Two senior Federal Reserve officials said Tuesday they are committed to rolling out the proposed FedNow real-time payments service as quickly as possible, but they didn’t say the original schedule calling for a launch in 2023 or even 2024 will be shortened.
“We will be making every effort, I think, to go sooner if we can,” Esther L. George, president and chief executive of the Federal Reserve Bank of Kansas City, said in response to a question from Digital Transactions News about if the timeline might change. “Our ultimate goal, though, is to make sure that whatever we roll out is going to be a sound foundation for the banking industry to connect to, and that will be our Job 1 as we think about speed.”
George was the keynote speaker at the Chicago Payments Symposium, the annual payments conference of the Federal Reserve Bank of Chicago. Earlier in the day, the Fed official leading the FedNow initiative said his team is working swiftly to get the project launched.
“We’re hiring a lot of people,” said Kenneth C. Montgomery, first vice president and chief operating officer at the Federal Reserve Bank of Boston. “We’ve engaged a number of third parties that can help us jump-start this program, again, all with the idea that we can get a product to market as quickly as possible.”
Montgomery, however, didn’t put a date on when the work will be done. Since the Fed announced in August that it would take a direct operational role in a real-time gross-settlement service, some observers have questioned why it will need up to five years to launch FedNow when similar services are proliferating worldwide. Real-time payments already exist in various forms in more than 30 countries.
One of the first steps is getting industry input about FedNow’s initial design and features, which the Fed is doing through a formal notice and request for comment in the government’s Federal Register. The comment period closes Nov. 7.
Ubiquity—the ability of the service to reach all financial institutions—is one of the issues the Fed is wrestling with, not to mention interoperability with other real-time payment systems. The U.S. already has a private-sector real-time payments service from The Clearing House Payments Co., a bank-owned processor, which went live two years ago.
The Fed and The Clearing House are the nation’s two automated clearing house network operators. In real-time payments, FedNow could try to emulate the ACH model through the direct exchange of payments between operators, where a payment originating with a user of one service could be received by a user of the other’s service, George noted in her keynote.
“The direct exchange of messages between operators would require technical functionality to move the messages, and a method to enable settlement across systems and participants,” she said. “The level of cooperation between operators and complexity increases significantly with this approach. I don’t consider it an insurmountable challenge, but it could take time to achieve, and thus, it may not be an initial element of the FedNow service.”
Regarding pricing, George said to expect a mix of per-item fees charged to sending and potentially receiving banks, and fixed participation fees. On the controversial issue of volume-based pricing, which small banks fear would favor large banks, George said “a pricing structure for the FedNow Service has not yet been determined.”