The United States Federal Reserve has confirmed a July launch date for its long-awaited instant payments system, seen by some as an alternative to central bank digital currencies and stablecoins.
The instant payment network will settle payments in seconds and can support transactions between consumers, merchants and banks. It does not rely on blockchain technology.
It’s a significant step for the government, as it is controlled by the Federal Reserve. Clearing House’s RTP network, which also offers real-time payments, is operated by a consortium of large banks.
According to a March 15 announcement, the U.S. Fed said the debut of FedNow is set for July, with the U.S. Treasury and a “diverse mix of financial institutions of all sizes” ready to use the network from launch.
The Fed said it will “begin the formal certification of participants” during the first week of April in preparation for the launch.
“Early adopters will complete a customer testing and certification program, informed by feedback from the FedNow Pilot Program, to prepare for sending live transactions through the system,” the announcement reads.
FedNow was announced in 2019 and will provide round-the-clock, real-time gross settlement by funneling commercial bank money from a sender through a Fed credit account to its recipient. It also has built in features such as fraud risk management.
Following the official launch, the Federal Reserve outlined that it will push to onboard as many as financial institutions as possible in order to increase the availability of instant payments.
“The launch reflects an important milestone in the journey to help financial institutions serve customer needs for instant payments to better support nearly every aspect of our economy,” Tom Barkin, president of the Federal Reserve Bank of Richmond and FedNow Program executive sponsor, said in the announcement.
Some see the FedNow service as tackling a problem that both stablecoins and CBDCs also seek to solve.
The FedNow program, however, doesn’t use blockchain tech, while the Federal Reserve is known to have a cautious and skeptical view on stablecoins.
One of the major banking payment rails servicing U.S. crypto companies in the Silvergate Exchange Network (SEN) was shut down earlier this month following Silvergate’s collapse.
As it stands, SEN competitor SigNet from Signature Bank is still operational despite the bank’s forced closure on March 13. However, its fate is up in the air, while a number of companies have reportedly fled from the network following Signature’s troubles.
FedNow could also stand in place of a central-bank-issued digital currency.
Federal Reserve Vice Chair Lael Brainard emphasized during a House of Representatives Committee on Financial Services hearing in May that a CBDC would take far longer to get off the ground than FedNow due to regulatory hurdles.
“[If] Congress were to decide… to issue a central bank digital currency, it could take five years to put in place the requisite security features, the design features,” she said.
She added that FedNow will serve many of the same functions as a CBDC anyhow.
Fed chair Jerome Powell also spoke before the House Financial Services Committee on March 9 and suggested that a potential U.S. CBDC is still quite some time away.
“We’re not at the stage of making any real decisions,” he said, adding that “what we’re doing is experimenting in kind of early stage experimentation. How would this work? Does it work? What’s the best technology? What’s the most efficient?”
Commenting on FedNow, however, he stated that “we’ll have real-time payments in this country very, very soon.”