The Federal Reserve announced earlier this week he is waiting for his FedNow Servicea new online system facilitating instant digital monetary transactions between individuals and businesses, which will go live between May and July 2023. The release could mark a major moment in the financial industry as it could, hypothetically, greatly reduced the need for third-party digital payment systems and common transaction fees. This could potentially either pave the way for a central bank digital currency (CBDC), or circumvent the need for a quite.
“The benefits of instant payments are increasingly important to consumers and businesses, and the ability to provide this service will be essential for financial institutions to remain competitive,” said Ken Montgomery, senior vice president of the Federal Reserve. Bank of Boston and director of the FedNow Service program, in the statement this week.
[Related: Are digital dollars the future of money?]
Consumers already have many digital transaction systems from banks and third-party companies, but none of us have direct access to central bank funds like these intermediaries. Using a system like FedNow creates this direct access, making these transactions almost instantaneous. It could also reduce existing fees for many current services. This would not necessarily negate the need for private banking institutions, but rather provide an alternative for those discouraged by minimum balance requirements and annual fees.
Proponents also cite its potential to reduce many people’s long-standing reliance on predatory payday loans and provide a means for the government to issue direct payments to citizens in times of economic or environmental crisis. For example, the Fed could have sent immediate COVID-19 stimulus payments to millions of Americans last year, instead of sending physical checks or delaying the process through private banks. These same types of instant payments could also prove vital in the aftermath of environmental disasters such as hurricanes and tornadoes.
[Related: Paying with your phone is safe and convenient. Here’s how to start.]
Of course, not everyone will agree with a centralized digital payment system. The opponents have cited concerns ranging from privacy concerns to political and economic ideologies to real issues of access. After all, something like FedNow will require smart devices that million americans still does not have. If all goes according to plan, consumers could see a very different financial landscape emerge around this time next year.