The Federal Reserve proposed a significant update to its FedNow instant payments service that could expand its use beyond domestic transactions, potentially creating new opportunities for credit unions.
Under the proposal, the Fed would amend Regulation J to allow FedNow participants to use intermediary institutions, such as correspondent banks, when sending funds transfers. Currently, the service is limited to domestic payments between U.S. financial institutions, restricting its broader utility.
If finalized, the change would enable credit unions and other depository institutions to use FedNow for the U.S. portion of cross-border payments, while relying on intermediaries to complete the international leg. The Federal Reserve said the move is intended to support private-sector innovation and improve the speed and efficiency of cross-border transactions.
For credit unions, the proposal could mark a meaningful evolution in how FedNow is used. While many institutions have adopted the real-time payments rail for domestic use cases such as account-to-account transfers and instant member payments, the ability to connect to cross-border payment flows could significantly expand its value proposition.
The proposal would also align FedNow more closely with the long-standing Fedwire Funds Service, which already permits intermediary banks. Importantly, the Fed noted that the change would not alter which institutions can access FedNow or introduce new compliance burdens, but rather enhance flexibility within the existing framework.
Comments on the proposal are due 60 days after publication in the Federal Register.
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