Fed to offer faster payments system
WASHINGTON: The Federal Reserve on Monday announced it will build its own infrastructure for near-instant payments, a move that will have sweeping implications for banks and consumers nationwide.
Such a system would allow people to receive money in their bank accounts within seconds after it's sent to them, lightning speed by today's standards. Under the traditional system that handles card payments and direct deposits, transactions are settled en masse three times a day and only during business hours, a costly reality for the millions of Americans living paycheck to paycheck.
But big banks have spent weeks lobbying their allies in Congress to warn the Fed against building a real-time payments system, which would compete with a nascent one they've already built and - they argue - delay the goal of faster payments that can reach everyone.
"We are not making this decision lightly," Fed Governor Lael Brainard, who is in charge of payments issues at the central bank, said in a speech at the Kansas City Fed. "After carefully weighing important considerations on both sides, we have concluded it is our responsibility to take action in support of a real-time payment infrastructure accessible to all."
The central bank is putting out a request for comment before it finalizes the design and features of the system, which will be called the FedNow Service and is projected to be completed by 2023 or 2024. The Fed's board in Washington voted to approve the decision on Friday, with Fed Vice Chairman for Supervision Randal Quarles dissenting.
Quarles said the government should only step in to provide payments solutions "when the evidence of market failure is clear and alternative means to achieve public goals are not feasible."
"In this case, I do not see a strong justification for the Federal Reserve to move into this area and crowd out innovation when viable private-sector alternatives are available," he said in a statement.
"A Fed-operated real-time settlement system will ensure industry-wide access," said Rebeca Romero Rainey, head of the Independent Community Bankers of America. "Fed involvement also will avoid the risk of having only one, for-profit settlement service run by the nation's largest and riskiest financial institutions."
The move was also lauded by Democratic lawmakers, who have taken the lead legislatively on pushing the Fed to implement a real-time payments system: Sens. Elizabeth Warren (D-Mass.) and Chris Van Hollen (D-Md.), and Reps. Chuy García (D-Ill.) and Ayanna Pressley (D-Mass.). Big tech companies organized as Financial Innovation Now called it a "bold step into the future," while the Retail Industry Leaders Association dismissed "distracting concerns from large financial institutions."