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- The much anticipated Federal Reserve instant payment network, FedNow, is set to be launched in July.
- This announcement comes after some crypto firms were sued by authorities for listing unregistered securities and crypto-friendly banks seemed to be targeted.
FedNow, the long-awaited payment system of the Federal Reserve, is reported to be launching in July. Its payment would be instant and has been designed to support consumer-to-consumer, consumer-to-merchant, merchant-to-merchant, and bank-to-bank transactions.
According to the Fed, several banks of different sizes including the US Treasury and the largest processors are on board. Starting in April, interested financial institutions can start certification to participate in the service. Per the feedback from the FedNow Pilot Program, early adopters will be required to conduct customer testing. This is to ensure that there is enough preparation to send live transactions via the system.
Ken Montgomery, first vice president of the Federal Reserve Bank of Boston and FedNow program executive expressed his excitement about this milestone.
We couldn’t be more excited about the forthcoming FedNow launch, which will enable every participating financial institution, the smallest to the largest and from all corners of the country, to offer a modern instant payment solution.
The Central Bank has also explained that the FedNow service would allow financial institutions to process payments every day and anytime, and would not be limited to banking hours. According to Montgomery, the availability of the service is just the beginning. In his statement, Montgomery noted that expanding the network of participating financial institutions is a critical point in increasing the availability of instant payments for all stakeholders.
FedNow could help banks provide better customer services
Tom Barkin, president of the Federal Reserve Bank of Richmond and FedNow Program executive sponsor, said in a statement that this initiative is a huge step to enable financial institutions to serve customers better.
With the FedNow Service, the Federal Reserve is creating a leading-edge payments system that is resilient, adaptive, and accessible. The launch reflects an important milestone in the journey to help financial institutions serve customer needs for instant payments to better support nearly every aspect of our economy.
The instant nature of the payment network is said to be a huge relief to Americans who live paycheck to paycheck and small businesses to avoid late payment fees which constrain cash flows. Analysts have also observed that since consumers will not have to wait for checks to clear, FedNow can cut demand for payday loans. Business would also be conducted smoothly as suppliers will be paid on time. According to Fed Governor Michelle Bowman, FedNow could offer some of the benefits of Central Bank Digital Currency (CBDC).
My expectation is that FedNow addresses the issues that some have raised about the need for a CBDC. As I’m sure you are already aware, earlier this year we published a discussion paper that outlined some design principles, costs, and benefits of a CBDC and solicited public comments.5 We received over 2,000 comments, and we are currently reviewing these comments and plan to publish a summary of them.
This announcement comes weeks after some crypto firms became targets of crackdowns in the US. Ripple-pro attorney John Deaton suspects that these coordinated attacks are politically and economically motivated. Some crypto enthusiasts have speculated that the recent attack on the crypto ecosystem could be designed to pave wat for FedNow and ultimately a CBDC.
