These are very interesting times for the financial sector. Banks are feeling stiff competition from emerging players, and cryptocurrencies are still trying to make their mark as well. The Federal Reserve has now announced its new FedNow service will try to make the American financial sector better and more competitive. This service won’t go live for another few years, however, by which time it may very well be too late.
FedNow Makes Sense on Paper
It is a well-known fact that the current digital banking system does not warrant any significant delays when sending money from account A to account B. Even so, consumers still have to contend with delays, rather high fees, and a service which leaves much to be desired altogether. This is part of the reason why emerging service providers such as TransferGo and TransferNow have made their mark on the money transmitting industry, primarily because they provide faster and cheaper transactions.
To counter all of these problems, the Federal Reserve will try to make an impact where transactions up to $25,000 are concerned. Its newly announced FedNow service will directly pit the Fed against other American banks in terms of dealing with real-time payments. Whoever rolls out this functionality first – and without offering such transfers to users of the same bank – could very well end up winning the race. Until that happens, alternative solutions – and even cryptocurrencies – will continue to make their mark on the financial sector.
Competing With the Clearing House
For those versed in financial news, the Clearing House is a name which should ring a bell. This entity has built a real-time payments system of its own not too long ago. This entity has the support of Capital One, Citibank, Wells Fargo, BoA, JP Morgan Chase, and Deutsche Bank. Since all of these banks also interact with the Federal Reserve, it will be interesting to see how a rival system will affect those business relationships. The Fed’s vision of building an “open loop” for all parties to benefit from is certainly noteworthy. Pulling it off is a different matter altogether.
Cutting Down on Fees
It would not be too surprising to see most major US banks oppose this concept altogether. The purpose of FedNow is to let people rely less on check-cashing service fees and high-interest loans. In doing so, the Fed will help drop the number of overdraft fees paid by consumers, as well as slowly erode the late fees. This is how most banks make a fair amount of money, thus it seems unlikely they will let that revenue stream slip so easily. Even so, for people on a tight budget, these changes could be life-changing.
Google Seems to Approve
It is always pertinent for ideas such as this one to gain some sort of support at an early stage. Google’s head of payments Caesar Sengupta seems to approve of the idea of FedNow and the changes it can bring to the table. It is certainly possible this new system can improve financial inclusion in the United States, as some lingering problems remain present in this day and age. Moreover, it is due time the Fed introduces a system which is designed for the modern age, rather than continuing to use an ecosystem which is old, slow, and only benefits the banks.
Disclaimer: This is not trading or investment advice. The above article is for entertainment and education purposes only. Please do your own research before purchasing or investing into any cryptocurrency or digital currency.