Fed plans faster payments
The on-demand model is coming to payments and settlements.
The Federal Reserve Banks will develop a new round-the-clock real-time payment and settlement service, called the FedNow Service, to support faster payments in the US. According to a press release from the Federal Reserve Board, “The Federal Reserve believes faster payment services, which enable the near-instantaneous transfer of funds day and night, weekend and weekdays, have the potential to become widely used and to yield economic benefits for individuals and businesses by providing them with more flexibility to manage their money and make time-sensitive payments.”
In 2018, the board requested public comment on potential services that could be developed by the Federal Reserve to support faster payments. Of the more than 350 comments that took a position on whether the Federal Reserve should develop a new service for faster payments, over 90% supported the Federal Reserve operating a round-the-clock real-time payment and settlement service alongside services provided by the private sector.
The board is now requesting comment on design of the new service, and expects FedNow will be available in 2023 or 2024. In addition, the board intends to explore the expansion of electronic funds transfer and settlement, up to 24x7x365. According to the board, this would facilitate liquidity management in private-sector real-time gross settlement services for faster payments, and support payment activities beyond those related to faster payments.
"Everyone deserves the same ability to make and receive payments immediately and securely, and every bank deserves the same opportunity to offer that service to its community," said Federal Reserve Board Governor Lael Brainard. "FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers."
The Retail Industry Leaders Association (RILA) retail trade association is publicly supporting efforts to develop FedNow.
"The new faster payments system outlined by the Fed will dramatically speed up payment processing, allowing people and businesses to receive money in their accounts at a far more rapid rate," said Austen Jensen, senior VP of government affairs, RILA. "Under the current system, financial transactions can take up to 72 hours to clear. These delays cause stress, an over-reliance on credit, and higher fees paid by individuals and merchants. Faster payments mean merchants and consumers will have access to their money in real time, giving them more control and clarity over their finances."