Launch of FedNow Instant Payment Service Could Speed Up Paycheck Clearing
Federal Reserve launches FedNow, an instant payment service for banks.
The Federal Reserve has introduced a new instant payment service called FedNow, which allows banks and credit unions to send real-time payments. This service aims to provide customers with a quicker way to send money between banks. While the list of banks and credit unions already signed up to FedNow has been published, it may take some time for customers to be able to use the service with their own bank.
Unlike private money-transferring services like PayPal or Venmo, FedNow is only available through banks or credit unions and not directly through a third-party app or website. However, once banks have adopted FedNow, they are expected to make it available on their own websites and apps. Once this happens, customers will be able to send money instantly, and the service will be available 24/7.
The creation of FedNow by the Federal Reserve aims to make online payments faster and more accessible for people. It also brings the United States in line with other countries that already have real-time payment systems, such as England, China, Sweden, and India. In addition to providing faster payments, FedNow will equip banks with tools to identify and combat fraud attempts, allowing them to flag suspicious accounts and limit the amount and frequency of payments from those accounts.
Customers, including individuals and businesses, whose banks or credit unions offer FedNow services will be able to send and receive money in real-time. However, both the sender and recipient must bank with institutions that offer FedNow services. This service can be beneficial in various scenarios, such as receiving a paycheck that clears in seconds rather than days or being able to send money for rent late at night without waiting for it to clear the next business day.
While FedNow offers similar functionalities to apps like Venmo and PayPal, there are key differences. FedNow is a service offered directly to banks and not to customers, so it does not have its own app or website for customers to send money to each other. Zelle, another online transaction platform, also differs from FedNow in that it is a private app that works with select financial institutions, whereas FedNow is backed by the Federal Reserve and aims to be adopted by the majority of banks in the country.
The Federal Reserve and the FedNow service prioritize customer privacy and do not have access to people's bank accounts or additional surveillance authority. FedNow is not intended to replace cash or other payment options, and it is unrelated to the concept of a government-run digital currency. The Federal Reserve has made it clear that a central bank digital currency would only be considered with clear support from Congress and the executive branch, and it would not replace existing payment options.
Overall, FedNow aims to revolutionize the speed and accessibility of online payments in the United States, bringing it in line with other countries that already have real-time payment systems. While it may take some time for customers to be able to use the service with their own banks, the introduction of FedNow marks an important step forward in the evolution of digital payments.