The US Federal Reserve has announced the launch of its FedNow service in July, the apex bank confirmed in a release on Wednesday. Instant payment options have generally followed CBDC testing in many countries.
The FedNow service seeks to make it easier for financial institutions of all sizes and locations to offer instant payment services nationally, 24 hours a day, 365 days a year.
What are FedNow payments?
“With the FedNow service, the Federal Reserve is creating a leading-edge payments system that is flexible, adaptive and accessible,” said Tom Barkin, president of the Federal Reserve Bank of Richmond and executive sponsor of the FedNow program.
As per the details, businesses and individuals will be able to send and receive instant payments with FedNow. Transactions can take place through the Financial Institutions portion of the service at any time of the day.
Ken Montgomery, First Vice President of the Federal Reserve Bank of Boston and FedNow Program Executive, urged greater participation from banking institutions. “We could not be more excited about the upcoming FedNow launch, which will enable us to provide a modern instant payment solution to every participating financial institution, small and large, and from all corners of the country,” said Montgomery.
According to global data, the instant payments ecosystem was to be worth $100 trillion in 2021. And Asian countries like India and China are leading the field, with the US a little late to join the club.
India uses a payment infrastructure based on the Immediate Payment Service (IMPS) and Unified Payments Interface (UPI) to provide instant payment services to customers and merchants. Global data shows India is the most active market, with transaction volume expected to reach $39.8 billion in 2021. With this, India has expanded its e-rupee pilot as part of its CBDC trials.
China, which ranks second in that category, has widely used Alipay and WeChat for instant mobile payments. The nation has also pushed for the adoption of a digital yuan as its centrally-backed digital currency.
Could this accelerate CBDC integration in the US?
Instant digital transfers often facilitate the promotion of financial inclusion. Additionally, they facilitate payments in the domestic market before enabling cross-border money transfers in different currencies. FedNow also comes with these expectations.
However, as Web 3 advances, central banks are fueling CBDC narratives in the post-instant payments era. Despite hopes that a CBDC could usher in an era of instant payments, US critics derided it as a “Biden coin”. CBDCs have caused quite a stir after Republican Senator Tom Emmer introduced the Anti-Surveillance Act to expand the right to financial privacy.
In this month’s release, the US Treasury noted that the CBDC working group is preparing a preliminary set of findings and recommendations. Meanwhile, a decision on its adoption is still pending, despite FedNow being months away from launch.
The US Department of the Treasury said it aims to guarantee that a central bank digital currency will work securely and effectively with existing financial infrastructure. He also said that the group is focused on promoting financial stability and integrity of the financial system while fostering innovation.
Meanwhile, US-based Ripple is in talks with over 20 central banks globally about CBDCs. The XRP Ledger and RippleNet are powering many CBDC initiatives, but the US has been left out. This is because Ripple is preparing for the final months of the court battle with the securities regulator SEC.
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