Federal Reserve officials are pushing for more adoption of FedNow just over a month after the new instant payments system was rolled out.

The central bank is relying on banks, credit unions and other financial institutions to connect to the new system and make the faster payment services available to businesses and consumers. In some cases, those financial institutions are also working with technology partners to make that happen.

More financial institutions becoming certified to offer the services will mean broader availability for individual and corporate users, and presumably increased volumes. When FedNow launched on July 20, the Fed said there were 35 financial institutions, 16 service providers and the Treasury Department’s Bureau of Fiscal Service using the new system.

The volume of payments moving over FedNow is “small” at this point, acknowledged Michael Barr, the Fed’s vice chair for supervision, during a speech last week. He encouraged others to connect to the system.

“We have provided the rails,” he said at the Philadelphia Fed’s fintech conference on Friday. “Innovation by private depository institutions will determine whether these services reach a broad range of households and businesses.”

The around-the-clock service promises to deliver payments in 20 seconds or less via bank channels, improving on processes today that can take hours or days. It has the potential to speed up not only bill payments, but also business-to-business transactions.

The Fed signed up more than 100 companies and organizations to work on the pilot program over the past couple of years, and then further fine-tuned with a smaller number of entities seeking early certification to use the system.

Another speaker at the Philadelphia conference, Aaron Klein, a senior fellow at the Brookings Institution, called private sector interest in FedNow “tepid” and suggested the government should take action to drive adoption. 

“Look at the tepid signup for FedNow,” said Klein, a former Treasury Department official and Senate committee chief economist who worked on landmark legislation, including the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. 

“If you saw a regulatory action that required faster funds availability, you would then see the type of changes that have occurred all around the rest of the world where there’s huge demand” for faster payments, he said.

Indeed, many other countries, including India, China and Brazil, have made more progress than the U.S. in spurring adoption of real-time payments. Some countries have more directly mandated use of such systems.

In a question-and-answer exchange with the ABA Banking Journal posted on the Fed’s website last week, FedNow’s program executive, Ken Montgomery, gave an update on adoption. “We have almost 200 signed agreements with organizations that intend to adopt the service, with more coming in every day,” he said in the Sept. 6 post.

On the same day, the St. Louis Fed’s interim president, Kathleen O’Neill Paese, provided her take on how the roll-out is going in a post on that bank’s website. She noted the potential benefits of the speedier system in letting workers get faster access to their paychecks, in helping consumers pay their bills quicker and in allowing businesses to better manage their cash flow.

At the same time, she noted that FedNow could have a long-term impact on other Fed payment services, namely FedACH batch processing services for financial institutions, which amounted to $92 trillion in payments in 2021, and the processing of paper checks. She noted FedACH “fills a distinctive niche and isn’t changing in the near term.”

“Whether FedNow will further hasten the demise of checks, which have continued to decline in volume, has implications for the Fed’s check processing operations,” she said in the post. 

While some financial institutions are signing up to receive payments, not as many have also taken the next step of sending payments. As the ecosystem grows with more institutions adopting FedNow, it allows the Fed to move closer to a goal making the service broadly available.

Still, with nearly 10,000 U.S. financial institutions, and only a relative handful now signed up to offer the service, that extensive roll-out will take time. The FedNow system will rival the privately-run RTP real-time payments system operated by The Clearing House.

“While current volumes on FedNow are small, I expect that participation will grow over time and be a significant addition to, and advance on, the existing payments infrastructure,” Barr added.