Why FedNow's "Send" Function Is Crucial: Financial Institutions Urgently Need Full Access to Instant Payments
Over a year after FedNow's launch, more than a thousand financial institutions have joined, but most have only enabled the receiving function. The author points out that only receiving without sending will put institutions at a competitive disadvantage and reputational risk, and recommends full integration as soon as possible.
Editor's note:Mihail Duta is Global Director of Solution Consulting and Payments at Finastra, a London-based global provider of financial software and app marketplaces, based in New York.
Since the Federal Reserve's instant payment service FedNow launched in July 2023, more than 1,000 financial institutions have joined the network. This successful rollout shows that the demand for instant payments is here to stay and will continue to grow.
What these numbers don't reveal, however, is that most of these institutions joined in a "receive-only" mode—meaning they can receive funds on the FedNow rail but cannot send funds.
As FedNow enters its second year, these financial institutions need to enable account holders to send funds over the network. Those that fail to adopt both send and receive capabilities may expose their organizations to competitive disadvantages and reputational risk.
The lower adoption rate of FedNow's "send" capability stems from the fact that it is more complex than receive-only mode. Receiving payments only requires integration with the financial institution's core system, which is a relatively straightforward process.
But sending FedNow transactions is more complex because send transactions are initiated directly by account holders, rather than processed by back-office staff at the bank or credit union.
Many financial institutions are still developing channels such as online banking or mobile banking to facilitate these transactions. Additionally, enabling send functionality introduces greater complexity in fraud prevention and compliance: sending funds involves higher risk than receiving funds because once money is transferred, it cannot be recovered.
However, financial institutions must address these challenges, or their reputation and balance sheets may suffer. Account holders increasingly expect to be able to send and receive payments instantly. If they find that other institutions offer real-time send capabilities, it could lead to dissatisfaction and the perception that their bank or credit union is behind—especially for those financial institutions that have not yet joined FedNow.
These organizations also need to recognize that if they continue to stay outside the network, with neither send nor receive capabilities, they may miss out on payment attempts from other institutions that have adopted FedNow.
Every rejected transaction not only needs to be rerouted but also sends a signal that the receiving institution is not on FedNow. Over time, this could create a harmful impression in the market that the institution lacks the ability to adopt modern payment technology.
Financial institutions that join the FedNow network must also decide which payment options to offer their retail and corporate account holders. When implementing FedNow, prioritizing which group depends on each organization's portfolio and business strategy.
Financial institutions should keep in mind that retail customers typically have more options for fast transfers than businesses and corporations, such as ACH and Fedwire.
Finally, with the Fedwire ISO 20022 compliance requirement taking effect in March 2025, financial institutions will need to manage both initiatives simultaneously in the coming months.
As account holders increasingly expect their financial institutions to offer instant payment capabilities, those organizations that have not yet opted into FedNow—including adding send functionality—should prioritize joining the network as soon as possible rather than delaying.