Fed to Offer Its Own Faster Payments Service
Tuesday, August 6, 2019
Posted by: Amanda Averch
In a long-awaited decision, the Federal Reserve yesterday announced it would develop FedNow, its own real-time settlement service to compete with the bank-built, private-sector RTP network. The Fed's service will conduct real-time, payment-by-payment, final settlement of interbank obligations through debits and credits to banks’ balances in accounts at the Federal Reserve banks, Fed Governor Lael Brainard said today in a speech announcing the decision in Kansas City, Mo.
The Fed said it does not expect FedNow to be available until at least 2023 or 2024. “ABA has been a strong advocate for real-time payments in the U.S., and we believe every bank in the country and their customers will benefit from a seamless and ubiquitous system,” commented ABA President and CEO Rob Nichols. Nichols said he hoped the Fed’s decision will help “speed” the nation’s transition to real-time payments, while adding that “the reality is that any Fed-built system will still take some time to build, so in the meantime ABA will continue to encourage all banks to embrace the future and consider whether to connect to the existing Real-Time Payments network offered by the Clearing House.”
While the Fed said that interoperability with other real-time payments networks—namely the RTP network—would be “a desirable outcome,” it did not commit in its notice to make FedNow interoperable with other networks, which is a capability that ABA has said would be critical to the success of real-time payments in the U.S. “We believe any Fed system must be fully interoperable with the RTP network, remain accessible only to chartered financial institutions, and be available through all core processing companies and without volume discounts that disadvantage smaller banks,” said Nichols.
As the Fed moves ahead with FedNow, Nichols also called for the creation of the liquidity management tool the agency proposed last fall, which he noted would “help financial institutions manage fund balances used to settle faster payment transactions regardless of whether they travel on existing faster payment rails or on any news solution.” He also urged the Fed to use its role as a market regulator to prod core processing companies to help banks quickly connect with real-time payments providers. Comments on the Fed’s notice—which also seeks feedback on expanded hours for the Fedwire Funds Service and the National Settlement service—are due 90 days after it is published in the Federal Register. Read the Fed’s proposal. Read ABA’s full statement.