You may have heard people in the office talking about FedNow. FedNow is an instant payment service that the Federal Reserve will offer businesses and individuals to send and receive money within seconds on a 24-hour, 365-days-a-year basis. The Federal Reserve's goal is to revolutionize how people transfer money and manage transactions.
Pros
Real-time Payments and Refunds. This capability helps lower the delays consumers have to contend with when accessing traditional payment systems. Individuals can pay bills on time without worrying about generating a late fee because there is no longer that frustrating lag time. Small businesses can receive payments immediately, allowing them to manage their expenses and cash flow more efficiently.
Improved Security against Fraud. By having real-time transactions, suspicious activity can be identified quicker and benefit consumers by allowing banks to flag the accounts and investigate attempted fraud before the money gets stolen, making committing fraud more difficult and less attractive to criminals.
FedNow is Not Replacing the Dollar. There are myths circulating on the internet and social media claiming FedNow will replace the dollar with a new digital currency. This, however, is false.
Cons
FedNow is Not Necessarily Available in All Banks. Keep in mind that banks can opt into FedNow – they will not be forced to join the platform. You must check with your bank to see if they are a participant. Transitioning from the traditional payment system to this real-time system may take time, and some institutions may not be on board immediately.
Banks Increasing Their Fees. According to Moody's Investors Service, a downside of FedNow is that banks would lose some of the interest they earn on 'float,' money accrued during the time period between fund deposits and when it clears. They also note that with the speed money will be moving, the new system could potentially increase the possibility of a bank run – when customers withdraw their deposits simultaneously over concerns about the bank's ability to pay its debts.
Potential for Fraud. There is also the concern for fraud not being reversible in the real-time system. Scammers have designed schemes to make it difficult for banks to track and stop real-time fraud.
FedNow, like many new technological innovations, may transform the payment landscape as more financial institutions and consumers embrace real-time payment benefits. However, with all things financial, a certain level of risk will be involved and requires sound decision-making and careful research. You are encouraged to consult a financial professional to learn how FedNow may impact you and your financial goals.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This script was prepared by LPL Marketing Solutions
Sources:
FedNow FAQs: What Is It Really? – Forbes Advisor
Moody’s report spotlights FedNow downside | Payments Dive
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