The Federal Reserve Bank announced today that it is developing a new service called FedNow that allows all US banks to offer 24/7 real-time payment services every day of the week. FedNow is expected to be available by 2023 or 2024 and will initially support transfers of up to $ 25,000.
FedNow will make it easier to manage budgets for many people and small businesses, but it also puts the Fed on the lumber of big banks since a real-time federal payment system would compete with what is being developed by Clearing House the world's largest banks, including Capital One, Citibank, Wells Fargo, Bank of America, JP Morgan Chase and Deutsche Bank. [19659002StateFederalReserveBoardMembersVoted4-1
While Venmo, Zelle, and other apps already allow the same to allow users to transfer money to each other, money, and they can only be linked to accounts from certain banks. On the other hand, FedNow will be a universal infrastructure, enabling all banks, including smaller ones, to offer real-time payments.
The traditional retail payment methods used to transfer funds not only create frustrating delays, but can "build up financial obligations between banks that, as faster payment usage grows, can pose risks to the financial system, especially in times of stress, "the Federal Reserve Board said.
In a FAQ, the Federal Reserve Board explained that "there is a broad consensus in the American payment community and among other stakeholders" that real-time payment services can have a "significant and positive impact on individuals and businesses across the country and on the broader American economy. "
For example, real-time payments mean that people living on tight budgets will have to rely less on expensive check-cashing services and high-interest loans and will incur less cash credit and fees. Small businesses will also benefit because they can avoid short-term high-interest loans.
The proposal has received support from Google's payment manager Caesar Sengupta and Democratic lawmakers including U.S. Senators Elizabeth Warren and Chris Van Hollen and Representatives Ayanna Pressley and Jesús García.
Great to see today's news about a real-time payment system in the United States! We @Google welcome the Fed's leadership here. This is a good step towards more economic opportunity and financial inclusion for everyone. https://t.co/Slb3jxFeTFebrit19659002??— Caesar Sengupta (@caesars) August 6, 2019
In a statement, Warren, who is campaigning for the Democratic presidential nomination, said, measures to ensure that people living paycheck-to-paycheck do not have to wait for up to five days for a check to be cleared so that they can pay the rent, cover childcare or pick up groceries. Today's Fed action will also help small businesses by making customer payments faster. I look forward to working with the Fed to ensure a swift and smooth implementation of this system. ”
Comments on FedNow will be accepted for 90 days after the proposal is published in the Federal Register.