US Federal Reserve looks to match India with launch of new real-time payments service FedNow
Federal Reserve is to launch a new payment service that could allow Americans to send and receive money in seconds. The new service, called 'FedNow', will initially launch with 41 banks and 15 service providers, including community banks and large lenders such as JPMorgan Chase, Bank of New York Mellon and US Bancorp, with plans to add more banks and credit unions later this year. The Federal Reserve has been working on the service since 2019, but it was initially opposed by the big banks, who argued it was redundant, but later agreed to participate as they believe FedNow will expand the services they can offer their customers.
FedNow aims to put the US on a par with countries such as India, the UK, Brazil and the European Union by eliminating the multi-day delay it typically takes to settle cash transfers. The Fed already operates a real-time payments system called FedWire for large, mostly corporate payments, but the service is only available during business hours, unlike FedNow, which will be available 24/7. Reportedly, FedNow is expected to benefit consumers and small businesses the most.
The new service differs from peer-to-peer services such as PayPal and Venmo in that payments made through FedNow will be directly settled into central bank accounts. FedNow will have a payment limit of $500,000, but this can be lowered if necessary. The new service will be free to the customer, but uncertainty remains over how these costs will be passed on by the participating banks.
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