FedNow Cross-Border Payments Take Shape with Enhanced Messaging and Correspondent Banking

The Federal Reserve has made significant progress in its plans to enable cross-border payments through FedNow, a system allowing U.S. banks to settle domestic transactions in seconds. The next phase of development involves testing enhanced ISO 20022 messages for international transactions, with Payall Payment Systems among the early adopters.

According to the Federal Reserve Financial Services announcement on September 23, participating financial institutions will be able to combine FedNow's domestic settlement capabilities with established correspondent-banking arrangements. This means that banks or other approved intermediaries would handle the overseas leg of international transactions, while FedNow settles the U.S. portion.

The planned capability does not make FedNow an end-to-end global settlement network but rather complements existing correspondent banking infrastructure. The exact speed of complete international transactions will still depend on the foreign leg, correspondent relationships, compliance reviews, and local payment infrastructure.