The United States Federal Reserve Board has unveiled its plans of launching a new service that will allow all the banks in the country to offer 24/7 real-time payment services. The service under development is dubbed FedNow, expected to rival bitcoin, will be available by 2023 or 2024, according to reports.
The crypto community on the other hand was abuzz with the Fed’s announcement of launching its own real-time payment system. Anthony Pompliano, co-founder of crypto asset management firm Morgan Creek Digital Assets, tweeted.
Bitcoin is already available. 🤷🏽♂️ https://t.co/HW0Lp7N8dz
— Pomp 🌪 (@APompliano) August 5, 2019
In addition to Pomp, Gabor Gurbacs, director of digital assets strategy at MV Index Solutions, a subsidiary of investment management firm VanEck, also took to twitter with a more diplomatic response though.
Great that the @federalreserve is taking a forward looking and intelligent stance regarding innovation in #DigitalAssets and #payments. I recommend considering the benefits of #Bitcoin, a functioning, reliable, trust-minimized base-layer for sound money. https://t.co/jyQfXBJNmm
— Gabor Gurbacs (@gaborgurbacs) August 5, 2019
The board of governors of the Federal Reserve voted on the proposal for the project on August 2, the outcome of which was in favor of FedNow as they voted 4-1 to approve it.
The new system would allow bill payments, paychecks and other transfers to be available instantaneously and round-the-clock, which is a far cry from the government’s current system that offers limited availability. Commenting on the issue, Federal Reserve Board Governor Lael Brainard said:
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. FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers
The Federal Reserve’s endeavor isn’t exactly a break through as multiple applications with a similar use case already exist; apps like Venmo and Zelle amongst others, already offer users the ease of transferring money instantly.
However, the Federal Reserve Bank describes the services offered by those apps as a closed loop, because on those apps, both parties involved in the transfer need to be on the same platform in order to carry out the process usefully. And they can only be linked to accounts from certain banks.
Moreover, this announcement comes at a time when big technology corporations are paving their way into the financial space and the banking world. Facebook’s forthcoming Libra is the best example, a digital token that will facilitate real-time transactions across the globe.
FedNow, on the other hand, will reportedly be more of a universal infrastructure encompassing all banks, even the smaller ones, in order to provide the ability of real-time payments to people. This new system will be aiming to eliminate the delay that many people face under the current system, such as the amount of time that takes for a deposited check to be realized in an account.
Such delays cost billions of dollars in late fees and overdraft charges for millions of people living paycheck-to-paycheck, according to reports. According to Federal Reserve Gov. Lael Brainard:
Immediate access to funds could be especially important to households with fixed incomes or living paycheck to paycheck
In addition to creating rather frustrating delays, the Federal Reserve Board said that the traditional method can also result in a build-up of financial obligations between banks which, as faster payment usage grows, could present risks to the financial system, especially in times of stress.
The proposal until now has managed to garner support of some of the most prominent names in the industry, including from Google’s head of payments, Caesar Sengupta, who took to twitter to laud the new project saying:
Great to see today’s news on a real-time payments system in the US! We @ Google welcome the Fed’s leadership here. This is a good step toward more economic opportunity and financial inclusion for everyone
Other supporters of FedNow include Democratic lawmakers, including U.S. Senators Elizabeth Warren and Chris Van Hollen and Representatives Ayanna Pressley and Jesús García. The Federal Reserve Bank’s newest project also has quite the tough competition awaiting it in the playing field as this could pit it against some of America’s biggest banks that are already offering similar services like Bank of America and JPMorgan Chase.
The Federal Reserve is requesting comments on how its service, FedNow, should be designed, which will be accepted for 90 days after the proposal is published in the Federal Register.