The Federal Reserve Board has announced the Federal Reserve Bank will develop a new round-the-clock real-time payment and settlement service. The service, to be called the FedNow, will enable the near-instantaneous transfer of funds day and night, weekend and weekdays.
The Federal Reserve believes faster payment services will be widely used and yield economic benefits for individuals and businesses. The FedNow Service will provide users with more flexibility to manage their money and make time-sensitive payments.
Since its founding more than a century ago, the Federal Reserve has provided payment and settlement services. The bank co-ordinates with the private sector, as part of its core function of promoting an accessible, safe, and efficient US payment system.
Co-ordinating with private sector
The Federal Reserve has established payment and settlement services to the more than 10,000 financial institutions across the country. That reach will help the FedNow Service support a nationwide infrastructure on which the financial services industry may develop innovative faster payment services for the benefit of all Americans.
“Everyone deserves the same ability to make and receive payments immediately and securely. 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.”
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 percent 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 undergoing public consultation on how the service will support the full set of payment systems. The FedNow Service is expected to operate within the broader US payment system. The Board anticipates the FedNow Service will be available in 2023 or 2024.
In addition, the Board announced its intention to explore the expansion of Fedwire Funds Service and National Settlement Service hours. This has been increased to 24x7x365, to facilitate liquidity management in private-sector real-time gross settlement services for faster payments. The services are expected to support a wide range of payment activities, beyond those related to faster payments.
Enterprise Times: What this means for business?
The rapid evolution of technology presents a pivotal opportunity for the Federal Reserve and the payment industry to modernise the nation’s payment system. Industry analysts have been crying out for the establishment a safe and efficient foundation for the future.
According to The Washington Post, the announcement could pit the Federal Reserve Bank against some of the country’s biggest commercial banks. This includes Bank of America and JP Morgan Chase, who have already developed rival technology. Banks fear that Silicon Valley companies could use the Fed system to push their way further into the banking world.
Amazon already tweeted its approval and said: “An improved payments infrastructure fosters innovation, increases accessibility to all American consumers, & helps businesses grow.”