The Fed Announces Expected Timeline For Instant Payment Settlement Platform

Federal Reserve Vice-chair Lael Brainard gave a timeline for the launch of FedNow, the platform it has been working on to enable nearly instant payment settlement within the U.S.

Driving the news: FedNow should launch in 2023 between May and July. This is the most specific the Fed has been yet about when the service will go live. 

• “The payment system is a critical part of America’s infrastructure that touches everyone.,” Brainard said in a speech she gave today via webcast to the FedNow early adopters workshop in Rosemont, Illinois.

Why it matters: Consumers probably don’t realize that every time they swipe a debit card, it costs the merchant an average of $0.23, according to Merchant Maverick. Those costs stack up and ultimately get passed on in sticker prices. 

• The FedNow platform, meanwhile, will cost a fifth of that to make a transaction. 

How it works: FedNow is a platform the Fed will provide for banks to build on top of and create payment features in existing or new products. Products enabled by FedNow will have nearly instant settlement around the clock. 

• Ever needed a cashiers check after all the bank branches had closed? FedNow could be an answer for that kind of situation. 
• Depending on how its partners implement FedNow, it could be used consumer-to-business, business-to-business or consumer-to-consumer. 

“Immediate availability of funds could be especially important for households managing their finances paycheck to paycheck,” Brainard said. “Having the capacity to manage money in real time could help households avoid costly late payment fees.”

Our thought bubble: One would hope all the services built on FedNow will also be interoperable (unlike Venmo, Zelle and Cash App, for example), so it won’t matter which app your friends and family use or where they bank. 

• Brainard spoke about her desire for interoperability in payments in a prior speech, but it’s going to be more up to the Fed’s partners than the Fed itself. 

Of note: FedNow is not a blockchain-based product and it’s not a central bank digital currency (CBDC). It still very much relies on third parties, to operate, for example. 

• But — if it catches on — it would make money as we know it more competitive with cryptocurrencies, by lowering the cost to transact and providing low risk settlement around the clock. 
• “The shift to real-time payment infrastructure requires a focused effort, but the shift is inevitable,” Brainard said.

Flashback: The Fed finalized the rule to govern FedNow in May.

The bottom line: “We have been working hard to deliver on time, but ultimately the number of American businesses and households that are able to access instant payments will depend on financial services providers making the necessary investments to upgrade our payments infrastructure,” Brainard said.

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