FedNow Might Be Convenient For You … But What About The Banks?The new payment system should be rolling out later this month. Shutterstock
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If you’re fed up with fees and long lines at your local branch, you might not be too worried about how a new automatic payment system from the Federal Reserve could inconvenience banks. But when you need to rely on these institutions to send and receive money, they’ll play a pivotal role.
So let’s take a look at how the FedNow system, which is expected to be introduced later this month, will impact the banking industry.
What is FedNow, exactly?
In simple terms, this new system will allow for real-time electronic deposits, withdrawals, and payments at any time day or night. Clearly, this is a benefit to bank customers and business owners who have been forced to wait sometimes days at a time for transactions to be completed through the current automated clearinghouse (or ACH) system.
Furthermore, FedNow offers a benefit to local and regional lenders who have not been able to compete against major banks. It’s meant to be easier for institutions to join and could level the playing field between multinational banks and their much smaller counterparts.
So what’s the problem?
On the surface, FedNow seems as if would be a boon for just about everyone involved in any aspect of a digital transaction. But experts say there are a few ways that banks of all sizes could find themselves burdened with some new requirements.
- They will need bigger cash reserves since people can take their money out instantly.
- They could face revenue hits if many customers cash out within a short period of time.
- They still need to convince skeptical clients that their deposits are safe.
In short, this shift comes at a precarious time following the failure of multiple banks earlier this year. But lower transaction costs and other benefits could help soften the blow.