The Federal Reserve announced the launch of the FedNow service on July 20th, 2023. While a faster mode of money transfers seem like a good thing, users might be reluctant to use it if the charges are too high. With that in mind, banks will determine whether the new system is something to be happy about.
Hope for Lower Charges
Typically, businesses charge extra for convenience, so it's no surprise if the charges for FedNow transactions are higher than the standard, wherein money transfers or payments aren't usually received in a matter of minutes.
Partner at the investment firm Klaros Group, Adam Shapiro stated that the Fed charges the bank four cents for every FedNow payment. Banks, however, can decide how much they can charge their customers for every transaction.
Compared to ACH payments, people are only charged half a cent. Shapiro added that business customers that are choosing between options might be deterred if FedNow becomes significantly more expensive than ACH payments, as mentioned in Tech Crunch.
In addition to that, he also mentioned that a business may be prepared to pay 3.5 cents for a faster transfer, but may back out when the charges reach 25 cents. Some people may only opt for FedNow if they desperately need to get money to another account quickly, but not for anything else.
The service has been an anticipated change in the payment system. The US has been long overdue in adopting a service where people can receive the money the same day it is sent. It is also convenient as it is accessible seven days a week.
As reported, other countries are already using fast transaction systems like FedNow for years such as India, Brazil, the EU, and the UK. Places like Brazil even opt for its similar system called Pix over credit cards.
What is FedNow?
FedNow is a new system for instant payments that banks and credit unions can sign up for and use. The tool allows them to transfer money to customers any time of the day and any time of the year, which beats the usual bank systems that only do business during office hours.
Federal Reserve Chair Jerome H. Powell says that as more banks choose to use this new tool, the benefits to customers and businesses will include allowing a person to "immediately receive a paycheck, or a company to instantly access funds when an invoice is paid."
Right now, 35 banks and credit unions have already adopted the tool, including the US Department of the Treasury's Bureau of the Fiscal Service. 16 service providers are also supporting payment processing for banks and credit unions.
Some of the early adopters include financial institutions like JPMorgan Chase, Corporate America Credit Union, Peoples Bank, Wells Fargo Bank NA, North American Banking Company, US Bank, Consumers Cooperative Credit Union, INB, and more.
As an interbank payment system, the FedNow operates alongside other payment services by the Federal Reserve such as Fedwire and FedACH. The central banking system intends to work with over 9,000 banks and credit unions across the country in the future.
