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FedNow

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FedNow Service
Developer(s)Federal Reserve
Initial release20 July 2023; 15 months ago (2023-07-20)
Available inEnglish
TypeE-commerce payment system
WebsiteFedNow

FedNow is an instant payment service developed by the Federal Reserve for depository institutions in the United States, which allows individuals and businesses to send and receive money.[1][2][3][4] The service launched on July 20, 2023.[5] Banks will be able to build products on top of the FedNow platform.[6]

Operation

FedNow was scheduled to begin formal certification of participants of the program in April 2023, with a formal launch planned for July 2023.[7][8] It will operate on a 24-hour, 365-days-a-year basis,[9] as opposed to the U.S. government's current system that is closed on weekends and holidays.[10][11] FedNow charges a transaction cost of $0.043, compared to the average ACH transaction cost of $0.26 - $0.50.[12][13]

Instant payments with FedNow can accomplish many of the improvements for which a central bank digital currency (CBDC) was proposed.[14][15] However, FedNow is not a CBDC, because it is not a liability of the Federal government.[16][6]

History

In 2017, The Clearing House Payments Company, a private entity owned by an association of large US banks introduced Real Time Payments (RTP), which is a similar instant payment system that is also available to all US financial institutions.[17] In the late 2010s, the association of large banks unsuccessfully lobbied the government to prevent the Federal Reserve from developing the competing FedNow service, while smaller banks and financial technology companies encouraged the Fed to proceed with FedNow's development.[18]

In 2020, Lael Brainard announced the upcoming FedNow service would provide «a neutral platform on which the private sector can build to offer safe, efficient instant payment services to users across the country»,[19] after in 2018 the European Central Bank launched the TIPS instant payment settlement system.[20]

In the lead up to its release scheduled for July 2023, Moody's Investor Service released a report discussing potential issues with the service. It noted incumbents in the payments space could see revenue declines, those participating could be forced to make upgrades in technology and staff, and there was a greater possibility of bank runs, even with potential benefits like lower costs and more efficiency in the payments ecosystem.[21]

See also

References

  1. ^ "Federal Reserve Board - FedNow Service". Board of Governors of the Federal Reserve System. 2022-09-02. Retrieved 2022-09-23.
  2. ^ "Analysis | The Fed's Messaging Needs an Upgrade". Editorial. Washington Post. 2022-09-01. ISSN 0190-8286. Retrieved 2022-11-21.
  3. ^ Duncan, Hannah (2022-10-14). "Fed(up)Now? Instant payments in the US finally on their way". The Banker. Retrieved 2022-11-21.
  4. ^ Smialek, Jeanna (2019-08-05). "Fed Wants Workers to Get Pay Faster". New York Times.
  5. ^ Morga, Adriana (2023-07-20). "Your paycheck could clear faster now that the FedNow instant payment service for banks has launched". AP News. Retrieved 2023-07-20.
  6. ^ a b Dale, Brady (2022-08-29). "The Fed gives a timeline for FedNow, its payments platform". Axios. Retrieved 2022-11-21.
  7. ^ Campbell, Kyle (2022-11-03). "Fed sets prices that banks will pay for FedNow". American Banker. Retrieved 2022-11-21.
  8. ^ "Federal Reserve announces July launch for the FedNow Service". Board of Governors of the Federal Reserve System. 2023-03-15. Archived from the original on 2023-03-16. Retrieved 2023-03-17.
  9. ^ George, Esther L. (2020-12-18). "From Then to FedNow: Payments Innovation and the Federal Reserve". Policy Perspectives (December): 1–3.
  10. ^ Barnett, Keith J.; Lui-Kwan, Kalama M.; Ostroff, Ethan G.; McCrory, Carlin A. (2022-09-06). "FedNow Set for 2023 Summer Launch". Lexology. Retrieved 2022-11-21.
  11. ^ Neal, Michelle (2022-11-04). "Advances in Digital Currency Experimentation". Federal Reserve Bank of New York. Retrieved 2022-11-21.
  12. ^ "Pricing approach and credit transfer limit for the FedNow Service announced". www.frbservices.org. Retrieved 2023-07-21.
  13. ^ "Survey: 73% of Organizations are Transitioning their Business-to-Business Payments from Checks to Digital Payments". www.afponline.org. Retrieved 2023-07-21.
  14. ^ DiCamillo, Nate (2022-01-25). "The Fed's CBDC report was lame on purpose". Quartz. Retrieved 2022-11-21. Another reason why the Fed might not see a pressing need for a digital dollar is that it already has a project that will democratize payments. Many of the improvements promised by a CBDC may be accomplished by the Fed's real-time payments system.
  15. ^ Heltman, John (2019-11-25). "FedNow is necessary, Fed digital currency is not: Mester". American Banker. Retrieved 2022-11-21.
  16. ^ Dale, Brady (2022-09-16). "The Feds want dollars to move much faster". Axios. Retrieved 2022-11-21.
  17. ^ "Real-Time Payments for All Financial Institutions". Retrieved 30 April 2023.
  18. ^ Clozel, Lalita (4 August 2019). "Banks Confront Fed on Faster Financial Payments". The Wall Street Journal. Retrieved 9 May 2023.
  19. ^ "The Future of Retail Payments in the United States" (PDF). 2020-08-06.
  20. ^ Bank, European Central (2020-10-22). "On the edge of a new frontier: European payments in the digital age". In 2018 the Eurosystem introduced a powerful platform for the continuous settlement of instant payments (TARGET Instant Payment Settlement, or TIPS), putting the euro area at the forefront of retail payments. Sweden has recently joined TIPS (see ECB (2020), "Sweden joins ECB's instant payments settlement platform") and the Federal Reserve is taking steps to build an instant payments infrastructure, FedNow (see Brainard, L. (2020), "The Future of Retail Payments in the United States", speech at the FedNow Service Webinar, 6 August). {{cite journal}}: Cite journal requires |journal= (help)
  21. ^ "Moody's report spotlights FedNow downside". Payments Dive. Retrieved 2023-07-03.
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