FedNow depends on demand by consumers, businesses for instant payments, Fed governor suggests

How quickly consumers and businesses demand instant payments will govern the success of the Federal Reserve’s new instant payment system, a member of the agency’s board indicated Thursday.

Fed Gov. Christopher Waller, speaking to the Economics of Payments XII Conference, in Washington, D.C., said the instant payments service, officially launched July 20, “is not new.” He said it “simply executes the operations that happen between when a bank sends an authorized consumer transaction and when that transaction is cleared and settled on the other end.”

When the Fed opened unveiled the FedNow service this past summer – nearly four years after the agency announced its intention to start the round-the-clock payment system – the agency also indicated it will take a while for most users of the service, especially consumers, to take advantage of FedNow as the service becomes “fully available.”

“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,” according to a statement issued in July by Fed Chair Jerome H. (“Jay”) Powell.

Waller said Thursday that the settling process (among others) envisioned with FedNow happen now with ACH. But, he conceded, that process takes longer. “FedNow speeds that process up from, often, a couple days to a couple seconds from initiation to final receipt by consumers and businesses,” he asserted.

Waller said that – depending on wants by consumers — banks will have a role in achieving use of FedNow. “They will have to adapt their systems to be able to connect to FedNow, and how soon they do that will depend in part on how much their customers demand instant payments,” he said.

Gov. Christopher J. Waller, Welcome Remarks, Economics of Payments XII Conference, Washington D.C.