Key Highlights
- Federal Reserve Financial Services launched early-adopter testing on September 23 for enhanced ISO 20022 messages that enable FedNow to settle the U.S. leg of cross-border payments while correspondent banks handle the international portion.
- The model does not create a direct global FedNow network; it relies on existing correspondent-banking infrastructure and remains contingent on final approval of Regulation J amendments (docket R-1891) and updates to Operating Circular 8.
- FedNow domestic volume surged 83.2% in Q2 2026 to nearly 5 million payments worth $274.66 billion, with over 1,500 participating institutions, as the Fed prepares a January 2027 discount program to further boost adoption.
Federal Reserve Advances FedNow Cross-Border Testing with Correspondent-Banking Model
Early Adopters Begin Testing Enhanced ISO 20022 Messages for International Payments
Federal Reserve Financial Services announced on September 23 that a group of early-adopter financial institutions will begin testing new FedNow message formats designed to carry the data required when a payment involves a sender or recipient outside the United States. The enhanced ISO 20022 specifications have been available through the Fed’s MyStandards portal since April, allowing institutions active in international commerce to prepare system changes during 2026. Payall Payment Systems is among the named participants. President and CEO Gary Palmer said the company’s integration is intended to provide financial institutions with faster and more transparent processing for the U.S. portion of international payments while digitizing compliance and transaction-risk checks. Payall described its role as helping banks “un-nest” payment chains, screen parties and automate risk controls. Those are company claims about its infrastructure and do not establish that every international payment using the future FedNow capability will process faster or at lower cost.
Correspondent Banks Retain Control of Foreign Leg Under Proposed Framework
The Federal Reserve’s design keeps existing correspondent banking infrastructure at the center of the foreign portion of each transaction. A payment could begin abroad, move through correspondent arrangements, and use FedNow once it reaches the U.S. banking system. An outbound transaction could reverse that sequence, with FedNow processing the domestic transfer before an intermediary handles the payment beyond the U.S. The model resembles structures already used with Fedwire, according to Federal Reserve Financial Services. It does not create direct FedNow access for foreign banks that lack the required U.S. participation structure, nor does it establish a Federal Reserve foreign-exchange service. As one industry observer noted on social media: “FedNow going cross-border is not what it sounds like. The Fed’s own proposal: a correspondent bank handles the international leg, FedNow settles the US domestic leg in seconds. The foreign mile still runs on whichever rail the correspondent picks. So the slow, expensive part of…” — Wave of Innovation (@wave_of_innov), September 23, 2026.
Regulation J Approval Remains Critical Unresolved Step Before Full Rollout
The most important unresolved step is regulatory approval. The Federal Reserve Board’s current rulemaking portal still lists docket R-1891 as a “Rulemaking Proposal.” The public comment period closed June 9, but the Board has not posted a final rule replacing the proposal as of September 24. The September 23 FedNow announcement carries the same limitation: the functionality remains contingent on required amendments to Regulation J and corresponding changes to Operating Circular 8 receiving approval from the relevant Federal Reserve governing bodies. Operating Circular 8 contains the operating terms for transfers through FedNow; the April 1, 2026 version is currently listed as the effective circular, alongside operating procedures that took effect April 28. Industry feedback on the Regulation J proposal raised compliance questions that the final framework may need to address. The American Bankers Association, for example, recommended clarifying how sanctions, anti-money laundering and fraud checks should work when a FedNow payment forms part of a cross-border chain, and asked that banks be able to delay or reject payments where required to complete legally mandated screening. Stripe’s comment on the proposal separately argued that the existing FedNow operating framework contained a residency restriction for certain ultimate customers and said operating-rule changes would be needed alongside the Regulation J amendment for the proposal to achieve its full cross-border purpose.
FedNow Domestic Volume Surges as Network Prepares for International Expansion
FedNow enters the testing phase after rapid growth in domestic payment activity. Federal Reserve Financial Services reported 4.997 million settled customer payments during the second quarter of 2026, up 83.2% from the first quarter. Their combined value reached $274.66 billion, compared with $271.25 billion during the previous three months. Average daily volume rose from 30,317 payments in the first quarter to 54,921 in the second. Average payment size fell from $99,414 to $54,957 as transaction counts expanded more quickly than total dollar value. For all of 2025, FedNow processed 8.41 million payments worth $853.4 billion, representing 458.9% annual volume growth and more than 2,100% growth in settled value compared with 2024. The network now spans more than 1,500 participating financial institutions. Federal Reserve Financial Services keeps separate current lists of live institutions, settlement agents and certified service providers, with its participant and provider files most recently updated September 21. In a separate domestic adoption move, Federal Reserve Financial Services announced a new discount program beginning January 1, 2027, intended to encourage more institutions to activate and increase FedNow sending capabilities.
Why This Matters
The FedNow cross-border initiative represents a pragmatic evolution rather than a revolutionary overhaul of international payments. By leveraging the existing correspondent-banking network for the foreign leg while applying FedNow’s 24/7/365 instant settlement to the domestic portion, the Federal Reserve avoids the complexity and political sensitivity of building a direct global central-bank payment rail. This approach aligns with the Fed’s August review of U.S. cross-border payment work, which noted that FedNow had remained domestic since its July 2023 launch while demand from banks for international use increased as instant payments expanded globally. The migration of Fedwire to ISO 20022 in July 2025 created more common messaging across international payment chains, providing a technical foundation for the enhanced messages now under test. Potential use cases identified by the Federal Reserve include international payroll, corporate payments, property transactions, insurance disbursements and global treasury activity. However, the complete speed and cost of an international transaction will still depend on the foreign leg, correspondent relationships, compliance reviews and local payment infrastructure. As banks, stablecoin companies and blockchain networks compete to shorten international payment chains—with SWIFT testing a blockchain ledger with 17 global banks for round-the-clock cross-border payments using tokenized commercial-bank deposits—FedNow’s model remains based on conventional bank money settled through Federal Reserve accounts for its domestic portion. Cross-border testing is expected to proceed while the Regulation J process remains unfinished, with no general launch date published.
Frequently Asked Questions
Does FedNow now support direct cross-border payments to foreign banks?
No. The Federal Reserve’s model does not create direct FedNow access for foreign banks that lack the required U.S. participation structure. FedNow settles only the U.S. domestic portion between participating domestic institutions, while correspondent banks or other approved intermediaries continue handling the overseas leg through their existing cross-border arrangements.
When will the cross-border capability be generally available to all FedNow participants?
No general launch date has been published. The functionality remains contingent on final approval of Regulation J amendments (docket R-1891) and corresponding changes to Operating Circular 8. Federal Reserve Financial Services says future progress updates will be provided to participants as testing, rule approval and Operating Circular changes advance.
What role does Payall Payment Systems play in the testing phase?
Payall Payment Systems is one of the named early-adopter participants. The company’s integration aims to provide financial institutions with faster and more transparent processing for the U.S. portion of international payments while digitizing compliance and transaction-risk checks. Payall describes its role as helping banks “un-nest” payment chains, screen parties and automate risk controls, though these are company claims about its infrastructure and do not guarantee that every international payment using the future FedNow capability will process faster or at lower cost.
