Fed Leaps Into Real-Time Payments
The Federal Reserve announced last week that it is working on a real-time payments system, the biggest infrastructure upgrade embraced by the government body since the ACH system went online in 1972.
At a speech in Kansas City, Mo., Fed Governor Lael Brainard confirmed what the payments industry has long awaited, and she said the real-time payments system would be called FedNow.
As reported at PaymentsJournal:
“FedNow will permit banks of every size in every community across the country to provide real-time payments,” said Brainard. She did not give a specific date on when FedNow will be operational, but said it is expected to become available in 2023 or 2024.
During her speech, Brainard explained how the decision required a lot of thought and dialogue with all the relevant stakeholders, dating back to 2015. After much consideration, the Fed determined that FedNow would provide much needed competition in the real-time payments space.
Brainard reasoned that the private sector acting alone faced too many challenges in creating a nationwide real-time payments network accessible to banks of all sizes. Thus the Fed felt the need to provide an alternative, building on the Fed’s historical role of overseeing payment networks connecting banks across the country.
“The U.S. real-time retail payment infrastructure stands to gain from competition, including through higher service quality and lower prices over the long run,” said Brainard.
Safety was another reason the Fed cited for its FedNow service. “We are mindful of the serious safety issues associated with a single point of failure, a risk that will rise as faster payments grow,” she said.
The payments industry is very pleased with this announcement, of course, since it is designed to enhance the payments space — under the Monetary Control Act, in order to create its own system, the Fed must show that it is providing a service the private sector cannot. The FedNow system should be available in 2023 or 2024, roughly in line with a timetable that the central bank established back in 2013, but well behind the subsequent goal of a Fed-convened task force, which had predicted that by 2020, everyone in the U.S. should be able to receive fast, secure payments.
DigitalTransactions quoted Steve Mott, principal at BetterBuyDesign, a Stamford, Conn.-based consultancy:
“The winners from the FedNow decision are the users of the payments system–consumers, merchants/corporates, and financial institutions of all sizes. The Fed has more than proved its mettle in payments—ACH, wires, checks—so it makes perfect sense to do digital payments as well.”
The Fed is taking the initiative to drive adoption of real-time payments, a step in the right direction — one that OrboGraph fully supports as we continuously investigate ways to smoothly integrate both check and healthcare payment automation into this ecosystem.
Be on the lookout for future articles on how we can leverage check fraud prevention techniques that coincide with the new world of instantaneous payments.
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