An update on the Federal Reserve’s Instant Payments Service(clevelandfed.org) |
An update on the Federal Reserve’s Instant Payments Service(clevelandfed.org) |
> FedNow could destabilize banks’ reliance on customer cash, fanning the flames of deposit flight
> In addition to losing revenue from the time between a payment’s initiation and settlement, banks now have to worry about deposit flight outside of business hours.
> The system isn’t expected to be ubiquitous in the U.S. for a few years.
> ...customer deposits were sticky ...That assumption allowed bankers to comfortably borrow cash at low rates and lend for long periods at higher rates.
> But instantaneous transactions allow customers to pull cash with ease, and without notice. That threatens smaller banks...
Meanwhile, the rest of the world, including countries traditionally referred to as "third-world countries," have leapfrogged the US and provide instant payment and settlement without crying about the loss of revenue from the time between initiation and settlement, or a run on their banks.
But there are costs associated with cash too. It has to be stored safely, counted and reconciled, banked (not always free) etc etc.
I’m not saying credit card fees are ‘cheap’, especially not in the US where they seem to be quite high to support the cashback economy, but cash isn’t free for a business either.
It's a failure of US regulation only that VISA and MasterCard etc charge what they do
You end up in situations where moving money can almost be impossible when the banks don't support the same apps. Here in the UK immediate transfers between accounts has been a thing for a very long time.
Glad to see the US catching up, because sometimes the pace of technology is amazing and other times with much simpler things it's positively archaic.
My landlord takes payment via Zelle, and I tried to setup a payment from Discover but it told me that my limit was something ridiculously low like $500. I called to ask them to increase it and they said they were unable to.
Meanwhile, I can send huge amounts from my Ally bank account with Zelle...
"ACH takes a few days" Americans in denial about this and their "open market for tax filing solutions" is interesting
Not all banks support Zelle.
It's a 3rd party app.
> The initial release of the FedNow Service will include features to help banks manage fraud risk and mitigate fraud losses. [...] In addition, there will be tools that help a financial institution investigate erroneous or suspected fraudulent transactions.
Let's say Alice's "Bank A" processes a FedNow transfer of $1,000 to Bob at Bank B. What happens if Alice calls her bank and says the payment was unauthorized?
If Bank A investigates, and finds evidence that Bob hacked Alice's account, do they then have to call up Bank B and persuade them to return the money? Does the Fed get involved as an arbiter? Or is Alice just out of luck?
(To be fair, I'm not sure exactly how this happens behind the scenes with credit/debit cards, either.)
ACH is daily. It really is a batch system, with a daily batch at 4:30 PM Eastern Time, and settles around 6 PM. There's a whole "undo" system built into ACH. FedNow does not have "undo".
Credit card transactions have good consumer protections in US law. The whole concept of credit card transactions is that you buy something and pay for it. Both the "something bought" and "pay for" parts are logged. And you have to be a "merchant" to accept credit cards. So you can order stuff and get a refund if it doesn't show up.
FedNow, like Zelle, seems to be only have a "pay for" part. It just sends money. Using this service with any unknown payee for anything you haven't already received (such as dinner) is probably a bad idea.
The Fed's discussion of FedNow fraud is not comforting.[1]
[1] https://www.frbservices.org/financial-services/fednow/instan...
With ACH most banks/financial services provide some amount of instant funds but wait 1-3 days for the transfer to complete before providing the full balance. This is very useful since it gives the bank 1-3 days to be alerted of fraud, insufficient funds issues, etc. While ACH can technically be clawed back after 3 days, it's a much more difficult process which mitigates risk by forcing the sender through a lengthy fraud claim process.
LOL.
Does this system prevent abuse?
They need to open settlements up to everyone not just "financial institutions". Fed deposit accounts for everyone or Interest bearing CBDCs should be rolled out to every one. The fucking banks need to be disintermediated from all transaction involving Depositors. Convert them to pure lenders.
If the goal is to "improve settlement efficiency without introducing liquidity or credit risks" then provide a path to get the dumb sender and receiver banks out of the loop in every dumb transaction.
If I want to send my grandma cash, why do 2 banks have to be sitting in the middle? It's 2023 get those fuckers out of the loop. So when the next bank collapses due to "credit and liquidity risks" they haven't thought about why should grandma worry about her savings?
> ...worry about her savings
All deposit accounts are insured up to $250k and (given recent events) unlikely the Fed would even allow any regular persons deposits to be at risk. Essentially, the Fed can't loan or invest like small/medium banks can. The Fed can't go bankrupt so it has no real way to measuring risks when giving out loans which would make it impossible to price loans.
Zelle basically never worked for me at my local credit union (every single attempt to use it locked my account on suspicion of fraud), but I use it regularly with Chase with no issue.
How do you hope FedNow will improve on the concept?
I was a Chase customer for a long time, and I tried to enroll with Zelle through Chase. This failed in two separate ways:
1. I was unable to enroll through Chase: I got everything ranging from generic error pages, to server errors, to actual Java stack traces in both my email and browser.
2. I was unable to enroll directly through Zelle's site: their site would claim that I was already enrolled, invite me to log in, and then...not log in.
It took weeks to get a combination of Chase and Zelle's customer service to (1) acknowledge the issue, and (2) diagnose it: Zelle appears to (or did) use US phone numbers as primary keys, and I was partially registered in two separate places. They didn't have a resolution available to me so I told them to delete my account entirely, which they said they did.
Fast forward about 3 years: I'm no longer a Chase customer. For unrelated reasons, I am asked to attempt to use Zelle again. I try and enroll, only to discover that:
1. Zelle can only be linked to one bank at a time;
2. Chase never actually bothered to un-enroll me.
At this point, I'm no longer a customer of Chase, and have no active account to reference. I can't log into either Chase or Zelle to "un-enroll" this account that doesn't exist, and neither is willing to do it for me. I end up convincing the person that wanted me to use Zelle that it's fundamentally broken, and ignore it.
Fast forward another year: I am now forced to use Zelle. This time, somehow, my new bank is able to enroll me. I log into Zelle to make a payment; I am instantly banned for having "insufficient personal information" (how this is possible is unclear to me; it is literally linked to all the information on my bank account). I convince my bank to talk to Zelle and unban me, and finally things mostly "work": I can enter a crappy webview within my bank's app to send money through Zelle. Except that I still have to split it into smaller payments, since Zelle uses the debit network for settlement and won't let me send very modest amounts of money in single amounts.
To summarize: after about 6 years of fighting, I can half-use Zelle by splitting already small payments into smaller payments. I have to be careful about when I split these payments, because if I do them on the wrong calendar intervals I exceed my "monthly limit" and have to wait another month to make essential payments. Getting to this state took literal dozens of phone calls with two banks and Zelle themselves.
> How do you hope FedNow will improve on the concept?
I hope none of the above will ever happen to me again.
gstatic is correct with this:
>If I want to send my grandma cash, why do 2 banks have to be sitting in the middle?
The US government should be offering electronic money accounts to everyone as a utility, and they should be constitutionally guaranteed (even to felons), with no ability to lose them. Anyone should be able to send and receive money at any time. In conjunction, US government should also provide identity verification services as a utility, utilizing the USPS, which they already use to verify identity for US passports.
If people then want to invest their money, then they can make that choice individually.
Ofcourse. But this should be a choice. Depositors should be allowed to choose between a fed deposit account or a local bank deposit.
Given the numbers they quote re: cashless payment, it doesn’t matter if retailers don’t like the credit card processors. Consumers do - and with all the points and rewards and convenience of cashless payment, they will demand they at least support such payments and most people will use them even with passing on the fees. It’s hard for me to see a world where that changes any time soon.
While I was with the credit union, the buck was just passed between them and Zelle. Zelle seems to have been set up assuming that banks will somehow support it, and either they’re not actually prepared to do it or not given the proper tools to detangle the mess.
Think I'm kidding about the last one? The US government has already taken gold from citizens (by law, and without recourse) before, and nobody did anything about it.
They also didn't get a very large percentage of the privately held metals, either.
That is why you do not see major US retailers offer discounts for paying with cash/debit card/ACH. The only one I can think of is Target, that offers 5% off if you use Target Redcard, which can be linked to your bank account.
Many retailers had their hands tied, whether or not they wanted to provide a cash discount or credit card surcharge.
ACH sucks but Zelle is at least second party; every major bank supports it and I don’t need any details to transfer money beyond their phone number.
Zelle is not universal, I think it's around 20% of banks/credit unions don't support it, and has high fees associated with it. It's good to see the Fed doing something about it.
Apart from cashier's cheques (which also are pretty rare in places with functioning quick payment systems) what do you think are the other uses of cheques?
See: recent price of gold and bitcoin and oil (and stock market, in general) IE: NOT USD
See, also: several countries request physical return of their alleged gold holdings
Zelle does a debit charge over the Visa and MasterCard networks. Larger institutions get discounts on these networks through volume agreements, while smaller ones have to eat the larger charges per transaction because larger banks don't pass their smaller costs on.
How are you getting money into this "FedAccount" does your paycheck get sent directly to it? Do you first send money from another bank? If it's the former option then real banks will have less money to lend, if it's the latter option then it's no different then using Zelle or any other intermediate.
Honestly what you want sounds exactly like what the Fed is building which is a common electronic exchange platform. I agree with the other points in that I hope this is mandatory to some degree.
> If people then want to invest their money, then they can make that choice individually.
I think you're underestimating how much such a service (if it accepted direct ACH from your job) would impact our current banking system. Companies would just bypass actual banks and send all paychecks to everyone's "FedAccount" that would be billions of dollars moved. Money in real banks is lent out, money in a "FedAccount" would/couldn't be (if banks have fewer deposits then they can't get as much money from the Fed). This isn't just adding a minor service for the government to provide, it would be a complete redesign of our monetary policy. A lot of countries wish they could have a banking environment as diverse as the US, it's a huge feature not a bug.
No, electronic money is just a number in a database. The US government can give you an account number like any other bank does now. Of course, you would still have the option to use a non US government electronic money account.
>If it's the former option then real banks will have less money to lend,
Yes, currently banks are earning money for an inefficiency from back in times when cash was the primary money. A lot of their purpose is obviated with todays’ technology of computers, databases, and instant communications.
> Companies would just bypass actual banks and send all paychecks to everyone's "FedAccount" that would be billions of dollars moved.
Possibly, if that is what people want.
>Money in real banks is lent out, money in a "FedAccount" would/couldn't be (if banks have fewer deposits then they can't get as much money from the Fed).
Banks can still offer people interest to entice them to deposit funds with them rather than the US government.
Meanwhile, iDEAL exists for so long and its effortless. Just not for Americans. https://dutchreview.com/expat/financial/what-is-ideal/
I really need to switch banks.
Presumably, the limits are set by each bank (for their own customers). For example, BoA has these:
https://www.bankofamerica.com/online-banking/zelle-transfer-...
There is no limit to receive, but if you want different limits for sending, then perhaps you should change banks? Although, the above limits seem pretty generous for an instant, non reversible transfer of money.
If you want to instantly transfer more than, say, $15k, then presumably you would want more reversibility.
Why would you hold it against Discover to prefer to not use Visa and MasterCard networks?
And sure, there would have been no need for it to exist had the US government done its job 20+ years ago as opposed to waiting until the 2020s, but the reality is that most Americans have been able to instantly transfer money online using their bank for quite a few years now.
If you do not, then you should probably sign up for a free account at any of the multitude of online banks that do have the capabilities.
For example, at CIT Bank, which I easily opened a free online account, I have ACH limits of $250k outgoing and $500k incoming, PER DAY. All I had to do was enter my account #/routing # for my other bank accounts.
Zelle is a shitty middleman with ridiculously low transfer limits.
https://www.bankofamerica.com/online-banking/zelle-transfer-...
Zelle is just a payments network.
https://en.wikipedia.org/wiki/Zelle_(payment_service)
Also, as far as I understand, the mechanism of ACH prevents it from being instantaneous, requiring old school processes every night to reconcile and finalize transactions. ACH does not check if accounts have money in real time, it assumes it, and then deals with problems later, which is why transactions take days to finalize.
The biggest banks got together and created a new network for transfers, and charge all the smaller banks fees to access it?
It sounds like another method of crushing competition.
It sounds like the US government was asleep at the wheel and the big banks got together and did what they had to to enable US residents to be able to instantly send money to each other electronically.
Zelle is lying when it says that it's a "network." All it does is shoot debit payments between supported banks; it's not doing any settlement on its own. The fact that it can be pushed around/constrained by each bank shows this.
> There is no limit to receive, but if you want different limits for sending, then perhaps you should change banks? Although, the above limits seem pretty generous for an instant, non reversible transfer of money.
I bank with a large investment bank that otherwise has excellent service (as in, "a human picks up the phone anytime of day" levels of service). I'm not going to drop them because Zelle fails to abstract over them correctly; every other third party payment app does this correctly.
> If you want to instantly transfer more than, say, $15k, then presumably you would want more reversibility.
My bank's Zelle limit is well below $15k per month, not even day. And to be clear: I don't personally care about instant settlement; I'm forced to use Zelle.
Bank of America and Wells Fargo do not get charged the same as your local Credit Union. So smaller institutions get screwed.