Federal Reserve to launch new real time payment system called ‘Fed Now’
Fed will launch a real-time payment system
The Fed announced on Monday that it will develop a real-time payment service called FedNow to help move money around the economy faster. This is the type of government service that companies and consumers have turned to for years, which already exists in other countries. The service can compete with solutions already developed in the private sector by large banks and tech companies.
The Fed itself has always played a behind-the-scenes role, facilitating the movement of money between banks and helping to verify transactions. The new system will help reduce the amount of time between the moment the money is deposited into the account and the moment it becomes available for use. FedNow is slated to launch in 2023 or 2024.
Under the current system, the process of sending and receiving money can take up to 72 hours. As a result, businesses and consumers, and especially people with low income who pay social checks, are in limbo..
Many of the largest US banks are already part of a coalition called The Clearing House, which offers real-time payment processing services. Members include Bank of America, JPMorgan Chase, US Bank, and others. Customers can now instantly transfer funds to each other through apps like PayPal. Existing payment systems in real time usually notify payers immediately that their money has been received and is in the accounts.
Although payment systems real-time services such as Venmo, Zelle and similar banking applications already exist, the Fed said most of the current services are «closed». Therefore, only people with the same application can transfer money to each other, and some applications cannot reach all 10,000 different banks in the US.
For the new interbank system, the Federal Reserve will speed up the settlement and clearing processes for payments between banks. It will be available 24/7, 365 days a year and will initially be capped at $ 25,000.
These conditions must apply to all financial institutions and businesses throughout the United States. This was one of the arguments in favor of blockchain-based payment systems such as Facebook Libra, which would eliminate third-party payments. During Congressional hearings, some lawmakers urged the Fed to create its real-time payments system rather than relying on the network developed by Facebook..
«FedNow will allow banks of all sizes in every community across the country to make payments in real time», – said Lael Brainard, head of the Fed’s Board of Governors.
This will benefit both consumers and small businesses alike, according to Fed officials, by eliminating the need for expensive check cashing services, high-value and short-term loans, and overdraft and delinquency fees..
«New service Federal Reserve FedNow along with the services provided by the private sector, will help create a secure and efficient nationwide infrastructure supporting faster payment services», – said the Federal Reserve on Monday on its website in the payment system’s FAQs.
«This infrastructure will assist banks across the country and the entire payments industry in their efforts to create modern, innovative and secure fast payment services.», – noted in the message of the Federal Reserve.
Business leaders welcomed the Fed’s announcement. Retailers, local banks, tech firms and consumers are asking for such a service, the Retail Leaders Association said in a statement..
And while the Fed’s system could compete with a solution developed by major banks, the American Bankers Association also issued a statement in support of the announcement..
«We believe that every bank in the country and their customers will benefit from a seamless and ubiquitous system, ”said American Bankers Association CEO Rob Nichols. – We hope that today’s Federal Reserve decision to create its own real-time payment network will accelerate this transition».
Nichols added that the Bankers‘ Association will continue to encourage banks to join The Clearing House’s real-time payment network.&# 39; s. He also asked the Fed to ensure compatibility of its new system with the existing private banking system..
At the moment, the Fed said it is accepting comments on the design of the new system..