Welcome to the 21st Century America!

[VicBee]

How the Fed’s new instant payments system could change the banking industry
Felix Salmon, author of Axios Markets

Your money is not quite as money as you might think.

Why it matters: The U.S. government is trying to change that, to make it more real, more useful, and more accessible.

The big picture: The Platonic ideal of money is cash in your pocket. It can be transferred any time, anywhere, to anyone, irreversibly — and the recipient always receives the exact same amount of money as you are spending.

• The money in your checking account, by contrast, is much less reliable.
• It basically goes into hibernation every evening and all weekend; it can also take three days or sometimes much longer to arrive somewhere you're sending it.

Driving the news: FedNow, the Fed's instant-payments system, is arriving later this month, to complement a private-sector real-time payments system from The Clearing House. Both of them work 24/7, and transfer money in seconds, making checking accounts significantly more money-like (assuming they're not frozen, of course).

• Don't expect any kind of fireworks when FedNow arrives. It's only going to be supported by 57 organizations to start with, and many of them are going to be in "receive only" mode — which is to say, their customers will be able to receive money, but not send it.
• In countries like India or Brazil, the central bank mandated use of the official instant-payments system; use of FedNow, by contrast, is entirely optional. That said, now that the Fed is encouraging uptake, expect instant payments to become much more popular in coming years.
• "When the Fed says something happens, it happens," Modern Treasury CEO Dimitri Dadiomov tells Axios. "Banks don’t say no to the Fed."

Between the lines: Instant payments aren't great for banks. After all, if your money leaves your account on Monday and arrives in your vendor's account on Thursday, either the sending or the receiving bank is earning interest on it in the interim — but not passing interest on to either customer.

• 24/7 payments also exacerbate the risk of bank runs. When y0u can transfer up to $1 million out of your account instantly, even when the bank is closed, that means "the rate of deposit flight could be much faster," Kevin Jacques, a partner at Cota Capital, tells Axios.
• Peer-to-peer payments are also commonly used for illicit activities, which naturally worries banks.

On top of that, FedNow isn't a consumer-facing product like Venmo or Zelle; it's more behind-the-scenes plumbing. In order for the U.S. to catch up to India, a lot of financial services companies will have to do a lot of work — and spend seven-digit sums, even at small institutions — updating their apps and their infrastructure to support the new technology.

How it works: In the first instance, expect FedNow to be used mostly by large corporations.

• Gig-economy employers like to be able to pay workers immediately and per job, for instance. Even employees with full-time jobs very much appreciate being able to get paid everything they're owed today, rather than waiting until the 15th or the 30th of the month.

The bottom line: FedNow is a huge advance in U.S. payments plumbing, but it's still likely to be a couple of years before you'll be able to, say, move money instantly from a savings account at one bank to a checking account at another.

 

[deaddog]

It's still a US based system. What is needed is a system that can transfer money world wide. Bitcoin is close but the price of BTC can change in the time it takes to transfer.

 

[mervyn]

Digital Yuan wallet is more legit, I suppose. No more retail banks and deal with central bank clearing systems, that’s sweet.

 

[VicBee]

European have been buying and selling goods and services and making C2C payments with dematerialized currency from bank accounts for two decades while Americans still today complain at the idea of removing check books from service.

I say this with a certain dismay because there was a time when the American financial system was the world's best.

 

[Specterx]

European have been buying and selling goods and services and making C2C payments with dematerialized currency from bank accounts for two decades while Americans still today complain at the idea of removing check books from service.

I say this with a certain dismay because there was a time when the American financial system was the world's best.

I’m just happy the days of mailing paper checks, and fiddling around with numerous limited payment services are numbered.

 

[Drawdown Addict]

I've been using this network with my banks for years.

https://www.ecb.europa.eu/paym/integration/retail/sepa/html/index.en.html

They are instant payments anywhere in Europe, all we have to do is to extend it to the whole world.

 

[countryBoy641]

European have been buying and selling goods and services and making C2C payments with dematerialized currency from bank accounts for two decades while Americans still today complain at the idea of removing check books from service.

I say this with a certain dismay because there was a time when the American financial system was the world's best.

The American Banking system didn't roll over and die on its own.
A few years ago, I was standing in line to buy a couple of movie tickets.
The people in front of me couldn't find a Visa card that would take another $24 purchase.
Can't blame that on the government.

 

[VicBee]

The American Banking system didn't roll over and die on its own.
A few years ago, I was standing in line to buy a couple of movie tickets.
The people in front of me couldn't find a Visa card that would take another $24 purchase.
Can't blame that on the government.

Indirectly you sure could blame the government. It is its responsibility (we elect our leaders to look after our welfare, interest and protection) to ensure businesses operate within their guidelines. European don't have these absurd lines of credit Americans do. Rules there are quite strict while here the financial sector dispenses cash candy to anyone they can get their hands on and as a consequence we are the world's most indebted population.
Who do you blame? The dealer or the addict?

 

[AKUMATOTENSHI]

The American Banking system didn't roll over and die on its own.
A few years ago, I was standing in line to buy a couple of movie tickets.
The people in front of me couldn't find a Visa card that would take another $24 purchase.
Can't blame that on the government.

Exactly! Just as a joke I sometimes try to by items at a store with gold and silver bullion. some cashier's are very tempted but are programmed so well that logic does not prevail. Capitalism on credit is like watching a junkie at the dealers trap house with nothing in hand.

Akuma

 

[sridhga]

How the Fed’s new instant payments system could change the banking industry
Felix Salmon, author of Axios Markets

Your money is not quite as money as you might think.

Why it matters: The U.S. government is trying to change that, to make it more real, more useful, and more accessible.

The big picture: The Platonic ideal of money is cash in your pocket. It can be transferred any time, anywhere, to anyone, irreversibly — and the recipient always receives the exact same amount of money as you are spending.

• The money in your checking account, by contrast, is much less reliable.
• It basically goes into hibernation every evening and all weekend; it can also take three days or sometimes much longer to arrive somewhere you're sending it.

Driving the news: FedNow, the Fed's instant-payments system, is arriving later this month, to complement a private-sector real-time payments system from The Clearing House. Both of them work 24/7, and transfer money in seconds, making checking accounts significantly more money-like (assuming they're not frozen, of course).

• Don't expect any kind of fireworks when FedNow arrives. It's only going to be supported by 57 organizations to start with, and many of them are going to be in "receive only" mode — which is to say, their customers will be able to receive money, but not send it.
• In countries like India or Brazil, the central bank mandated use of the official instant-payments system; use of FedNow, by contrast, is entirely optional. That said, now that the Fed is encouraging uptake, expect instant payments to become much more popular in coming years.
• "When the Fed says something happens, it happens," Modern Treasury CEO Dimitri Dadiomov tells Axios. "Banks don’t say no to the Fed."

Between the lines: Instant payments aren't great for banks. After all, if your money leaves your account on Monday and arrives in your vendor's account on Thursday, either the sending or the receiving bank is earning interest on it in the interim — but not passing interest on to either customer.

• 24/7 payments also exacerbate the risk of bank runs. When y0u can transfer up to $1 million out of your account instantly, even when the bank is closed, that means "the rate of deposit flight could be much faster," Kevin Jacques, a partner at Cota Capital, tells Axios.
• Peer-to-peer payments are also commonly used for illicit activities, which naturally worries banks.

On top of that, FedNow isn't a consumer-facing product like Venmo or Zelle; it's more behind-the-scenes plumbing. In order for the U.S. to catch up to India, a lot of financial services companies will have to do a lot of work — and spend seven-digit sums, even at small institutions — updating their apps and their infrastructure to support the new technology.

How it works: In the first instance, expect FedNow to be used mostly by large corporations.

• Gig-economy employers like to be able to pay workers immediately and per job, for instance. Even employees with full-time jobs very much appreciate being able to get paid everything they're owed today, rather than waiting until the 15th or the 30th of the month.

The bottom line: FedNow is a huge advance in U.S. payments plumbing, but it's still likely to be a couple of years before you'll be able to, say, move money instantly from a savings account at one bank to a checking account at another.

In India, we have been using the mobile payments system linked to our bank accounts for a while now. I think the idea that assumes this technology could accelerate bank collapse is far fetched. If there is a rumor that a bank is likely to collapse, there were ATMs to take our money out. However, ATM withdrawals had upper limits. Even the mobile payments system has similar max limits for moving the money per day per account etc. Today many of us hardly use ATMs. And the cost of moving physical cash around ATMs securely is very high for the banks too.