FedNow opens a door to correspondents: the April 2026 proposal
The Fed's April 8, 2026 proposal would let banks and credit unions use intermediaries on FedNow, including correspondents for cross-border payment legs.
Picture a payment that starts in a U.S. bank and is meant to end in a bank account overseas. Domestically, the money can move in seconds over the Federal Reserve’s FedNow Service. But the moment the transfer needs to hand off to a foreign correspondent, the instant rail stops being useful, because FedNow was built for transfers between two U.S. banks dealing directly with each other. On April 8, 2026, the Federal Reserve Board proposed to change that.
The Board invited public comment on a proposal that would allow U.S. banks and credit unions to use intermediaries when transferring funds through FedNow. The release singled out one use in particular: letting U.S. banks use FedNow to transact with correspondent banks that facilitate the international portion of a cross-border payment. The proposal was published in the Federal Register on April 10, opening a 60-day comment period.
What the current FedNow rule allows
Under the existing framework, a FedNow transfer can involve only two U.S. banks directly. One sends, one receives, and both are participants in the service. That design keeps the system simple and makes it easier to reason about who is responsible for what in a transaction that settles instantly and irrevocably.
The simplicity has a cost. Many real-world payment flows involve more than two institutions. Correspondent banking, in which one bank provides payment services on behalf of another, is the backbone of cross-border transfers. If FedNow cannot accommodate a correspondent in the chain, the instant domestic leg cannot plug neatly into the international one.
What the proposal would change
The Board’s proposal would permit intermediaries in FedNow transfers. In the release’s framing, that would enable private-sector use cases that were previously unavailable. The headline example is international: a U.S. bank could use FedNow to move funds to a correspondent that then handles the foreign leg of a payment.
The proposal does not, on the face of the release, turn FedNow into an international payment system. The Federal Reserve would still be running a domestic rail. What changes is who can sit in the chain on the U.S. side, which in turn affects how easily the domestic leg can connect to the rest of the world.
FedNow’s next growth phase may depend less on new features than on letting more institutions stand in the middle of a payment.
Who stands to benefit
The release points to several groups. U.S. banks conducting cross-border payments are the most obvious, since they could use the instant rail for the domestic portion of those flows. Credit unions, many of which rely on intermediaries for payment services, could find it easier to participate in arrangements that involve FedNow. Institutions that need international correspondent services are directly in scope, as are private-sector firms building new applications on top of FedNow.
For fintech companies that partner with banks, the implications are indirect but real. Many fintech payment products depend on a bank partner’s access to payment rails. If intermediaries are allowed on FedNow, the range of structures that can deliver instant payments may widen, though the release itself does not describe specific fintech arrangements.
The risks the comment period will test
Adding intermediaries to an instant, final payment system raises questions that the comment process will need to address. Instant settlement leaves little time to catch errors or fraud. Each additional institution in the chain is another point at which responsibilities must be clearly assigned: who screens for sanctions, who handles a misdirected payment, who bears the loss if something goes wrong.
Cross-border payments also bring compliance obligations that purely domestic transfers do not. A correspondent handling the foreign leg must meet anti-money-laundering and sanctions requirements, and the U.S. bank sending the funds must be comfortable with the correspondent’s controls. The proposal’s value will depend on how well the final framework handles these allocation questions.
There is also an adoption question. The release did not include data on FedNow participation. A rule change that allows intermediaries could make the service more attractive, but the practical effect will depend on how many institutions join and build the necessary connections.
What to watch
The first milestone was the close of the 60-day comment window following the April 10 Federal Register publication. Comment letters from correspondent banks, credit unions and payment-technology providers will indicate how much demand exists for intermediated FedNow transfers and what safeguards the industry expects.
After that, the key signals are whether the Board finalizes the proposal, how it assigns responsibilities among the sending bank, intermediaries and receiving institutions, and whether early adopters announce cross-border services that use FedNow for the domestic leg. If the rule is finalized broadly, the April proposal could mark the point at which FedNow began to connect with the rest of the payments world rather than operating as a closed loop between two U.S. banks.
Prepared with AI assistance from public sources and reviewed under our editorial policy. Not investment advice.
