finance

Federal Reserve Takes On Zelle With New Instant Payment Platform

The central bank says the move will help fight consumer fraud. Federal Reserve Takes On Zelle With New Instant Payment Platform Photo by Chip Somodevilla/Getty Images

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The Federal Reserve has a lot on its plate these days, particularly as it weighs how much to keep raising interest rates to bring down inflation without creating more uncertainty within the banking industry.

Nevertheless, the central bank is moving forward with its long-anticipated program to offer a more secure system for sending and receiving instant payments.

Fighting fraudsters

A primary motivation behind the FedNow service is combatting the fraud that has tarnished private-sector options like Zelle. Users of that platform have been targeted by scams in which criminals seek to convince them to send payments in irreversible transactions.

In response, lawmakers and regulators have pushed for a new option — and the Fed believes its service will fit the bill.

FedNow executive Nick Stanescu explained: “Fraud management features are a high priority for [financial institutions] and are being tested along with transaction flows in the countdown to launch.

What we know so far

The system hasn’t yet officially launched, but all signs point to an introduction early this summer. There are still some unknown factors about how it will operate and who stands to benefit from it, but here are a few fast facts about the program:

  • Consumers won’t access FedNow directly, but it will act as an intermediary between a sender’s bank and the recipient’s financial institution.
  • It will include tools that will give consumers a way to easily file disputes and resolve any conflicts that arise in the process.
  • Other features planned for the future will enhance the platform’s ability to address errors and further safeguard against fraud.

As Federal Reserve Bank of Boston VP Ken Montgomery said, the tool “will enable every participating financial institution, the smallest to the largest and from all corners of the country, to offer a modern instant payment solution.”

Chris Agee
Chris Agee March 17th, 2023
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