The U.S. Federal Reserve has announced today that the Federal Reserve Bank is developing a new payment system that works “new round-the-clock” and can process real-time payment to facilitate faster and secured payments between entities throughout the entire United States.
The new payment system, called FedNow Service, is a new interbank 24x7x365 real-time gross settlement (RTGS) service with integrated clearing functionality and is designed to support the provision of end-to-end faster payment services by banks or their agents.
The need for faster payment systems
Faster payments, according to the Federal Reserve, allow individuals and businesses to send and receive payments within seconds at any time of the day, on any day of the year, such that the receiver of payment can use the funds almost instantly. They highlight that in the age of technology, a government-sponsored payment system that can be up to par with private payment systems is starting to become necessary.
“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 Federal Reserve Board wrote in a press release.
The new payment system will enable the near-instantaneous transfer of funds day and night among banks and businesses. “The Federal Reserve believes faster payment services 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,” they added.
Furthermore, the Federal Reserve announced that they are exploring the expansion of Fedwire Funds Service and National Settlement Service hours, up to 24x7x365 that would also help banks to expedite fund transferring among entities and individuals in the United States.
However, the new payment systems are said to be still subject to ” “further analysis of relevant operational, risk, and policy considerations, to support liquidity management in private-sector RTGS services for faster payments.”
The U.S. Federal Reserve is the government agency mandated to facilitate money transfer services in the United States. Since its conception, the agency has been forwarding improvements in the quality of payment systems and has worked with the private sector to determine what needs to be done to improve the current payment systems in operation.
“Since its founding more than a century ago, the Federal Reserve 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,” reads the press release.
The agency, according to their website, has supported more than 10,000 financial institutions across the country. This time they are hoping to reach more with the new FedNow Service payment system and be able to “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. “FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers.”
Federal Reserve is asking for comments and suggestions
The agency has reached out to a multi-sectoral panel back in 2018 and asked them what they could do in order to facilitate faster payments in the United States. According to them, more than 90% of panelists have said that the Federal Reserve should develop a round-the-clock payment and settlement service alongside with the services operated by private institutions.
This time, according to the press release, the Federal Reserve is also soliciting the comments and the suggestions of relevant parties as well as the general public on how to design the said 24-hour payment and settlement service that they are planning to develop.
Furthermore, the Federal Reserve expects that the FedNow Service will start rolling out and be in full implementation starting 2023 or 2024.
“The Board 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 press release said.