Q&A with Ken Montgomery, FedNow Program Executive


Ken Montgomery is Program Executive for the FedNow® Service, a new round-the-clock instant payments service that the Federal Reserve launched in July. The introduction of the FedNow Service is the culmination of a collaborative effort the Federal Reserve undertook with the payments industry to help make everyday payments fast and convenient for American businesses and households. From his capacity as first vice president and chief operating officer of the Federal Reserve Bank of Boston, Montgomery was the first employee named to the FedNow Service team, which he has led since 2019. He offered some reflections on the exciting journey to launch the service, and what lies ahead for innovation in instant payments.

Following rigorous planning and development, the FedNow Service is live. Taking a step back, why did the Federal Reserve make the commitment to advancing instant payments in the United States?

There’s no question about the growing need for speed and convenience beyond traditional payment services in our ‘always-on’ world. That means offering faster payments every day of the year, around the clock, and with finality of payment and immediate access to funds.

The Fed answered the payments industry’s need to meet the growing demand from financial services customers, who increasingly expect to send and receive money within seconds. The launch of the FedNow Service brings the U.S. payment industry in line with other countries that offer the reach and benefits of instant payments. We launched in July, and we already see customers unlocking the potential of instant payments through the service.

The financial services industry, and the private sector more broadly, asked the Federal Reserve to develop an instant payments system that would meet growing customer expectations. When we embarked on this project, we solicited input and received hundreds of letters from financial institutions and other interested parties — including businesses, researchers, and policymakers — urging the Federal Reserve to develop an instant payments system that would offer fair and equal access to all financial institutions. Then in 2019, we made the commitment to build and launch the FedNow Service within four years, and we have delivered on that commitment.

The service launched with 35 participating financial institutions and the U.S. Department of the Treasury. What are your expectations for how the network will grow in the future?

We have seen robust interest from the industry for the FedNow Service and expect the network to grow steadily over time. We have already welcomed a cohort of new participants to the network since launch, and we have almost 200 signed agreements with organizations that intend to adopt the service, with more coming in every day.

Financial institutions understand that instant payments are an important way to help consumers and businesses manage cash flow, make payments instantly to avoid late fees or service cancellations, or get paid right after a work shift. Those are only a few examples, but there will no doubt be countless others that consumers and businesses embrace and demand. Over time, we expect consumers to be able to use mobile apps or websites of participating financial institutions to send and receive instant payments quickly and securely. There are more than 9,000 financial institutions in the U.S. and we encourage every one of them to join the FedNow Service.

Organizations still considering their journey to instant payments will also find it helpful to know that we have digitized and streamlined our onboarding process. I like to think we didn’t just deliver a modern payment rail — we also delivered a modern onboarding process. The feedback and results have both been positive, including organizations telling us the process is smooth and easy. In one recent example, an organization was able to sign a digital contract and become certified on the FedNow Service within two weeks of beginning their onboarding process.

In your experience as a leader of the FedNow Program, what was the guiding framework you followed, and which results are you most proud of? 

Our guiding framework was to deliver the FedNow Service in the timeframe we committed to, which was 2023-2024. We also committed to using innovation-friendly technology that meets our objectives for availability and security features and functions — and we are proud to have delivered on that commitment as well.

Our technology approach for the FedNow Service is driven by security, performance and resilience — three pillars that are at the center of every technology decision we make. To help us achieve those objectives, the FedNow Service uses distributed technology, machine learning, and cloud-first design. The use of cloud technology for the FedNow Service offers the operational resiliency needed for a high-volume service that operates continuously, positioning us to support additional functionality as the size and reach of the FedNow Service expands over time.

We believe these features will be critical for staying responsive to the needs of the industry. Staying responsive means delivering FedNow Service features with speed and agility, so that we help industry innovation flourish in the near term and far into the future. That means driving use cases that put instant payments in the hands of more individuals and businesses.

We have done all of this in close collaboration with the industry, taking in feedback from participants, keeping them updated on our progress, and helping with planning and education. We are grateful that so many critical areas of work came together to form the foundation of the FedNow Service. None of this would have been possible without the efforts of organizations across the industry, including workgroup members, pilot participants and early adopters — and we are grateful to all of them.

As you just described, technology innovation is a hallmark of the FedNow Service. How will the FedNow Service’s infrastructure allow the service to perform and evolve over time? 

When we designed the FedNow Service, we heard in clear terms from the industry that it needed to be a platform for innovation, both now and years into the future. The FedNow Service has the technological backbone to do just that.

We designed the system to offer a lot of flexibility. For example, the FedNow Service’s technology allows us to launch new features more quickly due to more frequent, smaller, and nondisruptive technology updates, facilitating a 24x7x365 operation. Our approach to technology also leverages automation, integration and testing throughout the development cycle, not solely in the final testing phase.

The service offers various participation types, streamlined liquidity management via the Federal Reserve master account, and without prefunding required. We offer options to financial institutions, including the choices of whether to adopt a new feature beyond the core product. These aspects of the FedNow Service will feel natural and familiar to virtually every institution already participating in FedACH® or Fedwire® Funds services.

Looking forward, we anticipate frequent releases and agile responsiveness to the needs of the industry. The platform is versatile and neutral and provides opportunities for financial institutions to work with service providers and fintechs to develop not only other use cases, but also add-on capabilities.

How will the Federal Reserve ensure ongoing and meaningful engagement across the industry? What will it take to keep everyone engaged?

Outreach and collaboration have been critical since the inception of the FedNow program, and they will be no less critical moving forward. Dialogue and outreach are the first and best ways to stay aware of the potential benefits of instant payments — for senders and receivers alike.

We are very aware of the network effect, including the need to efficiently onboard new participants. We will continue to engage with the industry across a range of forums, including the FedNow Community, workshops and advisory groups. In addition, the Ecosystem Accelerator Group, which is a network of third-party organizations outside of the financial institution space, allows us to engage with and understand how innovative players in the ecosystem are developing instant payment solutions to solve business needs.

Organizations that are still getting to know faster payments can also take advantage of the extensive educational resources available on the FedNow Explorer site. Most importantly, I urge organizations to talk to their Federal Reserve Relationship Manager – as a reminder, every financial institution in the U.S. has a Relationship Manager assigned to them. These teams stand ready to help you take a FedNow Readiness Assessment and leverage innovation in instant payments.

In the wake of the launch, are there any specific use cases you are hearing about that might speak to the value of instant payments?

We are already aware of a growing range of innovative use cases, and we also expect to see some use cases we have not yet imagined.

Consumer-to-business is an area where we already see strong interest and uptake. In our most recent research, nearly all consumers expressed interest in faster payments as a way to handle last-minute bill-pay for things like utility bills and mortgage payments. So it was not a surprise to see bill payments in the very first wave of transactions.

Going the other way — business-to-consumer — we see strong interest in earned wage access, which means payroll for workers at the end of their shifts. Gig workers also stand to gain clear benefits from accessing pay upon rendering services.

Business-to-business payments are an area where we expect rapid adoption because of the scaled benefits of faster payments. According to our research, one out of every two businesses have already identified ways that faster payments can save them money. One key example is requests for payments — messages that businesses send to clients to seamlessly facilitate instant payment for goods and services — which are already taking place on the FedNow Service.

And lastly, I’d highlight instant payments as an opportunity for government entities at all levels to improve the ways they serve constituents. It is gratifying to have the U.S. Treasury as a FedNow early adopter, and we are seeing strong interest among state and local governments as well.

Any advice for bankers still unsure about taking steps to adopt instant payments?

We all know that more and more consumers and businesses are expecting a real-time, always-on experience in almost everything they do — including when it comes to payments. From research we conduct at the Federal Reserve, we also know that more than 80% of consumers and businesses expect their financial institutions to offer instant payments. There is no doubt that financial institutions and their customers are moving toward a 24×7 reality.

We have worked hard to make the FedNow Service accessible to all financial institutions, regardless of their experience and expertise in instant payments. Some organizations may still need to learn the finer points of how instant payments work and – more importantly – how their customers can benefit from faster payments. Other financial institutions may need help evaluating service providers or deciding how to participate – for example, whether to offer request for payments.

Wherever an organization is on its journey to faster payments, I assure you the Federal Reserve team stands ready to provide support and guidance. We see a bright future in instant payment innovation — and we want to help every financial institution be part of it.