WASHINGTON -The Federal Reserve launched its long-awaited instant payments system on Thursday, bringing the United States in line with other countries from Britain to Brazil where real-time payments platforms already operate.
The Fed hopes the FedNow payments service will convince US consumers and businesses to ditch cash and checks, which are still widely used across the country, and embrace the faster payments its system allows.
“The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient,” Federal Reserve Chair Jerome Powell said in a statement.
“Over time, as more banks choose to use this new tool, the benefits to individuals and businesses will include enabling a person to immediately receive a paycheck, or a company to instantly access funds when an invoice is paid,” he added.
Just 35 of the more-than 4,000 US banks signed up to FedNow ahead of its Thursday launch, according to the Fed, including a few large lenders like JP Morgan and Wells Fargo.
But the US central bank said it hopes that more lenders will use the service, as businesses and consumers embrace the ease of being able to transfer up to half a million dollars in near-real time.
Funds transfers in the US currently take “an inordinate amount of time compared with modern technology,” EY Parthenon’s chief economist Gregory Daco told AFP.
Customers of the 35 banks which signed up will now have access to real-time transfers, which should lead to a decline in the use of checks to pay things like utility bill and rent, he added.
While a range of seemingly-instant payment apps like Venmo and Zelle already exist, they do not actually transfer the funds in real time between different accounts.
Instead, they often rely on older, more cumbersome systems like Automated Clearing House (ACH) to move money between accounts.