While many countries now offer bank payments in the blink of an eye, moving funds between accounts in the US can still take days. Electronic platforms such as PayPal Holdings Inc.’s Venmo and Block Inc.’s Cash App offer various workarounds to speed up the process, but they are essentially intermediaries that interface with the slow banking system. Now the Federal Reserve has created a high-speed transportation lane that allows for bank transfers within seconds. Here’s what you need to know about the new service, FedNow, which launches in July.
Transfers using the Automated Clearing House — the legacy system invented in the 1970s — can take days to complete, partly because it lumps transactions together and processes them at specific intervals. Newer instant-payment tools like Venmo are fine when you’re doing something like buying a hot dog or sending cash to a friend who uses the same app. But when you want to pull money back off those platforms, the funds grind their way through the legacy banking system before they show up in your account. The same thing happens when you receive a paycheck or pay a utility bill. A survey by American Banker in 2021 found that 21% of consumers had abandoned a financial transaction or account opening because it took too long. The current slow transfers often lead to late fees for missed bill payments or penalties for overdrafts. So for the millions of Americans who live paycheck to paycheck, the delays can be costly.
