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Thread: Fed officials are now saying that they'll be able to launch FedNow in 2023 rather than later: https://www.finextra.com/newsarticle/37418/fed-narrows-timeframe-for-launch-of-real-time-payments-platform
It's understandable that they should do everything possible to accelerate FedNow's launch: RTP, FedNow's private-sector rival, has been operating since 2017, and its network now covers well over 70% of all U.S. bank deposits, with new depository institutions joining every week.
Universal or "ubiquitous" coverage was one of the key objectives of the Faster Payments Task Force est. by the Fed in 2015. The Clearing House's RTP system answered that Task Force's recommendations. By late 2018 it had 50% network coverage.
The Fed's decision in 2019 to launch a rival network, made partly in response to small banks' reluctance to take part in a network established by the big banks that own TCH, came as a big surprise to RTP, which would now have to struggle harder to achieve ubiquity.
If the two networks were "interoperable," or if banks could join both costlessly, ubiquity could still be achieved relatively easily. But that's not the case. W/ real-time payments, interoperability is not easily achieved; and connecting to either network is costly.
So by announcing FedNow, the Fed gave banks that might sooner have joined RTP reason to wait. However, the pressure on banks to offer real-time payments has in the meantime grown considerably. Many could not afford to wait until 2024-FedNow's original launch date-to do so.
Seeing RTPs network still gaining ground, the Fed had reason to worry that FedNow would be stillborn-a white elephant that couldn't possibly justify its substantial cost to taxpayers. (Indeed, even as matters stand the Fed does not plan to recoup those costs in a timely manner.)
Hence its resolve to get FedNow up and running ahead of its originally scheduled launch date. Whether it actually launches in 2023 remains to be seen. But the promise alone could in principle suffice to keep some mostly small banks from dealing with the rival service.
In principle. But in practice, maybe not: according to a recent survey by Levvel consultants, "66% of business respondents consider themselves likely to adopt RTP in the next one to two years." https://www.levvel.io/resource-library/access/2021-real-time-payments-market-insight-report
Those respondents aren't likely to put-off a move to real-time payments simply because their banks would rather wait for FedNow's launch. Instead, they will consider taking their business to a bank that already offers real-time payments.
Does this mean that FedNow may still be in trouble? Hardly. You see, the Fed isn't like a private-sector business. For it, "failure isn't an option," not because it always pulls through, but because it has all sorts of ways of-let's call a spade a spade-cheating.
Besides continued resort to implicit if not explicit cross subsidies (themselves made possible by its currency monopoly and consequent seigniorage earnings), the Fed can use its regulatory powers to sway things in FedNow's favor.
Furthermore-and here things get ironic-whereas RTP has committed itself to a flat-fee arrangement, explicitly aimed at assuring smaller DIs that their larger rivals will enjoy no quantity-discount cost advantage, the Fed has made no such commitment.
Indeed, even as it proceeded with plans for FedNow, the Fed claimed not to have developed a fee structure. So much for cost-benefit analysis! Still, 5 will get you 10 that when it launches, FedNow will offer attractive quantity discounts in an effort to win over bigger banks.
It's either that or lose money hand over fist, which of course will hurt us taxpayers rather than the Fed itself. Here's where the irony comes in: if the Fed does that, RTP will have to answer in kind, as it warned it might after FedNow was announced.
Critics of RTP, not understanding the context for RTP's warning, suggested that it's flat fee promise was a mere bait-and-switch tactic. This added to small-banks' fears and reluctance to join RTP.
But RTP was merely warning that if the Fed competed with it, it would have to compete w/ the Fed in return. (Sellers planning to bait-and-switch don't usually _announce_ the switch!) In fact, thanks to FedNow, small banks are _more_ likely to find themselves at a disadvantage.
For all these reasons, I continue to hold the minority view that FedNow is both unnecessary and undesirable, as I have since I first entered into the debate concerning it some time ago. I hope more people will consider my perspective https://www.cato.org/public-comments/re-potential-federal-reserve-actions-support-interbank-settlement-faster-payments
