Federal Reserve confirms July launch of instant payment service FedNow

The US Federal Reserve has confirmed a July launch date for its long-awaited instant payments system, seen by some as an alternative to digital currencies and central bank stablecoins.

The instant payment network will settle payments in seconds and can support transactions between consumers, merchants and banks. It is not based on blockchain technology.

This is an important step for the government, as it is controlled by the Federal Reserve. Clearing House’s RTP network, which also offers real-time payments, is operated by a consortium of major banks.

According to a March 15 announcement, the US Fed said the launch of FedNow is scheduled for July, with the US Treasury and a “diverse mix of financial institutions of all sizes” set to use the network upon launch.

The Fed said it would “begin formal certification of participants” in the first week of April in preparation for the launch.

“Early adopters will complete a customer testing and certification program, informed by feedback from the FedNow pilot program, to prepare for sending live transactions through the system,” the announcement reads.

FedNow was announced in 2019 and will provide 24-hour real-time gross settlement by routing money from a sender’s commercial bank through a Fed credit account to its recipient. It also incorporates features such as fraud risk management.

After the official launch, the Federal Reserve indicated that it would push to integrate as many financial institutions as possible in order to increase the availability of instant payments.

“The launch reflects an important step in the journey to help financial institutions meet customer needs for instant payments to better support nearly every aspect of our economy,” said Federal Reserve Chairman Tom Barkin. Bank of Richmond and executive sponsor of the FedNow program. the announcement.

Some see the FedNow service as addressing a problem that stablecoins and CBDCs are also looking to address.

The FedNow program, however, does not use blockchain technology, while the Federal Reserve is known to have a cautious and skeptical view of stablecoins.

Tweet from Meltem Demirors on FedNow. Source: Twitter

One of the main bank payment rails serving US crypto companies on the Silvergate Exchange Network (SEN) was shut down earlier this month following the collapse of Silvergate.

As it stands, Signature Bank’s competitor SEN SigNet is still operational despite the forced closure of the bank on March 13. However, its fate is up in the air, as a number of companies have reportedly fled the network over Signature’s issues.

FedNow could also replace a central bank-issued digital currency.

Federal Reserve Vice Chairman Lael Brainard pointed out during a House Financial Services Committee hearing in May that a CBDC would take much longer to get started than FedNow due to regulatory hurdles. .

“[If] Congress had to decide… to issue a central bank digital currency, it could take five years to put in place the required security features, design features,” she said.

She added that FedNow will perform many of the same functions as a CBDC anyway.

Related: Tassat Blockchain to Join FedNow Service with B2B On-Ramp as Pilot Prepares for Launch

Fed Chairman Jerome Powell also addressed the House Financial Services Committee on March 9 and suggested that a possible U.S. CBDC is still a long way off.

“We’re not at the stage of making real decisions,” he said, adding that “what we’re doing is experimenting with some kind of experimentation at an early stage. How would that work? Is “Does it work? What’s the best technology? What’s the most efficient?”

Commenting on FedNow, however, he said “we’ll have real-time payments in this country very, very soon.”

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