More than 100 organizations taking part in FedNow Pilot Program

Rumors are buzzing on social media, as the Federal Reserve begins rolling out its new instant payment system called FedNow. The idea is to streamline payment processes in the U.S., but there’s a lot of confusion about what the Federal Reserve is aiming to do. 

According to the Federal Reserve, the FedNow service is a new instant payment infrastructure that allows financial institutions to provide safe and efficient instant payment services. The service will be available to all banks and credit unions within a few months. However, according to NerdWallet, there’s no requirement for them to join.

On Friday, ‘WINK Investigates’ reporter Kellie Miller spoke to a financial expert about FedNow.

“It’s essentially venmo provided by the federal government,” said Dr. Thomas Smythe, professor of finance at Florida Gulf Coast University. 

According to Smythe, the purpose of FedNow is to allow consumers to send and receive money within seconds, 24/7 and 365-days a year. The Federal Reserve claims their program accommodates the growing number of individuals, businesses, and organizations demanding instant payments. However, critics argue that money will essentially be funneled through a federal account, posing many questions about freedom and privacy.

“Well, I think that’s one of the issues very specifically that is going to have to be addressed,” Smythe said. “And I think the issue will become more acute if we start seeing a push towards the central bank digital currency…Now, will they have some idea about how transactions flow and things like that? Absolutely.”

When FedNow officially starts operating in July, will companies such as Zelle, PayPal, and Venmo still be useful? According to Smythe, it’s too early to tell. 

“I think the question will be, how competitive are they going to be relative to FedNow,” he said. “There’s a strong possibility that some of these payment apps will struggle. But what I hope would happen is with the competition, they’ll try to find other value-added services as part of their package that will allow for even more benefits to consumers. But it’s a little bit too early to tell.”

“The other thing that I actually believe this may be, is a first step for the Federal Reserve to introduce a central bank digital currency,” Smythe said. “This is essentially the movement of money that a central bank digital currency would need…I’m not suggesting that’s imminent by any stretch of the imagination. But central banks have been looking at central bank digital currencies for about four or five years now.”

Currently, more than 110 organizations, such as American Bank, Capital One Financial, and First Citizens State Bank, are taking part in the pilot program. 

“I do believe that the intent behind the program is sound,” Smythe said. “Unfortunately, quite often, especially when the government gets involved, we tend to see unintended consequences. So that will be sort of what I’ll be looking for, within the first year or so, to see if there are things that occur, say in the broader economy associated with this that we are just not aware of.”