The Federal Reserve, rebuffing an intensive Wall Street lobbying campaign, plans to create a real-time payment system that will compete with a venture formed by big banks.
The FedNow Service, set to begin operating by 2023 or 2024, will modernize the payments infrastructure by allowing money to be moved almost instantly at every hour of every day, the regulator said in a statement Monday. The system could give consumers and businesses more flexibility in managing money and making time-sensitive payments, the Fed says.
“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,” Fed Governor Lael Brainard said in remarks prepared for a speech at the Federal Reserve Bank of Kansas City, where she announced the plan.
A coalition of financial giants including Citigroup Inc. and Wells Fargo & Co. introduced a service called Real-Time Payments in 2017, aiming to improve the antiquated U.S. system for processing transactions. The companies pitched their idea as a kind of utility and have been lobbying lawmakers and the Fed to abandon consideration of a government-run system.
“We see important benefits from the resilient and competitive market that would result from the FedNow Service providing an alternative,” Brainard said in her prepared remarks. “We have provided vital support to the sole private-sector provider of real-time settlement for faster payments, and we will continue to do so.”
Bank Policy Institute President Greg Baer, whose Washington-based group lobbies on behalf of Wall Street lenders, said last week that the 24 firms involved in Real-Time Payments “have individually or collectively paid hundreds of millions of dollars to build that system.”
Brainard noted the Fed’s history of “healthy competition with private-sector providers” and said it’s uniquely placed to provide this service -- especially in guaranteeing access for thousands of small banks.
She also suggested Facebook Inc.’s recent announcement of plans to create a digital currency -- Libra -- may have been a factor in the Fed moving forward, noting that private companies are looking to establish payment systems that bypass banks and fiat currencies.
Still, the Fed won’t be putting it in place any sooner than 2023, according to the statement, meaning the private-sector version will have the advantage of moving trillions of dollars for years before the government clears its first dollar.
Recent remarks from Fed Chairman Jerome Powell had been taken as a signal the central bank was leaning toward doing its own system. He said last week that support for his agency getting involved had been “overwhelmingly favorable,” and he underlined the fact that the Fed had long been in the payments business.