The Federal Reserve Board announced the launch of a new real-time payment and settlement service, called the FedNow.
Federal Reserve Banks will develop the service. The payment service will enable the near-instantaneous transfer of funds 24 hours a day, seven days a week. The fed expects it will yield economic benefits for individuals and businesses by providing them with more flexibility to manage their money and make time-sensitive 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,” Federal Reserve Board Governor Lael Brainard said. “FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers.”
The Fed board requested public comment on the idea, and about 90 percent supported the Federal Reserve operating a round-the-clock, real-time payment and settlement service. The board is now seeking feedback on how the new service might be designed. The Fed expects the FedNow Service to be available in 2023 or 2024.
The American Bankers Association supports the concept.
“ABA has been a strong advocate for real-time payments in the U.S., and we believe every bank in the country and their customers will benefit from a seamless and ubiquitous system. We hope today’s decision by the Federal Reserve to create its own real-time payments network will speed that transition,” Rob Nichols, ABA president and CEO, said. “The reality is that any Fed-built system will still take some time to build, so in the meantime, ABA will continue to encourage all banks to embrace the future and consider whether to connect to the existing Real-Time Payments network offered by The Clearing House. We believe any Fed system must be fully interoperable with the RTP network, remain accessible only to chartered financial institutions, and be available through all core processing companies and without volume discounts that disadvantage smaller banks.”
The Independent Community Bankers of America (ICBA) also applauded the move.
“ICBA and the nation’s community banks strongly support the Fed’s decision to develop a real-time settlement system,” ICBA President and CEO Rebeca Romero Rainey said. “As we have said all along, the Fed is uniquely positioned to provide equitable access to real-time payments. Today’s decision by the Fed will benefit consumers nationwide and serve as a launchpad to future payments innovations. Now, the hard work begins as the Federal Reserve must move quickly to establish the service.”
A Fed-operated real-time settlement system will avoid the risk of having only one, for-profit settlement service run by the nation’s largest financial institutions, Rainey said. This will expand access to more banks.