The Federal Reserve Board on Thursday (Aug. 6) announced details of a 24/7 year-round interbank settlement service to accelerate the time it takes to process instant payments, with a clearing function to support instant payments in the U.S.
FedNow Service represents a milestone that promises to provide clearing and settlement features that will support the public’s needs and assist banks manage the transition, the Fed said.
“The rapid expenditure of COVID emergency relief payments highlighted the critical importance of having a resilient instant payments infrastructure with nationwide reach, especially for households and small businesses with cash flow constraints,” said Federal Reserve Board Governor Lael Brainard in a statement.
The idea surfaced last summer when the Fed sought volunteers to craft the program. Its mission was to design and initiate a way to eliminate the standard three-day wait for checks to clear and provide immediate access to funds when using paper. The ultimate goal, officials said then, is to transition to digital payments.
“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,” Brainard said during a speech at the Federal Reserve Bank of Kansas City at the time.
The Fed said additional features and service enhancements will be introduced over time. The target launch date for the service remains 2023 or 2024, with a more specific time frame to be announced after additional work is completed.
“Since we initiated FedNow one year ago, we have been hitting our project milestones, and today I am pleased to announce the Federal Reserve Board has approved the core features and functionality based on extensive input from stakeholders,” Brainard said.
Last month, in Powering the Digital Shift 2020 PYMNTS reported one area COVID-19 has spotlighted is digital banking, as unprecedented numbers of payments have gone electronic and are required to be made instantly.
The report revealed instant payment traffic has soared exponentially, putting the focus on the infrastructure required to make it happen.
An increase in electronic payments has also propelled the nation to become a cashless society, underlining the importance of digital infrastructure and ensuring an optimal customer experience.