FedNow : Inside the Fed's plans to launch a real time payments service
Those in India might be familiar with the concept of UPI - Unified Payments Interface which is India's 24/7 real time payments and settlement service which allows you to transfer money directly from any bank account to another bank account developed by the NPCI-National Payments Corporation of India(owned by major Indian banks) which has been a resounding success with more than 1 billion in transactions processed on the mobile payments platform. The major players including Google pay, PhonePe-owned by Walmart, Paytm, etc. The major feature of UPI its interoperability i.e. you can use any UPI powered app to transfer money to another person using any other UPI powered app. How can you set up your own UPI app, simple just connect with any bank which is linked to the UPI platform using it's API (though you'll have satisfy their security and other requirements) and voila your app can be used by any person with a bank account to make peer to peer and peer to merchant payments, you can even make cash withdrawals from your local shop instead of trying to find an ATM.
In comparison America currently has no direct bank to bank money transfer service. What it does have is PayPal, Venmo, Cash App, etc, these services while using advanced technology have no interoperability so you cannot use it transfer money from Venmo to Cash app.
Now comes in FedNow, the round the clock real time payments and settlement service conceptualized by the Federal Reserve to facilitate interbank settlement of faster payments. This is what the Fed has to say about it
The rapid evolution of technology presents a pivotal opportunity for the Federal Reserve and the payment industry to modernize the nation's payment system and establish a safe and efficient foundation for the future.
No traditional payment system, including checks, ACH, funds transfers, or payment cards, has ever achieved nationwide reach through a single private-sector provider. The Federal Reserve, however, has long-standing relationships with, and has built a nationwide infrastructure to provide service to, more than 10,000 depository institutions (or their agents) across the country, which would provide a key channel to reach thousands of smaller institutions in the United States that might otherwise not have access to an RTGS infrastructure for faster payments.
So why do it now, the only thing I could think of is the increasing acceptance of crypto including bitcoin projects like the lighting network and the impending launch of facebook's libra cryptocurrency which has already signed many ecosystem partners (see the image below)
So when will FedNow be available, well the Fed says maybe in 2023 or 2024. That feels like a long enough time but sit tight as FedNow will certainly disrupt payments and money transfers as we know it in America.
Next week, a follow up post on RTP v/s FedNow