The Federal Reserve’s long-awaited instant-payments service FedNow will make its debut in July, the central bank announced Wednesday. Through the FedNow service, businesses and consumers will be able to send and receive payments instantly, with immediate access to their funds. Tom Barkin, president of the Federal Reserve Bank of Richmond and executive sponsor for FedNow, said, “This launch reflects an important milestone in our journey to help financial institutions meet customers’ needs for instant payments to better support nearly every aspect of our economy.” program, said in a statement on Wednesday. The Fed said in that release that there are “many early adopters” who have “expressed their intention” to start using the payment service when it launches in July. This includes “a diverse mix of financial institutions of all sizes, the largest processors and the US Treasury.” First, the Fed will begin formal certification of participants in April, and then it will engage with those participants in “accreditation activities” in June to ensure they are ready for the official launch. Businesses and individuals are increasingly interested in moving money faster, and financial-technology companies are meeting these needs. Visa Inc. V, -1.05% operates Visa Direct while Mastercard Inc. MA, -1.34% operates Mastercard Send. Mastercard describes Send as enabling “real-time payment transfers to and from billions of card, bank and digital accounts worldwide.” There is also a Real-Time Payments (RTP) service run by the Banking Association and The Clearing House, a payments company owned by major commercial banks. TCH describes its service as “the nation’s newest real-time payment system.” “We reiterate our view that FedNow will represent a material shift in how consumers use electronic money,” TD Cowen analyst Jarrett Seiberg said in a note to clients Wednesday. “It provides for instant settlement, which eliminates clearing risk. And it will be less expensive than a debit interchange. He believes that “almost every bank and credit union will offer the service, with most coming on board within the next year.” Bernstein’s Analyst Harshita Rawat noted earlier this year that she was “looking at” the risk presented to Visa and Mastercard by FedNow’s impending launch, though she saw the threat as more of a “decade+ time horizon” than anything immediate. Non-trivial challenges’ are FedNow implementations need to overcome in order to compete with card payments in terms of ubiquity (i.e., acceptance by all banks), chargeback capabilities, features such as request-payment, and solving chicken-and- The egg problem of payment acceptance and consumer habit formation,” she wrote in a January note to clients. Visa Chief Financial Officer Vasant Prabhu raised the question about FedNow’s expected debut at a Morgan Stanley investor conference last week. “No one is really competitive,” he said, according to the Alfacens/Sentione transcript. “Anything that makes payments more ubiquitous, anything that makes consumers adopt digital forms of payment, anything that makes merchants accept digital forms of payment is a good thing because it expands the market.” MasterCard CFO Sachin Mehra discussed the topic at an autonomous research conference in September. He said that “a lot of things are necessary to drive scale in this business” and when FedNow brings “the creation of [an] Infrastructure capability” similar to what MasterCard’s VocaLink offers, he maintained that infrastructure is not the only thing that drives adoption. “The utility is driven by who develops applications and what applications are developed to meet the use cases that consumers, small business owners, and medium and large corporates want when they’re using that fast payment capability,” he said. said at the time.
