The Federal Reserve has announced plans to develop a new real-time payment system that will let consumers clear paychecks, bill payments, and money transfers much faster. The new system is called “FedNow Service”. You will no longer need to wait three days for a check to clear. That might not be a big issue for some. But, it should help people on a tight budget or small businesses who need cash flow.
“Immediate access to funds could be especially important for households on fixed incomes or living paycheck to paycheck, when waiting days for the funds to be available to pay a bill can mean overdraft fees or late fees that can compound,” said Fed governor Lael Brainard on Monday.
The central bank’s new payment clearing initiative plans to develop infrastructure to facilitate real-time money transfers between banks. It’s a bit mind boggling that nowadays people have to wait a few days for to get money after a paycheck has been issued. In many European countries and even less-developed countries, these transactions are executed much more quickly, often in conjunction with a nation’s central bank. In the US also there’s many apps and services available for quick money transfers.
Brainard noted that the Fed is not looking to displace or directly compete with the various private-sector services already proliferating in the market, but to leverage its pre-existing inbuilt connections to over 10,000 U.S. banks.
The United States has a much bigger banking system, and there’s different opinions on the role the Federal Reserve should have in the private sector. That makes things slower and change harder to come by. And even this new service is years away. It is not expected to be available before 2023, so you will still need to wait a few days for now for those paper checks to clear.