The United States Federal Reserve Bank is developing a new service called FedNow that will allow all banks in the United States 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 managing budgets easier for many people and small businesses, but it also puts the Fed at loggerheads with big banks since a federal real-time payments system would compete with the one being developed by the Clearing House, which is owned by some of the world’s largest banks, including Capital One, Citibank, Wells Fargo, Bank of America, JP Morgan Chase and Deutsche Bank.
The Federal Reserve’s board of governors voted 4-1 to approve the proposal for FedNow on 2 August, with its of vice chair for supervision, Randal Quarles, casting the dissenting vote.
While Venmo, Zelle and other apps already allow users to transfer money instantly to one another, the Federal Reserve Bank described services like those as a closed-loop since both parties need to be on the same platform to transfer money and they can only be linked to accounts from certain banks.
FedNow will be a universal infrastructure, enabling all banks, including smaller ones, to provide real-time payments.
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Traditional retail payment methods used for transferring funds not only creates frustrating delays but it can “result in a build-up of financial obligations between banks which, as faster payment usage grows, could present risks to the financial system, especially in times of stress,” says a spokesperson at the Federal Reserve Board.
In a FAQ, the Federal Reserve Board explained that “there is a broad consensus within the US payment community and among other stakeholders” that real-time payment services can have a “significant and positive impact on individuals and businesses throughout the country and on the broader US economy.”
The proposal has gained the support of Google’s head of payments, Caesar Sengupta, and Democratic lawmakers including U.S. Senators Elizabeth Warren and Chris Van Hollen and Representatives Ayanna Pressley and Jesús García.