Fed Now 24/7 Instant Payments is launched. The U.S. Federal Reserve on Thursday announced the availability of its instant payment device, work on which began in 2017. FedNow already includes 35 member banks, as well as 16 technology providers able to support establishments wishing to join the network. The US tax authorities are also connected to it. The service consists of a transfer of money between banks, available 24 hours a day and 7 days a week, the funds transferred are immediately usable by the recipient and the payment is therefore irrevocable. Fed Now complements the Fed’s existing offering which includes Fedwire and FedACH, the former being used for real-time large amount interbank transfers with more than 9,000 participating institutions, and the latter being the US government’s central banking system which processes millions of transactions every day.
Read also: The ECB has launched its instant payment system
Fintechs installed
Fed Now is open to institutions wishing to offer instant payments to their customers, individuals and businesses, and thus meet a growing demand for instantaneousness. The Fed had floated the idea of an instant payment system accessible to everyone about six years ago. The period of health crisis, which saw the digitization of payments accelerate, reinforced the perception that such an offer was becoming necessary. Especially since several fintechs offering mobile instant payment applications have developed a lot over the past ten years, such as Zelle (owned by a consortium of seven major American banks since 2017), Venmo (bought by Paypal in 2013) which processed $ 245 billion in transactions in 2022 or Square Cash App used by more than 36 million people…
Fed Now hopes to deploy widely with US banks to reach a large number of users, including businesses, in particular via the banks’ mobile applications or bill payment sites, and thus modernize local payment systems. In its presentation, the Fed underlines the interest of instantaneousness for “emergency or last-minute payments, which allow consumers to avoid late penalties, the risk of overdraft or the deterioration of their credit rating”, but also for workers in the “gig economy” (platforms) who can thus be paid immediately after their service. More generally, the instant payment should also allow some to avoid resorting to payday loans/advances with expensive interest rates.
To facilitate the liquidity management of the participating banks, the American central banks (Reserve Banks) will offer intraday credit during the usual operating hours of the Fed and a liquidity management tool allowing them to carry out interbank transfers during weekends or during Fed closing hours.
Read also: Klarna launches its instant payment service in the United States
Bet on adoption
The Fed wishes to stimulate the adoption of this new service and provides everyone (payment players or not) with communication elements on the expected benefits. In Europe, instant transfers (SCT Inst) were launched at the initiative of European institutions in conjunction with the European Payments Council in 2018 in 29 countries. Despite the encouragement of the European Central Bank and the provision of TIPS (Target Instant Payment Settlement), a low-cost European settlement system, it is clear that banks have adopted it at very different rates depending on the country. In France, in particular, where the most widespread means of electronic payment remains the bank card, adoption has been very gradual also because of the technical adaptations to be made on the non-real-time core banking systems. Almost five years after its launch, instant transfers still represent only 15% of all transfers made in Europe. The SCT Inst scheme still only accommodates 70% of payment providers (mainly banks) in the euro zone.
Share of instant transfers in transfers made in Europe. – EPC
2023-07-23 18:00:00
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