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What's Up in Washington: FedNow, a Faster Payments Option for All Stakeholders (MAG Quarterly- Volume Seven, Issue Three)

By Beth Provenzano, Vice President, Public Affairs, MAG 

September 5, 2019

The Federal Reserve Board announced that the Federal Reserve Banks will develop FedNow, a real-time payments and settlement service.  Merchants, community banks, consumer groups, and FinTech have advocated their support of the Fed’s faster payments efforts. The hard work and commitment to competition and innovation in real-time payments and settlement services pays off for all stakeholders.

FedNow, the Federal Reserve’s new payments and settlement service
In early August, the Federal Reserve Board (Fed) announced that the Federal Reserve Banks will develop a new real-time payment and settlement service. The FedNow Service will support faster payments in the United States and will be developed over the next several years. The Fed expects FedNow will be operational in 2023 or 2024. They are soliciting comments from payments systems stakeholders as they develop and implement the new service. The initial comment period will ask stakeholders to share their views on how the new service might be designed to most effectively support the full set of payment system stakeholders and the functioning of the broader U.S. payment system. 

Governor Lael Brainard announced the decision at the Kansas City Federal Reserve Bank and later took questions with Esther George, Kansas City Federal Reserve Bank President. Governor Brainard said the new service will permit banks of every size in every community to provide real-time payments to their customers. She also indicated that the ability to immediately and securely move funds is important for all consumers.

MAG applauds the Fed’s decision to operate a real-time payments and settlements service and has long supported the Fed’s efforts in faster payments through involvement in the Faster Payments Task Force, submitting comments supportive of the Fed serving as an operator, and in the press. The new service provides an important opportunity to create competition, innovation and security in the market. MAG will continue to share merchants’ perspectives in the ongoing work to develop and implement FedNow.  Please let me know if you are interested in sharing your company’s perspective as we develop comments and feedback to share with the Fed. 

Prior to the Fed’s announcement and the Congressional recess in August, there was a flurry of activity on all sides of the issue. Senators Warner (D-VA), Tillis (R-NC), Carper (D-DE), Perdue (R-GA), and Tester (D-MT) sent a letter to Federal Reserve Chairman Powell asking for clarity on a possible real-time payments rail. Chairman Powell responded just before the announcement regarding FedNow.  Senators Van Hollen (D-MD) and Warren (D-MA) introduced S. 2243, The Payments Modernization Act, and Representatives Pressley (D-MA) and Garcia (D-IL) introduced H.R. 3951, a companion bill in the House. Representative Riggleman (R-VA) introduced H.R. 3928, which would impose transparency requirements on the Fed in order for them to provide any new payments service. Representative Budd’s (R-NC) bill, H.R. 3939, would require a quantitative impact study before the Fed can implement a real-time payments system.  With the Fed’s announcement, we expect Congressional activity to slow down; however, the House Financial Services Committee Task Force on Financial Technology will convene a hearing to examine “The Future of Real-Time Payments” on September 26. 

Fedwire Funds and National Settlement Service
MAG submitted comments to the Fed in July regarding their request to consider the expansion of Fedwire Funds Service and National Settlement Service (NSS) hours. During the announcement regarding FedNow, the Board also announced its intent to explore expanding the Fedwire Funds and NSS hours, up to 24x7x365, to facilitate liquidity management in private-sector real-time gross settlement services (RTGS) for faster payments and to support a wide range of payment activities beyond RTGS. MAG will stay engaged with the Fed as they take on this topic as well.