The Federal Reserve’s FedNow payment system is expected to be launched in 2023 or 2024, even though many in the financial community have urged the agency to implement it sooner.
Once it is implemented, the Fed has said the service would allow customers to send and receive payments at financial institutions instantly.
The Fed acknowledged that when it solicited comments on the proposal, many individuals, trade groups and financial institutions pushed the agency to implement the system faster. “The Board understands these timing concerns, and the Reserve Banks are working to bring the FedNow Service to market as soon as practicably possible, while also ensuring the requisite level of security and resiliency,” the agency said, in a notice published Thursday.
Fed officials said that even before full implementation of the program, they intend to test it through pilot programs. They said the service will be phased in over time.
“The rapid expenditure of COVID emergency relief payments highlighted the critical importance of having a resilient instant payments infrastructure with nationwide reach, especially for households and small businesses with cash flow constraints,” said Federal Reserve Board Governor Lael Brainard.”
Fed officials said that working alongside similar private sector services, FedNow will modernize the U.S. payment system and bring the benefits of instant payments broadly across the country.
“For individuals, instant payments reduces the need for high-cost borrowing and the risk of associated penalties, such as overdraft or late fees,” the Fed said. “Instant payments could be particularly helpful for individuals facing financial constraints or in times of crisis when there is heightened need to move money quickly and access funds almost immediately.”
Credit union officials emphasized the importance of the service when they commented on it.
“The development of FedNow is imperative to the continued success of credit unions, and likely the only way that all credit unions will be able offer Americans of modest means critical financial services in the future,” Lance Noggle, the Credit Union National Association’s senior director of advocacy and senior counsel for payments and cybersecurity told the Fed, in commenting on the proposal.
National Association of Federally-Insured Credit Union officials also urged the Fed to expedite the launch of the service as soon as possible.
The Clearing House, a company owned by the largest commercial banks, has a quick-payment service, but credit unions have little control over that company, according to Noggle.