The Federal Reserve’s plan to develop a round-the-clock, real-time payment settlement service – FedNow – is explained in detail in a notice for comment slated for publication in the Federal Register Friday, with a 90-day public comment period set to expire on or about Nov. 7.
The Fed says it anticipates that the FedNow Service will be available by about 2023 or 2024, though it expects that achieving true, nationwide reach will take longer.
“The Federal Reserve will engage quickly with industry participants to gather input for finalizing the initial design and features of the service,” the Fed said in its notice. “Once specific design and features of the FedNow Service have been finalized, the Board will publish a final service description in a subsequent Federal Register notice, with additional information provided through existing Reserve Bank communication channels.”
As detailed in the notice, the Fed intends for the Federal Reserve Banks to develop a new interbank 24x7x365 real-time gross settlement (RTGS) service with integrated clearing functionality to support faster payments in the United States. It says the new service would support depository institutions’ provision of end-to-end faster payment services and would provide infrastructure to promote ubiquitous, safe, and efficient faster payments in the United States.
As previewed Monday in a Fed release approved by all board members except one – Randal Quarles, the Fed’s vice chairman for supervision – the Fed also intends to explore expanded hours for the Fedwire® Funds Service and the National Settlement Service, up to 24x7x365, to support a wide range of payment activities, including liquidity management in private-sector real-time gross settlement services for faster payments. “Subject to the outcome of additional analysis of relevant operational, risk, and policy considerations, the Board will seek public comment separately on plans to expand hours for the Fedwire Funds Service and the National Settlement Service,” it says in its notice for Friday’s Register.
The Fed last sought public comment on its faster-payments initiative in November, receiving 405 comment letters submitted by a total of 812 respondents (with some comment letters signed by multiple respondents). Comments came from small and midsize depository institutions, large depository institutions, individuals, consumer organizations, merchants, service providers, private-sector operators, fintech companies, trade organizations, and other interested parties, the Fed noted. The single-largest group of respondents – 60% of them – was made up of small and midsize depository institutions, from 34 states.
About 320 commenters from all segments supported the Fed developing an RTGS service for faster payments, the Fed says. About 30, most of them large banks and private-sector operators, including many that have been involved in the recent development of a private-sector RTGS service for faster payments, did not support the Fed developing such a service.
In its notice, the Fed says it anticipates that this private-sector RTGS service is likely to be the sole private-sector option. A single private-sector provider “is unlikely to connect to the thousands of small and midsize banks necessary to yield nationwide reach, even in the long term,” it stated.
RR: Fed sets eyes on round-the-clock payment service, available by 2023-24 (Aug. 5, 2019)