Fed Proposes Expanding Ways Banks, Credit Unions Transfer Funds

The Fed has proposed to let banks and credit unions use intermediaries (such as correspondent banks or other service providers) to send and receive payments over FedNow, instead of requiring every instant payment to be strictly “bank A to bank B” only.

What the proposal does

• Allows U.S. banks and credit unions to route FedNow payments through intermediaries, including correspondent banks, rather than only direct bilateral connections between two FedNow participants.

• Expands the number of institutions that can be involved in a single FedNow transfer, moving beyond today’s two‑bank limitation.

• Aims to support new use cases such as facilitating the U.S. leg of cross‑border payments via FedNow transactions with correspondent banks.

• Is issued as a Board proposal with a 60‑day public comment period following Federal Register publication.

Rationale and policy context

• The Fed frames the change as giving lenders “additional flexibility” and supporting private‑sector innovation on top of FedNow (e.g., fintech or correspondent-bank facilitation layers).

• Regulators describe the goal as speeding and simplifying bank and credit union transfers, particularly more complex or multi‑party flows, while modernizing payment infrastructure.

• It fits into the broader push to improve instant payments and reduce frictions in cross‑border and large‑value payment funding flows, alongside prior decisions to expand Fedwire and NSS operating days and hours.

Practical implications

For banks and credit unions:

• More options to connect indirectly to counterparties (including via correspondents or processors) instead of each pair needing a direct FedNow relationship.

• Potentially easier operational and liquidity arrangements for handling cross‑border and multi‑bank payments, since intermediaries can centralize connectivity and services.

For customers and the market:

• Over time, broader FedNow adoption could mean more institutions offering real‑time credits (e.g., payroll, disbursements, bill payments) with fewer network “dead ends.”

• For cross‑border payments, the proposal is intended to help U.S. legs of transactions settle instantly in central bank money, though FX conversion and foreign-system settlement would still occur outside FedNow.

Open questions and next steps

• The Board has invited comments on how intermediated FedNow usage should be structured, including risk management, liability, and any limits on the roles intermediaries can play.

• Implementation details (e.g., messaging standards for multi‑party payments, supervision of intermediaries, and how settlement responsibilities are allocated) will depend on the final rule text and any related operating circular changes, which have not yet been released.