WASHINGTON–The Federal Reserve Board has announced Federal Reserve Banks will develop a new round-the-clock real-time payment and settlement service, called the FedNow Service, to support faster payments in the United States.
“The rapid evolution of technology presents a pivotal opportunity for the Federal Reserve and the payment industry to modernize the nation's payment system and establish a safe and efficient foundation for the future,” the Fed said in a statement. “The Federal Reserve believes faster payment services, which enable the near-instantaneous transfer of funds day and night, weekend and weekdays, have the potential to become widely used and to yield economic benefits for individuals and businesses by providing them with more flexibility to manage their money and make time-sensitive payments.”
Relationships With 10,000 FIs
The Fed noted that since its founding more than a century ago, it has provided payment and settlement services, alongside and in cooperation with the private sector, as part of its core function of promoting an accessible, safe, and efficient U.S. payment system. It added it is currently a provider of payment and settlement services to the more than 10,000 financial institutions across the country, and that its reach will help the FedNow Service support a nationwide infrastructure on which the financial services industry may develop innovative faster payment services for the benefit of all Americans.
"Everyone deserves the same ability to make and receive payments immediately and securely, and every bank deserves the same opportunity to offer that service to its community,"said Federal Reserve Board Governor Lael Brainard in a statement. "FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers."
In 2018, the Board requested public comment on potential services that could be developed by the Federal Reserve to support faster payments. Of the more than 350 comments that took a position on whether the Federal Reserve should develop a new service for faster payments, more than 90% supported the Federal Reserve operating a round-the-clock real-time payment and settlement service alongside services provided by the private sector, the Fed said.
In response to the announcement, NAFCU Chief Economist and VP-Research Curt Long said, "NAFCU has been active in efforts to improve real-time payments and welcomes news of the Federal Reserve’s decision to launch a faster payments system, as it will provide more tools in the toolbox for financial institutions. NAFCU also supports private sector solutions and hopes that interoperability between the Federal Reserve and private operators can be achieved. We look forward to continuing to work with both the industry and the Federal Reserve to ensure faster payments can become a reality for credit unions of all sizes.”
Comment Being Sought
The Federal Reserve said it is now requesting comment on how the new service might be designed to most effectively support the full set of payment system stakeholders and the functioning of the broader U.S. payment system. The Board anticipates the FedNow Service will be available in 2023 or 2024.
In addition, the Board has also announced its intention to explore the expansion of Fedwire Funds Service and National Settlement Service hours, up to 24x7x365, to facilitate liquidity management in private-sector real-time gross settlement services for faster payments and to support a wide range of payment activities, beyond those related to faster payments.
A comment period is now open for 90 days.