FedNow is Here Now – Is it a Good Idea?

The Fed Is Rewiring the U.S. Payments System, here are some of the changes coming for you.

Fed Chair Jerome Powell testified before the House Financial Services Committee on March 8 that FedNow “will enable all the banks—any bank in the United States, not just the big ones—to offer instantly available funds in real-time payments to their customers.” “What a great thing!”

Now, “that’s a great thing” is open to debate. It also means an outside agency will possibly have more control of your money. Certainly, this will make your banking even more trackable.

In late July, the Federal Reserve will launch The FedNow Service, a platform for real-time payments. Although FedNow is years behind its tech-based private sector competitors, it will radically change how business is done in the US. It will be the first instant digital payment system developed and backed by the government.

According to Ken Montgomery, first vice president at the Federal Reserve Bank of Boston and program executive for the FedNow Service, “We are on track for the FedNow Service launch, with a strong cohort of financial institutions and service providers of all sizes in the process of concluding the final round of readiness testing.”

The Fed’s thousands of participating financial institutions have waited years for a real-time system supported by the government since the greatest banking universe has been housed under its current, slower payments setup.

Apps like Venmo, Cash App, and Zelle make such transactions practically quick, it can still take days to transfer money or make payments from your bank account. This is so that the entire banking system may use a real-time digital payments system that is not currently owned by the federal government.

In order for financial institutions to offer consumers rapid end-to-end payments, FedNow serves as the clearing service for their transactions. The main distinction between this service and the Fed’s existing platform is that FedNow will be available around-the-clock and handle transactions in real time.

More than 10,000 financial institutions that are part of the Fed’s network are eligible to use the FedNow service. That method excludes private money-transfer apps like Venmo and Cash App. The bank has to “clear” the funds, which is one of the reasons it takes a few days for you to transfer money from these applications to your bank account.

More news, which not everyone may find good. Once more, the management of your personal finances can be not only tracked but also potentially managed by someone else.

The Fed intends to conduct a preliminary launch in late July followed by an official, extensive launch in 2024. The Fed reported on June 29 that 57 organizations had thus far accepted FedNow after passing official testing.

FedNow has been under development for almost ten years. The Fed began considering a network for fast payments in 2013 and established the Faster Payments Task Force (FPTF) in 2015 to develop a strategy. The Fed announced FedNow in August 2019 and has since been running pilot projects with financial institutions. This came after years of discussions, the publication of numerous research, and a time of soliciting public feedback.

Currently, several of the larger financial institutions use the Real-Time Payments network, a private service introduced in 2017 for the movement of cash. Only Zelle, among the most recent phone-based money transfer apps, uses the RTP network.

They have the option to use the FedNow system in addition to the RTP network, which is already used by more than 100 financial institutions. Some detractors claim FedNow will eventually engage in competition with businesses in the private sector providing similar services, while others contend it will act as an addition or extension.

Either way, FedNow will open the door to thousands more financial institutions that will be able to offer instant transactions for consumers and businesses. The implications are likely to be global – including the possibility of lost complete control of your own money.

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