FedNow is now alive with 35 participating banks/credit unions. I asked Bard to explain how this works and I think Bard did a great job explaining. Here is the Q&A:
Q: FedNow was launched today? How does that work? What's the impact?
Bard: Yes, the FedNow Service was launched today, July 20, 2023. It is a new instant payments system from the Federal Reserve that will allow consumers and businesses to send and receive money within seconds, 24 hours a day, 7 days a week. This is a significant improvement over the current system, which can take one to three days for payments to clear.
FedNow works by using a new messaging protocol that allows banks and other financial institutions to communicate with each other in real time. This means that when you send money to someone using FedNow, the funds will be available in their account immediately.
The impact of FedNow is expected to be significant. It will make it easier and faster for people to send and receive money, which could lead to increased economic activity. It could also help to reduce fraud and errors, as payments will be processed more quickly and securely.
Q: so say i have a bank account at chase and another bank account at boa, it uses to be that when i send funds from one account to the other, it will take days to settle but now it would be immediate because at the fed reserve bank level, they can move the bank reserve instantly and debit/credit individual bank accounts from sender to recipient?
A: That's right. With FedNow, if you send money from your Chase account to your Bank of America account, the funds will be available in your BOA account immediately. This is because FedNow uses a real-time messaging protocol that allows banks to communicate with each other and move funds instantly.
Previously, when you sent money from one bank account to another, the funds would have to be processed through the Federal Reserve's traditional payment system. This system can take one to three days for payments to clear, which is why it was often referred to as the "float." With FedNow, the float is eliminated, and payments are settled in seconds.
This is a significant improvement for consumers and businesses. It will make it easier and faster to send and receive money, which could lead to increased economic activity. It could also help to reduce fraud and errors, as payments will be processed more quickly and securely.
So, if you have a Chase account and a Bank of America account, you can now send money between them instantly using FedNow. This is a great new feature that will make it easier and faster to manage your finances.
WOW! This is cool. I suppose this will eliminate some problems wrt ACH such as insufficient funds. I asked one of my friends who is a FinTech founder. He told me this is not going to eliminate fraudulent transactions and could potentially make it worse. Imagine someone hacks into your bank accounts and sends money out instantly to another bank. Although the settlement is immediate, the banks won’t necessarily want the funds to be immediately accessible at the receiving end. Although frauds will still happen with FedNow, it does appear a lot of red tape and processes can be cut with FedNow and our banking system is moving toward a more automated digital setup at the Fed level. This is great.