purdue Federal accounts.
Evelyn Royer, Purdue Federal Credit Union SVP Chief Operations Officer, said the financial institution adopted the receive-only option for FedNow and also the RTP system in 2024. She said in addition to solving pain points for business members, the credit union wanted to implement programs that had built-in robust security measures that protect transactions and sensitive information as well as provide seamless integration with the Federal Reserve payment services like FedWire and FedACH.
“Our credit union is only in the beginning stages of participating in instant payments and our business members can only receive money into their accounts instantly,” said Royer. “However, we believe this could be a game-changer for both our consumer and business members once more financial institutions and providers start sending dollars instantly into accounts.”
