An organization representing leading fintech companies including Square and Stripe celebrated news from the Federal Reserve this week, as the Fed outlined its plans to invest in real-time payments infrastructure.
In a speech on Monday, Federal Reserve Governor Lael Brainard announced that the Fed plans to develop a real-time payments and settlement system called the FedNow Service. She noted that, currently, it can take days for individuals or businesses to have access to their funds.
“With a Federal Reserve real-time retail payment infrastructure, the funds would be available immediately—to pay utility bills or split the rent with roommates, or for small business owners to pay their suppliers,” she said.
Brainard pointed out that households with limited incomes could benefit from such a system by avoiding overdraft or late fees.
“Similarly,” she continued, “getting immediate access to funds from a sale in order to pay for supplies can be a game changer for small businesses, potentially avoiding the need for costly short-term financing.”
The new service would introduce a rival to the Clearing House, a system developed and owned by some of the country’s largest banks, including J.P. Morgan Chase and Bank of America. According to the Washington Post, big banks oppose a Fed-run system, arguing that it could enable technology companies to further insert themselves into financial services.
Some of those technology companies, represented by the organization Financial Innovation Now (FIN), have publicly supported the formation of such a system. In December, the Federal Reserve invited comment on a proposal to develop this service, prompting a letter of support from FIN that was signed by its members Square, Stripe and PayPal, as well as Intuit and tech giants Apple, Amazon and Google.
Following the Fed’s Monday announcement, FIN released a new statement applauding the move.
“Today the Federal Reserve Board is taking a bold step into the future. Real-time payments can improve the economy, grow small businesses, and help American consumers keep up with everyday needs. FIN has long argued to policymakers that sending money should be as fast and easy as sending a text message. That future will not come for all Americans unless the Fed acts to ensure wide adoption of a real-time payments infrastructure that serves the economy and public interest,” Brian Peters, FIN’s executive director, said in the statement.
“America’s payment infrastructure is long overdue for an upgrade, and today we heartily commend the Board’s resolve and leadership, which will result in a foundation for America’s future innovation. FIN looks forward to working with the Federal Reserve on a timely process that benefits all payment system users and stakeholders. This decision is a giant step forward, and history will look back at today’s announcement as the generation’s true payment milestone,” Peters said.