The Federal Reserve Board is developing a new real-time payment and settlement service.
The platform, called the FedNow Service, is designed to leverage technology that is more efficient and secure than existing infrastructure. Its purpose is to enable the Federal Reserve Banks to offer around-the-clock payments in the US, with a focus on speed, efficiency and security.
The near-instantaneous transfer of funds will be available seven days a week, 365 days a year, offering a key advantage over traditional banks that stop processing transactions on the weekends.
The Fed, which provides payment and settlement services to over 10,000 financial institutions across the country, says its FedNow Service will benefit all Americans with faster payments.
Says Federal Reserve Board Governor Lael Brainard,
“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. FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers.”
In 2015, the Fed launched the Faster Payments Task Force to improve the US payment system. It lists an extensive roster of participants in the payments industry who are leading the steering committee including Bankers’ Bank, Consumers Union, The Clearing House, Ripple and U.S. Bank.
In the race against global competitors who are transforming the payments industry, the real-time interbank gross clearing and settlement service was originally targeting a 2020 launch date. That challenge is increasingly escalating with tech giants like Facebook entering the payments industry with digital currency project Libra.
While Libra is purportedly powered by a consortium of giant corporations, the Fed says its platform is powered by a group of stakeholders who were given a “Call to Action” back in 2015.
“The United States stands on the verge of a transformation in how businesses and consumers make payments. Rapid technological innovation; demand for faster, smarter payments; and the impressive will of the industry have collided to create an unprecedented opportunity. The Faster Payments Task Force calls on all payment stakeholders to take action and be a part of this historic effort. Read this Final Report and embrace our plan and vision for secure, ubiquitous, faster payments by 2020.”
In a series of recommendations detailed in 2015, the Fed also notes the creation of services for cross-border transactions.
“The task force asks the Federal Reserve to determine the optimal design of and implement a 24x7x365 settlement service to support the needs of the faster payments system. The task force believes that broader access to Federal Reserve settlement services will level the playing field and enhance competition among providers of faster payments services.
Explore and assess the need for Federal Reserve operational role(s) in faster payments: As faster payments are implemented in the market, the task force asks the Federal Reserve to explore and assess the need for an operational role(s) in the faster payments system to support ubiquity, competition, and equitable access to faster payments in the United States. In addition to providing for a settlement capability, such roles might include provision of directory services, transaction processing, network access, security, and/or cross-border payments.”
The goal of the central bank’s FedPay, according to the announcement, is to foster accessibility and efficiency of the US payment system.
“Providing payment services, often in collaboration and cooperation with the private sector, is a key part of our ability to affect public policy objectives and achieve those goals for the benefit of the U.S. public.”
The service is now slated to launch in 2023 or 2024.
You can check out the Federal Reserve Planned Actions here.