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This past Monday, the Federal Reserve Board announced that it plans to develop a new “round-the clock real-time payment and settlement service” called “FedNow Service” that will make it easier and faster to pay bills and transfer money. Because of the advent of new technological advancements such as blockchain, the Federal Reserve has the capacity to modernize the United States’s payment system so that it is both safe and efficient.
Currently, the process of sending and receiving money via a bank can take up to 72 hours, which is often inconvenient for businesses and consumers who need to use those funds immediately. Those who receive money through check at the end of the month, for example, must wait for it to clear before they can use it to pay other bills at the beginning of the next month.
Some banks and consumers are already using real-time payment systems. For instance, a coalition called The Clearing House, which includes members such as Bank of America, JPMorgan Chase and US Bank, offers these types of services. Individuals also use apps like Venmo and PayPal to charge and transfer funds to each other. These applications make funds easily accessible, but often charge to have the money immediately transferred to one’s bank account.
However, these services have yet to be integrated at every financial institution and business across the nation. Over 90 percent of those who responded to the Federal Reserve’s request for comments last year supported the development of a new payment and settlement service. Now, the Federal Reserve is taking the first steps to make that idea a reality.
The Federal Reserve “believes faster payment services, which enable the near-instantaneous transfer of funds day and night, weekend and weekdays, have the potential to become widely used and to yield economic benefits for individuals and businesses by providing them with more flexibility to manage their money and make time-sensitive payments,” according to their official press release.
The Federal Reserve is asking for public comments on the best way to develop and implement a new real-time payment service, and blockchain seems like an obvious tool. Blockchain is a series of computers, ranging from thousands to millions in number, which are able to simultaneously keep a record of a transaction in a publicly viewable ledger.
The benefits of blockchain technology are tenfold: 1) it keeps sensitive information safe, as each record is encrypted and difficult to hack; 2) every computer’s record provides a consensus of the validity of any transaction; and 3) blockchain allows two or more parties to engage in a transaction without the need of a middleman. Blockchain-based payment systems, such as Facebook’s Libra, eliminate the need for a third-party payment system.
This is a revolutionary technological tool that can support a full payment and service system in the nation and provide a stepping stone for digital currency in the long run. View the full press release and submit your comments by Nov. 3, 2019 to the Federal Reserve here.