Fed Unveils Plan for Real-Time Payments System

The central bank will develop the FedNow service itself rather than defer to the private sector.
Matthew HellerAugust 6, 2019

In a long-awaited move to speed up the U.S. payment system, the Federal Reserve has announced it will develop a real-time service that would eventually link more than 10,000 banks and credit unions across the country.

Fed officials compared the plan to start a service called FedNow to the birth in the 1970s of the automated clearing house network, which now accounts for roughly 15% of all U.S. payments.

“This is a very, very momentous decision,” Fed Governor Lael Brainard said.

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American Banker noted that the “announcement ended years of uncertainty about whether the central bank would take a hands-on role in a modern U.S. payments network or instead defer to the private sector.”

The Clearing House, a payments company owned by the nation’s largest banks, has been operating a real-time system since 2017. But many small banks and credit unions have declined so far to sign up for the system.

“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,” Brainard said in a news release. “FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers.”

FedNow, however, won’t be available until 2023 or 2024. A task force convened by the Fed had established a goal that by 2020, everyone in the U.S. should be able to receive fast, secure payments.

“The extended timeline sparked barbs that the central bank’s service … should instead be called ‘Fed Five Years from Now,’” American Banker said.

Sarah Grotta, an analyst at Mercator Advisory Group, warned there is a danger of “a two-tiered system, at least for a while, where large banks have their platform and smaller banks have theirs, until there is a competitive reason to offer both.”

Whether, or when, FedNow would be interoperable with the Clearing House’s system is as yet unclear. “The Federal Reserve intends to explore interoperability and other paths to achieving the ultimate goal of nationwide reach for faster payment,” the central bank said.