FedNow, an effort by the Federal Reserve Banks to speed up and modernize the U
There have been about 120 companies and organizations participating in the FedNow pilot, according to the release. Overseeing FedNow has been Kansas City Fed President Esther George, who was appointed executive sponsor of the program.
A spokesperson for the Kansas City Fed didn’t immediately respond to a question about what is involved in the September testing phase.
Another Fed official said recently that FedNow would be rolled out in mid-2023, giving more definition to a prior schedule for launching sometime next year.
The Fed banks have been putting on a major push recently to draw companies into the pilot program and to promote the coming real-time services launch. It’s all part of an effort to modernize the U.S. payments system. While payments currently can take days to clear, without transactions on weekends and holidays, real-time payments can happen in seconds, 365 days a year.
Real-time payments accounted for less than 1% of total transaction volume in the U.S. last year, according to to a global study produced by payments processor ACI Worldwide and the Centre for Economic and Business Research.
China and emerging countries such as India and Brazil are racking up the benefits of real-time payments while Western nations, particularly the U.S., are missing out, according to ACI. The U.S. captured just $1.35 billion in macroeconomic benefits from real-time benefits last year while China netted $18.65 billion in benefits, the ACI study reported.
Fed officials suggest the U.S. system may be more resilient than other systems. “Our cloud-first design, unique among central bank instant payment services, positions us for the future by enabling not only the throughput and scalability required for high-volume retail transactions but also broad geographic points of resiliency to ensure continuous service,” Fed Vice Chair Lael Brainard said of FedNow in a speech on Monday.
The Fed embarked on creating a speedier payments system back in 2015, forming the Faster Payments Task Force and having private industry players participate in the discussions, too, but the progress on the public sector system has been slow.
Banks sped ahead and formed their own instant payments system through The Clearing House, launching the real-time payments system called RTP Network in 2017. Still, the adoption of RTP services by private businesses has been low, and smaller banks have been reluctant to work with the network created by their larger rivals.
Fed officials are conscious of the fact that the system will only be as effective as companies’ willingness to use it. “We have been working hard to deliver on time, but ultimately the number of American businesses and households that are able to access instant payments will depend on financial services providers making the necessary investments to upgrade our payments infrastructure,” Brainard said in the speech.
By Lynne Marek on Aug 30, 2022
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