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New Instant Payment Service To Kick Off Within The Federal Reserve

This past Monday, the Federal Reserve officially announced the creation and upcoming launch of a new instant payment service for the summer of 2023.

After being developed by the central bank over the past few years, FedNow is slated to be a “flexible, neutral platform that supports a broad variety of instant payments” such that consumers can immediately send money via their personal financial institutions, according to a description from the central bank. Lael Brainard, the Federal Reserve Vice Chair, stated as part of a speech to developers that FedNow will “transform the way everyday payments are made throughout the economy.”

“Immediate availability of funds could be especially important for households managing their finances paycheck to paycheck or small businesses with cash flow constraints,” she expressed. “Having the capacity to manage money in real time could help households avoid costly late payment fees or free up working capital for small businesses to finance growth.”

In some other examples, FedNow is slated to get rid of the merchants’ need to wait roughly one to three days before payments are done depositing, as well as the need for various workers to wait multiple days before actually getting access to their paychecks.

Retailers currently pay on average a $0.23 interchange fee when someone makes use of debit cards, as reported from data provided by the Federal Reserve itself, which FedNow hopes to undercut to a significant degree.

“Americans rely on the payment system all day every day to make purchases, pay bills, and get paid — without ever needing to consider the complex infrastructure that is operating under the hood,” stated Brainard. “American households and businesses want and deserve payment transactions that work seamlessly, reliably, and efficiently.”

The plan comes just as the central bank also starts to consider the creation of a new “central bank digital currency” (CBDC) that would work as an alternative to any other digital asset —  including things such as cryptocurrencies, which serve as virtual coins protected from counterfeiting via strong encryption, and stablecoins, which try to attach themselves to other assets such as gold or even the dollar itself. Jerome Powell, the Federal Reserve Chair, stated to legislators just last year that he had no wishes to push that project any faster.

“I think our obligation is to explore both the technology and the policy issues over the next couple of years,” he explained. “That’s what we’re going to do so that we’re in a position to make an informed recommendation. Again, my mind is open on this, and I honestly don’t have a preconceived answer to these questions.”

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