The Federal Reserve Board has unanimously approved a system to support instant payments that could help cash-strapped consumers receive money transfers more quickly, allowing them to avoid overdrafts and payday-lender borrowing.
“In good times as well as bad, instant payments will enable millions of American households and small businesses to get instant access to funds, rather than waiting days for checks to clear,” a Fed governor, Lael Brainard, said in a speech accompanying an announcement on Thursday.
The Fed said that the system would not be fully launched until 2023 or 2024, and that it would roll it out in phases, starting with a bare-bones version and adding features over time.
Banks have their own real-time payment system run by the Clearing House Payments Company. But the Fed said that it was important that the financial system have more than one provider of real-time money transfers, adding that the central bank’s FedNow operation would “promote competition by providing choice of instant payment services.”
Randal K. Quarles, the Fed’s vice chair for bank supervision, voted against the decision to create a Fed offering in 2019, but he approved the design laid out on Thursday.
Ms. Brainard said that the pandemic has emphasized the need for real-time payments, because households increased their spending noticeably after receiving emergency relief payments — a reality especially true for those with low incomes and low savings.
“The urgency with which the emergency payments were spent underscores the importance of rapid access to funds for many households and businesses that face cash flow constraints,” Ms. Brainard said.