Since its launch, FedNow has significantly expanded its reach. Now, the Federal Reserve’s network is moving toward another milestone: supporting cross-border payments.
Until this point, the more than 1,600 financial institutions participating in FedNow have relied on Reserve Banks as intermediaries, limiting the network to domestic payments.
A group of organizations are poised to test FedNow’s enhanced message formats designed to facilitate cross-border payments, with broader availability of the functionality planned for the future.
Supporting a Growing Contingent
The potential use cases for this functionality are numerous, inducing international payroll and commercial payments for global organizations. FedNow’s real-time capabilities could also be relevant in situations where timing is critical, such as property transfers, insurance claims, and treasury management.
Many of these use cases have contributed to the growth of FedNow to date. Adding cross-border capabilities could allow participating financial institutions to serve more customers whose transactions involve parties outside of the U.S.
A Domestic Improvement
Under this model, FedNow would handle the domestic leg of a payment, while the international leg would continue to be handled by correspondent banks. This is similar to the longstanding model under which Fedwire has operated for decades.
While FedNow could accelerate the domestic portion of a transaction, this model would not address issues that arise once a payment enters the correspondent banking system. Cross-border payments have long faced challenges including transaction fees, currency conversions, processing delays, and limited visibility as payments move toward their destination.
These pain points have spurred a range of initiatives in recent years, from stablecoins and network integrations to new global payment infrastructure. Yet many of the underlying challenges in cross-border payments persist.
The addition of cross-border capabilities to FedNow represents an expansion of what the network can support, while leaving much of the international payment journey unchanged. For financial institutions, that could create new opportunities to facilitate cross-border transactions, even as broader challenges across the global payments market remain.
