FedNow-Enhancing Payments in the US with Real-time Speed

FedNow, a real-time payment service launched by the US Federal Reserve, aims for instant transfers 24/7, benefiting consumers and businesses, alongside enhancing everyday payments. 

FREMONT, CA: The US Federal Reserve is set to revolutionize the payment landscape with the launch of FedNow, a new service that will allow Americans to send and receive money in a matter of seconds. This initiative, which has been in the works for the past four years, has overcome opposition from big banks and is expected to launch with the support of nearly 41 banks and 15 service providers, including community banks and large lenders.

FedNow aims to address the shortcomings of the current real-time payments system, FedWire, which only operates during business hours. In contrast, FedNow will be available 24/7, offering greater accessibility and convenience to consumers and small-scale businesses. By eliminating multi-day delays in settling cash transfers, FedNow seeks to bring the US on par with countries like India, the UK, Brazil, and the European Union in terms of payment efficiency.

One of the key advantages of FedNow is its direct settlement into bank accounts, making it distinct from peer-to-peer services. The service will have a payment limit of up to $500,000, with the flexibility to adjust the limit as needed. Moreover, it will be free for consumers, but there is still uncertainty surrounding whether participating banks will pass on any associated costs to their customers.

Critics have raised concerns about potential bank failures being amplified due to FedNow, but proponents argue that banks have access to various tools to manage outflows effectively, mitigating such risks. Fed Chair Jay Powell expressed his confidence that the service will enhance everyday payments with increased speed and convenience in the future.

The launch of FedNow follows the 2017 introduction of a real-time payments network by The Clearing House, which is owned by a consortium of big banks. While the initial growth of The Clearing House's network was slow, FedNow promises to offer more impressive and efficient real-time payment techniques for consumers, potentially reshaping the functioning patterns of banks in the US.