Fed Reveals More Details About FedNow to Support Instant Payments in the US


The Federal Reserve unveiled further details about its new real-time payments platform FedNow Service. The platform will enable financial institutions in the US to settle transactions virtually instantly and is set for launch in 2023 or 2024, as per the details revealed last week.

The plans for this new service was first announced about a year ago and since then has been receiving public comments on what it should look like and how it should operate.

FedNow is an instant payment infrastructure that is a tech-enabled leap forward from its century-old payment and settlement services that would allow individuals and businesses to access it “24x7x365.”

Individuals would be able to send $25,000 through the service, though the Fed said they would evaluate the figure after several commentators suggest a bigger transaction limit.

The idea here is to “modernize” the US payment system and promote a safe and efficient payment system. Federal Reserve Board Governor Lael Brainard said,

“The rapid expenditure of COVID emergency relief payments highlighted the critical importance of having a resilient instant payments infrastructure with nationwide reach, especially for households and small businesses with cash flow constraints.”

The Fed is connected with over 10,000 different financial situations across the country, and this system will allow them to facilitate funds near-instantaneously.

Competition and inappropriate expansion

Many non-bank payment services like Square and banks offer instant payment while transfers through The Clearing Houses RTP network, a real-time payment platform launched by a group of America's largest banks and financial institutions in 2017, come with additional fees.

According to the Fed, FedNow will not only allow individuals to send and receive money more quickly and avoid penalties like late fees and businesses to access funds and manage cash flow but also stimulate “healthy competition” in the space.

Fed believes this competition in real-time payments space will result in “efficiencies related to pricing, service quality, and innovation.”

However, not everyone agrees to this as the central bank said it received over 2,200 letters from commentators that it “should not operate in competition with the private sector,” and that it would represent “an inappropriate expansion of the Federal Reserve’s role.”

But the fed argues that it would be playing the same “operational role” it always has, working together with the private sector instead of competing against it.

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