Is FedNow a US Adaptation of UPI? Know the Difference

The landscape of payments is changing rapidly. With smartphone penetration, digital commerce and the need for instantaneous fund transfers, countries around the world are investing in real‑time payment infrastructure. In the United States, the Federal Reserve launched FedNow in 2023, offering a new rail for instant payments. In India, the National Payments Corporation of India (NPCI) introduced the Unified Payments Interface (UPI) in 2016, which has since become one of the largest real‑time payment systems in the world. Many observers ask whether FedNow is simply the American version of UPI. While both systems facilitate instant transactions, they differ in design, scope, adoption and regulatory context. This article unpacks these differences and examines what each system means for consumers, businesses and financial institutions.

To begin with, it is important to understand why real‑time payments matter. Traditional payment rails, such as ACH in the U.S. or NEFT in India, operate in batches and can take hours or days to settle transactions. Delays inconvenience consumers and businesses, create float, and hinder innovation. Real‑time systems clear and settle transactions within seconds, enabling new use cases—from on‑demand payroll and gig‑worker compensation to instant bill payment and merchant settlements. These systems also serve as public infrastructure, reducing reliance on proprietary networks and lowering the cost of payments. However, the design choices behind each system reflect local priorities and market structures.

The Genesis of FedNow and UPI

UPI emerged from India’s push to create a cashless economy and expand financial inclusion. The NPCI, a non‑profit entity backed by the Reserve Bank of India (RBI) and major banks, launched UPI as an open protocol that allows interoperability between banks and fintechs. It built upon earlier initiatives like Immediate Payment Service (IMPS) and leveraged the Aadhaar biometric ID system to onboard users. UPI’s core features include the ability to link multiple bank accounts to a single virtual payment address (VPA), perform peer‑to‑peer and peer‑to‑merchant transfers, request payments (pull), and pay bills or scan QR codes. The system supports third‑party apps such as PhonePe, Google Pay and Paytm, which have driven widespread adoption. UPI transactions have grown exponentially, crossing 10 billion per month in 2023 and representing a significant share of India’s digital payments volume.

FedNow, on the other hand, was conceived as a modernisation of the U.S. payment infrastructure. The Federal Reserve operates existing rails like the Fedwire Funds Service and the Automated Clearing House (ACH). While these systems are reliable, they do not provide real‑time settlement for most consumer transactions. The private sector introduced alternatives, such as The Clearing House’s Real Time Payments (RTP) network launched in 2017, but adoption remained limited due to bank participation and pricing dynamics. To ensure universal access, the Fed announced FedNow as a public option. The system enables financial institutions of all sizes to offer instant transfers 24/7/365. FedNow is not a consumer app but an interbank settlement service. Banks and fintechs can build applications on top of it to deliver instant payments. The Fed’s goal is to promote competition, resilience and inclusivity in the payments ecosystem.

Architecture and Functionality

One of the major differences between FedNow and UPI is their architecture. UPI is a unified interface layered on top of banks’ core systems. It acts as a switch that routes payment instructions and manages settlement. Users create a virtual payment address (e.g., name@bank) that abstracts their bank account numbers. Payment requests include the sender’s VPA, receiver’s VPA and an optional message. The transaction is authorised via a mobile PIN or biometrics, and funds are transferred instantly between bank accounts. Settlement happens in real time within the central bank’s RTGS (real‑time gross settlement) system. UPI also supports pull requests, where a merchant can request payment from a customer, as well as recurring mandates for subscriptions. Interoperability is a core principle: any approved app can initiate UPI payments with any participating bank.

FedNow operates differently. It is primarily an interbank settlement service rather than a customer‑facing protocol. When a payer initiates a transaction (through a bank app or service built by a fintech), the sending bank sends a payment message to FedNow. The service verifies the funds, debits the sending bank’s master account, and credits the receiving bank’s master account held at the Federal Reserve. Upon receiving confirmation, the receiving bank credits the payee’s account. This entire process occurs within seconds. FedNow handles only push payments; there is no direct provision for pull requests like UPI’s “collect” feature. The system supports ISO 20022 messaging standards, enabling rich data to accompany payments. It also includes fraud prevention tools, such as transaction limits and participant vetting. Unlike UPI, FedNow does not mandate a unified app or interface. Each institution must build its own front‑end or partner with fintechs to deliver FedNow‑powered services to customers.

Adoption and Ecosystem

Another key difference lies in adoption patterns. UPI experienced explosive growth thanks to broad participation from banks, fintechs and merchants. The NPCI allowed third‑party app providers to build on the UPI rails without charging interchange fees. This open approach fostered competition and innovation. Apps like Google Pay and PhonePe built intuitive interfaces and leveraged cashback incentives to attract users. Merchants adopted QR codes because accepting UPI payments was inexpensive compared to card acceptance. Regulatory support also played a role; the Indian government promoted digital payments through campaigns like “Digital India” and phased out high‑value currency notes to curb cash usage. As a result, even small roadside vendors began accepting UPI payments. The network effect further accelerated adoption: as more users accepted UPI, it became the preferred payment method for peer‑to‑peer transfers, bill payments and in‑store purchases.

FedNow’s rollout has been slower. Participating banks must integrate their core systems with the FedNow service and adjust fraud and compliance processes. As of 2025, hundreds of banks have signed up, but many major institutions are taking a phased approach. The presence of private alternatives like RTP complicates adoption decisions. Banks must evaluate cost, reliability and competitive positioning. Unlike UPI, there is no central consumer app; adoption depends on how banks and fintechs package FedNow services. Moreover, the U.S. payments market is more fragmented, with entrenched card networks, Zelle (a bank‑owned P2P app) and peer‑to‑peer services like PayPal and Cash App. Convincing consumers and merchants to switch requires compelling value propositions, such as lower fees or instant settlement for gig workers. The Federal Reserve has emphasised that FedNow will coexist with other payment options, not replace them. As such, adoption is expected to be gradual.

Regulatory and Business Model Considerations

UPI operates under India’s unified regulatory framework for payments. The NPCI, while technically a private entity, is governed by the RBI and operates in the public interest. UPI transactions are free for consumers, and interchange fees were capped at zero for merchants until recently. The government’s objective is to drive digital adoption and reduce cash dependency. Consequently, revenue opportunities for banks and payment service providers rely on value‑added services such as credit, cross‑selling and data analytics. The open and non‑profit nature of the system ensures that competition is based on user experience and features rather than pricing. However, the system’s explosive growth has raised concerns about concentration, as a few apps dominate market share. The NPCI has imposed market share caps to encourage competition.

FedNow, as a service provided by the U.S. central bank, operates on a cost‑recovery basis. The Federal Reserve charges fees to participating banks based on transaction volumes and service usage. Banks then decide how to price FedNow‑powered services to consumers and businesses. Because FedNow is not mandated, private providers like The Clearing House’s RTP network continue to operate, and competition influences pricing and feature sets. The business model for FedNow is thus market‑driven, with banks and fintechs seeking to recover costs through subscription fees or value‑added offerings. This contrasts with UPI’s emphasis on free consumer payments. Regulatory oversight in the U.S. is also more fragmented, with the Consumer Financial Protection Bureau (CFPB), Federal Reserve, state banking regulators and card network rules overlapping. Adapting to these frameworks can be complex, particularly for smaller institutions.

Use Cases and Innovation

Both FedNow and UPI enable new use cases, but they cater to different market needs. UPI’s versatility allows for innovative merchant payments. Features like UPI Lite enable small offline transactions without internet connectivity. UPI AutoPay supports recurring payments for subscriptions. Request‑to‑pay functionality allows merchants to send invoices that customers approve and pay. The system’s interoperability fosters competition among app providers, leading to innovations such as voice‑based payments and context‑aware notifications. UPI also empowers micro and small enterprises by providing affordable digital payment options, which, in turn, improve their creditworthiness through transaction history.

FedNow is expected to unlock use cases around faster payroll, supply chain finance, insurance payouts and emergency disbursements. Gig workers could receive payments immediately after completing a job, enhancing cash flow. Businesses could pay invoices on delivery, reducing the need for factoring or working capital loans. Consumers could transfer funds between bank accounts instantly, improving liquidity management. Fintechs may innovate by offering overdraft‑free accounts that automatically transfer funds from savings to checking when balances run low, powered by FedNow. However, because FedNow does not mandate a single consumer app, innovation will depend on how banks and fintechs leverage the rail. In this sense, FedNow resembles an infrastructure layer akin to electricity: its value is realised through the devices and services built on top.

Comparative Strengths and Weaknesses

UPI’s strength lies in its ubiquity and simplicity. The system offers consumers and businesses a single, interoperable network for various payment needs. It fosters competition among app providers, driving user‑friendly interfaces and innovation. Zero or low fees reduce friction for small transactions. UPI’s weaknesses include privacy concerns, as it generates large amounts of transactional data. The dominance of a few apps raises systemic risk. Additionally, UPI relies on banks’ core systems, which can sometimes lead to delays or outages. The system’s success also depends on smartphone and internet availability, which, while widespread in India, is not universal.

FedNow’s strength is its universal access for financial institutions, regardless of size. As a central bank service, it ensures reliability and fosters interoperability. The adoption of ISO 20022 messaging enables rich data transfers, improving reconciliation and enabling new business models. FedNow’s weaknesses include the absence of a unified consumer interface, which may slow adoption. The need for banks and fintechs to build front‑end experiences adds complexity. Adoption is also complicated by the existence of private alternatives and entrenched payment habits. Moreover, transaction fees may disincentivise small‑value payments, limiting use cases like P2P transfers.

Implications for Global Payments

The emergence of real‑time payment systems like UPI and FedNow has significant implications for the global payments landscape. As more countries adopt such systems—Brazil’s PIX, the UK’s Faster Payments and the EU’s upcoming instant payments scheme—cross‑border interoperability becomes a pressing question. Remittances, trade finance and e‑commerce could benefit from instant transfers across borders, but differences in messaging standards, compliance requirements and currency settlement pose challenges. Initiatives such as the Bank for International Settlements’ Project Nexus explore how national instant payment systems might interconnect. Lessons from UPI’s open protocol and FedNow’s focus on universal access could inform these efforts. For multinational banks and fintechs, understanding the nuances of each system is crucial to designing products that bridge domestic and global payment rails.

For emerging markets, UPI’s success offers a blueprint for building inclusive payment infrastructure. Countries in Africa and Southeast Asia have expressed interest in replicating UPI’s open, mobile‑centric model. FedNow, while designed for a different context, demonstrates how a central bank can ensure broad access to real‑time payments in a competitive market. As the U.S. and India engage in technological diplomacy, collaboration on payments could facilitate smoother cross‑border commerce and remittances. At the same time, policymakers must address concerns about data sovereignty, cybersecurity and financial stability. Real‑time payments reduce friction but also magnify the velocity of money, which could impact liquidity management for banks. Central banks may need to adapt monetary policy tools accordingly.

Conclusion

FedNow and UPI represent two approaches to building real‑time payment infrastructure. While both enable instant transfers, they differ in architecture, business models, adoption strategies and regulatory frameworks. UPI is a unified, consumer‑ facing system that has transformed digital payments in India through openness and interoperability. FedNow is an interbank service aimed at modernising U.S. payments by providing a public option for instant settlement. Far from being a direct adaptation, FedNow reflects the unique structure of the U.S. financial system, with multiple private and public players competing and collaborating. Understanding these distinctions is essential for stakeholders seeking to leverage instant payments for innovation and inclusion. As real‑time payment systems proliferate globally, the lessons from UPI and FedNow will shape how nations design and govern the digital payment rails of the future. Both systems demonstrate that modernising payments is not just about technology—it is about aligning incentives, fostering competition and ensuring that the benefits of innovation are widely shared.