Fed to launch real-time payments system in 2023

Fed to launch real-time payments system in 2023
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The Federal Reserve announced Monday it would create and implement a system that would allow consumers and businesses to send and receive money instantaneously by 2023.

The system, called the FedNow Service, would allow any U.S. bank to immediately complete debits, virtual transfers and checks. Those transactions can take up to three days to finalize with current technology, posing challenges for households with tight budgets and limited financial flexibility.

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“Everyone deserves the same ability to make and receive payments immediately and securely, and every bank deserves the same opportunity to offer that service to its community,” said Fed Governor Lael Brainard in a speech announcing the decision.

“FedNow will allow faster payments to reach banks of all sizes and their customers across the country.”

The FedNow system will operate nonstop and is set to launch in four years. The Fed’s board of governors approved the proposal on Aug. 2 in a 4-1 vote, with only Randal Quarles, the Fed vice chair for supervision, opposing the plan.

The Fed currently processes payments by settling debts between banks in large, daily batches, which delays recipients' access to funds. There is substantial bipartisan support for some type of national system to eliminate payment processing delays, along with the late fees and overdraft costs they create for consumers.

For example, a worker who receives a paycheck on a Friday may lack sufficient funds to pay a bill due the following Monday because checks can currently take up to three days to clear. That worker may need to overdraw their bank account or take out a high-interest loan to pay the bill, incurring large costs.

Real-time payments could also help small businesses with tight margins cover expenses with immediate access to funds from debit card payments, which right now also take days to clear.

“Immediate access to funds could be especially important for households on fixed incomes or living paycheck to paycheck, when waiting days for the funds to be available to pay a bill can mean overdraft fees or late fees that can compound,” Brainard said.

“Similarly, getting immediate access to funds from a sale in order to pay for supplies can be a game changer for small businesses.”

The Fed’s announcement won praise from Democratic lawmakers, consumer advocates and liberal researchers, who have pressured the Fed to create a real-time payments system. 

“Today’s decision from the Federal Reserve is a huge win for the American people and for our economy. For too long, consumers and small businesses have unfairly shouldered the costs our slow payments system,” said Sen. Chris Van HollenChristopher (Chris) Van HollenOvernight Defense: Erdoğan gets earful from GOP senators | Amazon to challenge Pentagon cloud contract decision in court | Lawmakers under pressure to pass benefits fix for military families Senate Foreign Relations chair: 'Best' not to pass Turkey sanctions bill 'at this moment' On The Money: Retirement savings bill blocked in Senate after fight over amendments | Stopgap bill may set up December spending fight | Hardwood industry pleads for relief from Trump trade war MORE (D-Md.) in a statement.

Sen. Elizabeth WarrenElizabeth Ann WarrenRahm Emanuel: Bloomberg, Patrick entering race will allow Democrats to have 'ideas primary' Feehery: Pivoting to infrastructure could help heal post-impeachment wounds Jayapal hits back at Biden on marijuana 'prohibition' MORE (D-Mass.), a 2020 presidential candidate, said, “I’m glad the Fed has finally taken action to ensure that people living paycheck-to-paycheck don’t have to wait up to five days for a check to clear so that they can pay their rent, cover child care, or pick up groceries.”

But the decision is expected to draw skepticism from large U.S. banks, who’ve developed their own real-time platform, and right-leaning critics who prefer a private-sector solution.