Financial Inclusion

Why FedNow, Postal Banking Might Find Spotlight in November Election

The presidential race is now, finally, and fully, on.

And, so, too, is the parlor game of guessing what happens if the current administration gives way to a new one.

Joe Biden, the presumptive Democratic party nominee for president, has announced that California Sen. Kamala Harris will be his running mate as vice presidential nominee.

And though the election is months away, and official party platforms have yet to be adopted, there are some hints as to what might be on the horizon for financial services — chiefly, as concerns the central bank (the Federal Reserve) and banking in general, or at least some parts of banking.

As detailed last month by a task force constructed by Biden and one-time rival for the nomination Vermont Sen. Bernie Sanders, recommendations include the establishment of a real-time payments system via the Federal Reserve, a Postal banking system and a public credit reporting agency.

In the task force recommendations, under the heading “Ensuring Equitable Access to Banking and Financial Services,” the paper noted that “one in four American households are either unbanked or underbanked, putting them at risk of losing money due to exorbitant fees or usurious interest rates.”  Democrats, according to the paper “will support and encourage Congressional efforts to guarantee affordable, transparent, trustworthy banking services for low- and middle-income families, including bank accounts and real-time payment systems through the Federal Reserve.”  Everyone should have Fed accounts, and families and individuals, taking advantage of real-time payments, would not have to wait days for checks to settle.

Faster Payments On The Agenda

Faster payments, of course, have been much in the news.  As has been reported, the Federal Reserve is moving ahead with FedNow, its instant payments initiative that may not be ready to take its place alongside similar offerings from the private sector until 2023 or 2024 – which we note would be the tail end of any administration (Biden or Trump) that takes office in the wake of the November 2020 election.

As PYMNTS noted in coverage earlier this week, “not everyone favors the Federal Reserve Board’s launch of its settlement service,” and where a majority of comments from financial services stakeholders said the central bank should not compete with the financial sector.

As to just how accounts may be on offer through the Fed: The Biden/Sanders document offers no details on mechanics.  But if establishing such accounts gains widespread discussion, consider the fact that as recently as this past spring,  a draft version of the stimulus bill, written by House Democrats, would have created a digital dollar — a proposal ultimately discarded. The proposed digital dollar would have been “a balance expressed as a dollar value consisting of digital ledger entries that are recorded as liabilities in the accounts of any Federal Reserve bank; or an electronic unit of value, redeemable by an eligible financial institution (as determined by the Board of Governors of the Federal Reserve System).”

Elsewhere, the task force recommendations that the government provide “easily accessible service locations” across postal banking sites, may be easier said than done.

We wrote last year that the United States has had postal banking in the past — from 1911 to 1967.   But consumers ultimately opted for private banks, which offer a broader (and cost-effective) range of competitive services.  Post offices, too, do not have vaults in place or the digital infrastructure needed to manage the movement of money.

It’s a long leap from proposal to policy — but the task force recommendations may give hint as to what might be on at least one presidential ticket’s agenda.



About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.