> FedNow could destabilize banks’ reliance on customer cash, fanning the flames of deposit flight
> In addition to losing revenue from the time between a payment’s initiation and settlement, banks now have to worry about deposit flight outside of business hours.
> The system isn’t expected to be ubiquitous in the U.S. for a few years.
> ...customer deposits were sticky ...That assumption allowed bankers to comfortably borrow cash at low rates and lend for long periods at higher rates.
> But instantaneous transactions allow customers to pull cash with ease, and without notice. That threatens smaller banks...
Meanwhile, the rest of the world, including countries traditionally referred to as "third-world countries," have leapfrogged the US and provide instant payment and settlement without crying about the loss of revenue from the time between initiation and settlement, or a run on their banks.
The funniest thing is when you see that you have multi thousand of billon of dollar sized banks, that are unable to pay agents to be able to process payments on week ends...
This would be great if it can cut down payment processor fees which are mainly driven by the rates that Visa and MasterCard charge, essentially as a duopoly power in the market. They also control what you can and can't buy, such as for example heavily frowning upon adult content, even if you are legally an adult.
I've seen small towns adopt cash only payments to curtail this. Why should the tax pay effectively a 2%+ tax on the economic activity of the town. Imagine a bunch of people living there, transacting with each other, 2% tax for every movement?
This is for bank to bank transfers, like ACH but different. It won't be used for retail payments directly, though it could make them cheaper in the long run.
I always found it funny when dealing with the money transfer to folks in the US that they had to use terrible 3rd party apps to move money between accounts.
You end up in situations where moving money can almost be impossible when the banks don't support the same apps. Here in the UK immediate transfers between accounts has been a thing for a very long time.
Glad to see the US catching up, because sometimes the pace of technology is amazing and other times with much simpler things it's positively archaic.
All the major banks in the US have supported online ACH or Zelle money transfers for over a decade now. ACH takes a few days, Zelle is instant, but there has not been a need to use 3rd party apps for many years.
I wish there was a bit more detail about this part:
> The initial release of the FedNow Service will include features to help banks manage fraud risk and mitigate fraud losses. [...] In addition, there will be tools that help a financial institution investigate erroneous or suspected fraudulent transactions.
Let's say Alice's "Bank A" processes a FedNow transfer of $1,000 to Bob at Bank B. What happens if Alice calls her bank and says the payment was unauthorized?
If Bank A investigates, and finds evidence that Bob hacked Alice's account, do they then have to call up Bank B and persuade them to return the money? Does the Fed get involved as an arbiter? Or is Alice just out of luck?
(To be fair, I'm not sure exactly how this happens behind the scenes with credit/debit cards, either.)
I'm wondering about that. This is a debit transaction that clears within seconds. The recipient has good funds immediately and can take them out of the destination bank, just like a wire transfer. Or, for that matter, cryptocurrency.
ACH is daily. It really is a batch system, with a daily batch at 4:30 PM Eastern Time, and settles around 6 PM. There's a whole "undo" system built into ACH. FedNow does not have "undo".
Credit card transactions have good consumer protections in US law. The whole concept of credit card transactions is that you buy something and pay for it. Both the "something bought" and "pay for" parts are logged. And you have to be a "merchant" to accept credit cards. So you can order stuff and get a refund if it doesn't show up.
FedNow, like Zelle, seems to be only have a "pay for" part. It just sends money.
Using this service with any unknown payee for anything you haven't already received (such as dinner) is probably a bad idea.
The Fed's discussion of FedNow fraud is not comforting.[1]
In my country (Singapore), the instant payments system was rolled out in 2017 but took several years to get traction. The pandemic seems to have marked a turning point: it's now accepted pretty much everywhere, and it's great. You can use it to pay plumbers, small-scale food vendors who don't take credit cards, car workshops, people on Craigslist, friends you split a bill with, etc. Very convenient.
IMO it depends on who ends up being responsible for fraud and insufficient funds. It sounds like FedNow will provide liquidity for instant settlement but the page doesn't make it clear what happens if the sender somehow has a insufficient balance. If a $500 FedNow transaction occurs and a $500 ACH transfer settle on the same day (and the account only has $500), who get's paid and who made the mistake?
With ACH most banks/financial services provide some amount of instant funds but wait 1-3 days for the transfer to complete before providing the full balance. This is very useful since it gives the bank 1-3 days to be alerted of fraud, insufficient funds issues, etc. While ACH can technically be clawed back after 3 days, it's a much more difficult process which mitigates risk by forcing the sender through a lengthy fraud claim process.
If this is what I think it is, I can't wait. My bank's Zelle experience is abysmal, and it's annoying to manage a Venmo balance. I will strongly consider switching banks if it means a convenient FedNow UX
If you’re willing to switch banks anyway, most of the too big to fail ones have a great Zelle experience, i bank w chase and BoA and both offer a pretty first class solution with Zelle (chase especially, as they actually created the precursor to what eventually morphed into zelle).
It's petty of me, but I hope that FedNow utterly eradicates Zelle: I've spent my entire life in the mess that is the US's banking system, and every trouble I've ever had pales in comparison to the troubles that Zelle gives me on a near-daily basis.
I've been in the US for only a few years now, and Zelle works seamlessy for me. Granted, I think everyone I zelled had a bank account with Chase, BofA, PNC, and Wells Fargo - only the big ones.
Zelle basically never worked for me at my local credit union (every single attempt to use it locked my account on suspicion of fraud), but I use it regularly with Chase with no issue.
How do you hope FedNow will improve on the concept?
Fed is moving so slowly compared to China or India. Going to be left in the dust soon.
They need to open settlements up to everyone not just "financial institutions". Fed deposit accounts for everyone or Interest bearing CBDCs should be rolled out to every one. The fucking banks need to be disintermediated from all transaction involving Depositors. Convert them to pure lenders.
If the goal is to "improve settlement efficiency without introducing liquidity or credit risks" then provide a path to get the dumb sender and receiver banks out of the loop in every dumb transaction.
If I want to send my grandma cash, why do 2 banks have to be sitting in the middle? It's 2023 get those fuckers out of the loop. So when the next bank collapses due to "credit and liquidity risks" they haven't thought about why should grandma worry about her savings?
If you're actually interested in why the US banking is so fragmented, it's on purpose and it works very well. The US wants banks to be small to distribute risk and encourage local investment. Small banks and credit unions are much more willing to give small business loans, auto loans, etc. to people/clients with worse credit, etc. These policies only work if small and medium banks have depositors so that's why everyone has a different local bank, etc.
> ...worry about her savings
All deposit accounts are insured up to $250k and (given recent events) unlikely the Fed would even allow any regular persons deposits to be at risk. Essentially, the Fed can't loan or invest like small/medium banks can. The Fed can't go bankrupt so it has no real way to measuring risks when giving out loans which would make it impossible to price loans.
msravi|2 years ago
> FedNow could destabilize banks’ reliance on customer cash, fanning the flames of deposit flight
> In addition to losing revenue from the time between a payment’s initiation and settlement, banks now have to worry about deposit flight outside of business hours.
> The system isn’t expected to be ubiquitous in the U.S. for a few years.
> ...customer deposits were sticky ...That assumption allowed bankers to comfortably borrow cash at low rates and lend for long periods at higher rates.
> But instantaneous transactions allow customers to pull cash with ease, and without notice. That threatens smaller banks...
Meanwhile, the rest of the world, including countries traditionally referred to as "third-world countries," have leapfrogged the US and provide instant payment and settlement without crying about the loss of revenue from the time between initiation and settlement, or a run on their banks.
greatgib|2 years ago
satvikpendem|2 years ago
boomchinolo78|2 years ago
nly|2 years ago
It's a failure of US regulation only that VISA and MasterCard etc charge what they do
inhumantsar|2 years ago
giantrobot|2 years ago
kyrra|2 years ago
happymellon|2 years ago
You end up in situations where moving money can almost be impossible when the banks don't support the same apps. Here in the UK immediate transfers between accounts has been a thing for a very long time.
Glad to see the US catching up, because sometimes the pace of technology is amazing and other times with much simpler things it's positively archaic.
lotsofpulp|2 years ago
unknown|2 years ago
[deleted]
teraflop|2 years ago
> The initial release of the FedNow Service will include features to help banks manage fraud risk and mitigate fraud losses. [...] In addition, there will be tools that help a financial institution investigate erroneous or suspected fraudulent transactions.
Let's say Alice's "Bank A" processes a FedNow transfer of $1,000 to Bob at Bank B. What happens if Alice calls her bank and says the payment was unauthorized?
If Bank A investigates, and finds evidence that Bob hacked Alice's account, do they then have to call up Bank B and persuade them to return the money? Does the Fed get involved as an arbiter? Or is Alice just out of luck?
(To be fair, I'm not sure exactly how this happens behind the scenes with credit/debit cards, either.)
Animats|2 years ago
ACH is daily. It really is a batch system, with a daily batch at 4:30 PM Eastern Time, and settles around 6 PM. There's a whole "undo" system built into ACH. FedNow does not have "undo".
Credit card transactions have good consumer protections in US law. The whole concept of credit card transactions is that you buy something and pay for it. Both the "something bought" and "pay for" parts are logged. And you have to be a "merchant" to accept credit cards. So you can order stuff and get a refund if it doesn't show up.
FedNow, like Zelle, seems to be only have a "pay for" part. It just sends money. Using this service with any unknown payee for anything you haven't already received (such as dinner) is probably a bad idea.
The Fed's discussion of FedNow fraud is not comforting.[1]
[1] https://www.frbservices.org/financial-services/fednow/instan...
seewhydee|2 years ago
TedDoesntTalk|2 years ago
KingMachiavelli|2 years ago
With ACH most banks/financial services provide some amount of instant funds but wait 1-3 days for the transfer to complete before providing the full balance. This is very useful since it gives the bank 1-3 days to be alerted of fraud, insufficient funds issues, etc. While ACH can technically be clawed back after 3 days, it's a much more difficult process which mitigates risk by forcing the sender through a lengthy fraud claim process.
hayksaakian|2 years ago
stilist|2 years ago
uneekname|2 years ago
vxNsr|2 years ago
nancyhn|2 years ago
Does this system prevent abuse?
raincom|2 years ago
woodruffw|2 years ago
alsodumb|2 years ago
patch_cable|2 years ago
Zelle basically never worked for me at my local credit union (every single attempt to use it locked my account on suspicion of fraud), but I use it regularly with Chase with no issue.
How do you hope FedNow will improve on the concept?
cuuupid|2 years ago
boomchinolo78|2 years ago
dcl|2 years ago
gsatic|2 years ago
They need to open settlements up to everyone not just "financial institutions". Fed deposit accounts for everyone or Interest bearing CBDCs should be rolled out to every one. The fucking banks need to be disintermediated from all transaction involving Depositors. Convert them to pure lenders.
If the goal is to "improve settlement efficiency without introducing liquidity or credit risks" then provide a path to get the dumb sender and receiver banks out of the loop in every dumb transaction.
If I want to send my grandma cash, why do 2 banks have to be sitting in the middle? It's 2023 get those fuckers out of the loop. So when the next bank collapses due to "credit and liquidity risks" they haven't thought about why should grandma worry about her savings?
KingMachiavelli|2 years ago
> ...worry about her savings
All deposit accounts are insured up to $250k and (given recent events) unlikely the Fed would even allow any regular persons deposits to be at risk. Essentially, the Fed can't loan or invest like small/medium banks can. The Fed can't go bankrupt so it has no real way to measuring risks when giving out loans which would make it impossible to price loans.
youainti|2 years ago