Big banks line up against small institutions in war for faster payments

Consumers increasingly demand faster, easier ways of paying bills and each other. While many other countries' banking systems have accommodated this demand, the U.S. lags. A Federal Reserve effort may be ripe in a couple of years and be cheaper for smaller banks and credit unions. A rival system run by large bank owners is already operating, but could cost these institutions more to provide.

Both consumers and businesses want payments to be faster and simpler — witness on the consumer side the boom in the use of Zelle, Venmo and other services. The Federal Reserve has announced plans for its own faster payments initiative. The nation’s largest banks, hard at work on a faster payments scheme of their own, aren’t happy about the proposed FedNow.

The Fed’s timeframe — calling for a launch in 2023 or 2024 — is an eternity in the new world of technology in which banks and credit unions operate today, particularly considering that the Fed began its consideration of realtime payments back in 2013. The Fed also announced its intention to explore the expansion of the hours of the Fedwire Funds Service and National Settlement Service, up to 24x7x365, to provide support for private-sector faster payments and related efforts.

Good intentions, but FedNow seems years too late. Realtime payments systems are commonplace around the globe, from the U.K. to Sweden to Singapore to Australia. The U.K’s faster payments scheme began in a limited, same-day form in the 1980s, and a comprehensive faster payments scheme was initiated in 2003 — ten years before the Fed began its study and sent out requests for comment.

 

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