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The Federal Reserve has launched a public consultation on a proposal to extend its FedNow real-time payments system to support cross-border transactions, marking a potential shift in the evolution of instant payment infrastructure.
Introduced in 2023, FedNow currently operates as a domestic real-time gross settlement (RTGS) system, allowing participating financial institutions to process instant payments within the United States. However, its existing framework restricts the use of intermediaries—limiting transactions to U.S.-based institutions and preventing international transfers.
Proposed Regulatory Shift
In response to growing demand from participants, the Federal Reserve Board has approved a proposal to amend its regulations, allowing FedNow users to engage intermediaries—such as correspondent banks—for cross-border transactions.
Under the proposed model, FedNow would facilitate the domestic leg of a transaction, while intermediaries would handle the international component. This hybrid approach is expected to enhance payment speed and efficiency while supporting private-sector innovation in cross-border payment solutions.
The proposal is now open for public consultation over a 60-day period, reflecting a broader commitment to inclusive regulatory policy development and stakeholder engagement.
Advancing Cross-Border Payment Innovation
If implemented, the change could significantly advance RegTech solutions and global payment interoperability, aligning with international efforts to modernise financial infrastructure. Notably, the initiative complements the G20’s push to interconnect domestic real-time payment systems to enable seamless global transactions.
By enabling cross-border capabilities, FedNow could play a key role in improving regulatory reporting, enhancing transaction transparency, and strengthening compliance management systems across jurisdictions.
Compliance and Operational Considerations
Despite the potential benefits, industry experts caution that several challenges remain. Cross-border payments introduce complexities around foreign exchange (FX) conversion, jurisdictional regulatory compliance, and varying anti-money laundering (AML) requirements.
Ensuring robust Know Your Customer (KYC) processes, effective fraud detection, and seamless compliance workflows will be critical to maintaining trust and security within the expanded system.
Additionally, the introduction of intermediaries may increase operational complexity if not carefully managed, potentially affecting transaction speed and cost efficiency.
Industry Perspectives and Competitive Dynamics
Commenting on the development, Kellie Johnson of RedCompass Labs described the proposal as a positive step toward enabling cross-border payments via FedNow. However, she noted that true interoperability extends beyond access, requiring coordinated solutions to address compliance, infrastructure, and adoption challenges.
The proposal also raises strategic questions about the role of intermediaries in the evolving payments ecosystem. Traditional correspondent banks may compete with global payment networks such as Visa and Mastercard, both of which are expanding their cross-border payment capabilities.
This competition could reshape the future of correspondent banking and influence how financial institutions approach regulatory risk management and cross-border transaction processing.
The Road Ahead
As the consultation progresses, the Federal Reserve’s initiative highlights the growing importance of digital innovation in global payments. Expanding FedNow’s capabilities could enhance efficiency, reduce transaction friction, and support broader financial inclusion—provided that strong compliance monitoring tools and regulatory frameworks are in place.
For stakeholders across the RegTech industry, the proposal underscores the need for scalable, interoperable solutions that balance innovation with robust oversight, ensuring secure and transparent cross-border financial flows.
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