• P Xenos and M Bacina

FedNow fired into full throttle following Commissioner support


In a letter addressed to the Federal Reserve’s Board of Governors, Rohit Chopra, a commissioner at the United States Federal Trade Commission expressed his support for the Fed’s proposal to launch a real-time payments system, named the “FedNow Service.”


Commissioner Chopra argued that the Fed must act swiftly to prevent new threats to its oversight, stating:

As large private firms on Wall Street and Silicon Valley seek to leverage their market power through control of critical infrastructure, it is more important than ever for the Board to implement this proposal quickly.

The FedNow Service was pitched as a new, 24/7/365 real-time payments and settlements service in a public announcement by the Fed this month.


The service will reportedly be made available for both enterprise use and the general public, as it is intended to enable consumers to manage their funds more flexibly and complete time-sensitive payments outside of conventional banking hours.


Commissioner Chopra’s letter reflects the concerns of federal officials’ that the private-sector is seeking to de-legitimize the Fed’s existing role in controlling payments through its oversight of check clearing, wire transfers and automated clearinghouse (ACH) system.

 

Clearly anticipating the inevitable comparison to Libra, Chopra also stated that:

The laundry list of risks raised by the Libra project will take time to unpack and address. But regardless of Libra’s ultimate fate, the proposal’s emergence underscores the appetite for real-time payments and the urgency of intervention by the Federal Reserve.

While there isn't really enough detail to go on at this point, our view is that FedNow bears much more in common with the Australian New Payments Platform (NPP) launched in February 2018. The NPP is an open access infrastructure for fast payments across Australia, and was developed via industry collaboration to enable households, businesses and government agencies to make simply addressed payments, and much like the FedNow service, delivers a nearly real-time funds availability to the recipient, on a 24/7 basis.


Each payment message is said to be capable of carrying much richer remittance information than other systems (for instance the 18 characters currently available for Direct Entry payments). The NPP infrastructure supports the independent development of ‘overlay’ services to offer innovative payment services to end-users.


Both FedNow and the NPP have demonstrated the willingness and capacity of central banks to not only acknowledge the rapidly changing financial landscape, but actively create systems which facilitate this change by developing expedient and more dynamic payment methods. Whether a US, Australian or other central bank will take the leap of faith and commit to developing a CBDC remains to be seen.

© Michael Bacina. All rights reserved

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