The Federal Reserve Bank has unveiled its initial plans to develop a new “round-the-clock real-time payment and settlement service.”

Titled ‘FedNow‘ the solution will support faster payments across the United States and is expected to be ready for launch by 2023/2024; the service will support values initially limited to $25,000.

The Federal Reserve’s board of governors voted 4-1 to approve the proposal for FedNow on August 2.

“Everyone deserves the same ability to make and receive payments immediately and securely, and every bank deserves the same opportunity to offer that service to its community,” explained Federal Reserve Board Governor Lael Brainard

“FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers.”

The Federal Reserve noted the “rapid evolution” of technology made the need for a modernised national payment system “pivotal.”

It expects the introduction of a 24x7x365 faster payment system to “yield economic benefits for individuals and businesses” due to the flexibility it presents when managing or transferring money, on top of the ability to transact time-sensitive payments.

FedNow will be a universal infrastructure therefore enabling all financial institutions* to provide faster payments instead of the process remaining in a ‘closed loop’ like other real-time systems.

The board made its assessment on the new payments system with views from the public, historical experience along with its own analysis.

It evaluated whether such services can be expected to generate public benefits that private-sector services alone may be unable to achieve.

The board concluded private-sector real-time gross settlement (RTGS) services for faster payments alone “cannot be expected to provide an infrastructure for faster payments with reasonable effectiveness, scope, and equity.”

Due to the Federal Reserve’s already existing nationwide payment infrastructure and customer service relationships with , the board recognised it is “well positioned to overcome the challenge of extending nationwide access to an infrastructure for faster payments.”

Speaking to PaymentExpert, Craig Ramsey, head of real-time payments, ACI Worldwide, described the news as a “significant announcement.”

Ramsey explained: “This amounts to a recognition of the US Fed that real-time payments are the future and will support the growth of the US economy.

“It will stimulate the US into the faster adoption of real-time payments as every bank needs to prepare for connectivity to the new service and ensure that their back-office systems and processes are also real-time ready.

“Real-time payments have already become the norm in many other parts of the world. As corporates and consumers recognise the benefits of real-time payments and demand these products and services from their financial service providers, we’re going to see the US follow suit.”

However, Ramsey acknowledged “four to five years does seem like a long time” and the delay of implementation could be an issue; already existing schemes from firms such as The Clearing House and Zelle will be in full operation by 2023/2024.

“Ultimately, it will be the bank’s decision as to how they settle payments in real-time; they need to ensure they are being supported by payments software providers who have the knowledge and expertise to support real-time payments and crucially, have the means to operate a flexible environment across multiple schemes,” concluded Ramsey.

The Board is now requesting comment on how the new service might be designed to most effectively support the full set of payment system stakeholders and the functioning of the broader U.S. payment system.

*According to FAQs set out by the Federal Reserve, the FedNow Service will be available to banks “eligible to hold accounts at the Reserve Banks under applicable federal statutes and Federal Reserve rules, policies, and procedures.”