The US Federal Reserve has announced that it plans to develop a real-time payment system called ‘FedNow.’ According to the press release, the settlement service will be launched by 2023 or 2024.
It is aimed at modernizing the country’s payment system, enabling instantaneous fund transfers 24 hours a day and seven days a week. The announcement, however, received criticism from larger banks that have already established their own payment practices.
FedNow to Compete with Private Payment Systems
Lael Brainard, the Federal Reserve Governor, said,
“Everyone deserves the same ability to make and receive payments immediately and securely, and every bank deserves the same opportunity to offer that service to its community.”
She added that FedNow would allow banks of every size to provide real-time payment services to their customers.
In its press release, the Federal Reserve said that FedNow has the potential to become widely used and yield economic benefits to individuals and businesses alike. This will allow people to have more flexibility in managing their money and make time-sensitive payments.
While smaller banks praised the move, larger banks have expressed concerns over the Federal Reserve competing with their privately established payment system. In 2017, large banks such as Wells Fargo, JPMorgan Chase, and Bank of America, among others established The Clearing House payments company to create a real-time payments system. However, Brainard clarified that the Federal Reserve wants to continue cooperating with private-sector services.
Federal Reserve Could Partner-up with Ripple
— Dilip Rao (@diliprao) August 5, 2019
In a tweet, Ripple’s global head Dilip Rao has said that FedNow will drive the transformation of real-time payment infrastructure. This has led to speculation that Ripple could be one of the private sector partnerships that the Federal Reserve has been looking into. While the Federal Reserve will likely not want to adopt XRP or any other cryptocurrency, the underlying technology that Ripple offers could be used.
Among the 16 proposals that were evaluated by the Federal Reserve’s Faster Payment Task Force (FATF), that were then classified into different brackets of effectiveness. Ripple received a “somewhat effective” evaluation, whereas Clearing House received a much more favorable rating. In June 2019, Ripple Lab’s Ryan Zagone, Head of Research in Business Development, was elected to the FATF Steering Committee. The task force was launched to build a safe and fast payment network in the US.
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(@APompliano) August 5, 2019
Within the cryptocurrency community, Anthony Pompliano pointed out that Bitcoin is already available. Gabor Gurbacs, digital asset director at investment firm VanEck, said that the Federal Reserve is taking an intelligent step, but that Bitcoin could be a reliable alternative as well. The remainder of the cryptocurrency community, however, remained critical of the service due to its centralized nature. That’s not to say that the Federal Reserve is ignoring cryptocurrencies, however. In fact, the President of the Federal Reserve believes that cryptocurrencies solve an “important social problem.”
Do you believe the launch of FedNow will finally modernize the US’ archaic payments network? Let us know your thoughts in the comments below.
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