Real-time Payments Now or Later?

The Federal Reserve announced Monday their FedNow service, a fed backed interbank 24x7x365 real-time payments system, with plans to go live 2023/2024. Something similar to the Real Time Payment (RTP) network that The Clearing House (TCH) has already built, and is operational, expected to reach over 1M transaction till the end of the year, with many more banks onboarding in the coming months.

I was tuned in to the live-stream to see if I can get some understanding of why the fed is doing it? At first, I thought that the fed has a plan to roll out something faster than TCH can, but when I heard that the planned date is around 2023/2024, I was in total surprise. When they mentioned that it is because they want to assure that all banks have RTP capabilities.

The common practice when a company tries to enter a specific market —is looking for acquisitions or partnerships with a company that has successfully built the product. Thereby avoiding the expense of time, money, and R&D on something that someone is already successful.

I’m sure TCH would gladly work with the feds, ensuring all small banks and credit unions are on the network as fast as possible.

One more argument that to assure the free market, the Fed has the responsibility to maintain the movement of funds. Implying that the fed cannot allow some organizations to potentially have a monopoly on such a vital part of our economy.

My question is, how many other vital parts of our society, economy, and security that the feds officially outsource or work hands in hand to assure its success. Wouldn’t a Fed-TCH partnership advance the US faster real-time payment market faster, and broader, with conditions securing the free and open movement of funds.

Another approach would be for the feds to set up the market to be more ripe for someone in the public market to compete.

As I see it, this move brings much uncertainty to the industry, on its timeline, capabilities, and interconnectivity, which hinders Innovation. Ironically, the FedNow is delaying the RTP adoption, as many small banks are now waiting on the feds till 2024.

SO, I’m still looking for a reason WHY? I would love to hear the other side of the argument.

About me: A serial Entrepreneur, started and successfully exited multiple companies, a newbie in the payments, now Founder of SHTAR, a B2B payment processing solution, that bridges the gap between software applications and payment solutions, bringing transparency, security, and convenience to payment automation for the payor, bank, and payee.