The Federal Reserve Bank said it would implement its FedNow Service, modernizing the payments infrastructure and giving businesses more flexibility in managing money and making time-sensitive payments. The service, which is expected to be operational in 2023 or 2024, would also allow both business and workers to access the funds without having to wait on their bank to process the payment.
“For food retail businesses, it will spur innovation, create certainty in payments and free up the billions of dollars in capital that’s fettered in transit. RTGS (real-time gross settlement systems) promote real-time transparency into actual credit charges and eliminates the days of 'pending' transactions that become added to total card balances,” said Hannah Walker, VP of political affairs for the Food Marketing Institute (FMI).
In announcing the new system, Lael Brainard of the Federal Reserve Bank (FEB) said, “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. Similarly, getting immediate access to funds from a sale in order to pay for supplies can be a game changer for small businesses, potentially avoiding the need for costly short-term financing.”
During a comment period last November, FMI had requested a real-time gross settlements system. “We’re extremely pleased with the FED’s announcement to create a real-time payment system and thank the [Fed] governors for their support. It is a commonsense solution that will bring U.S. payments into the 21st century, in order to mirror what is happening in the global market,” Walker said.
The FedNow Service will provide a modern payment infrastructure that will allow innovation and competition to deliver faster payments safely, Brainard said in her announcement of the program at the Federal Reserve Bank of Kansas City in Missouri.
“Through the FedNow Service, we will provide a foundation for the future—a modern payment infrastructure that allows innovation and competition to flourish and delivers faster payments safely and securely for all,” Brainard said. “To ensure fast payments are available to everyone, FedNow will be accessible to all banks, no matter the size. Given our long-standing service connections with more than 10,000 banks across the country, the Federal Reserve is uniquely placed to deliver this outcome.”