The headquarters of the Federal Reserve Bank of Boston. Photo Courtesy of Fox-orian / CC BY-SA 3.0
Development of the Federal Reserve’s planned real-time payments system will be run out of Boston by a top leader at the Boston Fed.
First Vice President Ken Montgomery will retain his position at the Federal Reserve Bank of Boston while he leads the development of FedNow, which will support faster payments in the United States with interbank real-time gross settlement and integrated clearing, according to the Fed.
The Federal Reserve Board of Governors announced in August that its reserve banks will offer the service. Planned as part of a multi-year effort, FedNow will “provide critical infrastructure to enable financial institutions of all sizes to offer real-time payments services to their retail and commercial customers,” the Fed said. The board anticipates FedNow will be available in 2023 or 2024.
“This is an exciting milestone in U.S. payments modernization, as the Federal Reserve works toward fulfilling the payment industry’s request for a service that will support safe and efficient faster payments for all financial institutions – and by extension, provide the benefits of real-time payments to all Americans,” Montgomery said in a statement.
FedNow isn’t the only real-time payments system available to community banks; The Clearing House currently runs a system called RTP. The Clearing House is owned by the country’s largest commercial banks and settles nearly $2 trillion in U.S. dollar payments each day. RTP connects about 51 percent of the country’s demand deposit accounts and counts 16 mostly regional and national banks as its members, including the $1.6 billion-asset Hudson-based Avidia Bank and Boston-based Berkshire Bank. Community banks seeking to add real-time payments to their capabilities in an effort to lure businesses and other depositors face a tough choice whether to wait for the development of FedNow or join the RTP system, as Banker & Tradesman reported last month.
Material from the State House News Service was used in this report.
