Today was a monumental day for the financial services industry. For the first time in more than forty years, the Federal Reserve has committed to launching a new payments rail, announcing that it will operate a real-time system for the nation.
To be called the FedNow℠ Service, this offering will provide a way for all financial institutions to offer real-time payments. In the words of Federal Reserve Board Governor Lael Brainard: "FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers."
We see this as a boon to the market, creating another option for all FIs in the U.S. and ultimately benefitting the businesses and consumers who will now have access to real-time payments.
While this announcement is a call-to-action for the industry, the timeframe for implementation remains bit further out. Governor Brainard delivered formal remarks that pointed to plans for the Fed to move expeditiously and streamline processes to bring this service to market as quickly as possible, but the official press release indicated that Board is anticipating the FedNow Service will be available in 2023 or 2024.
The upside of this longer-range time to market is community banks and credit unions will have adequate space to ensure this new development can be factored into operational budgets and technology build plans. Certainly, subsequent announcements from core providers and other third parties will help all FIs better understand the specifics of how they can ramp up to offering real-time payments in their institutions.
Yet, beyond the personal question of how an individual institution will tackle this project, there are a number of big-picture questions that need to be answered. What does interoperability look like and when will it be achieved? How exactly will settlement work? Will there be standards to support this work, and if so, how will they come together?
The good news is that the Fed is asking for our feedback on these very things, and on how to design the system. The Federal Register notice requests broad input on “how the new service might be designed to most effectively support the full set of payment system stakeholders and the functioning of the broader U.S. payment system.” We have the opportunity to guide what we think will work best for this system, and it’s not an opportunity any of us should take lightly.
But, while there are a lot of questions to be answered, let’s take a moment to reflect on the significance of this announcement. Because no matter how we look at it, one thing’s for certain: real-time payments in the U.S. just took a giant step forward.