https://arstechnica.com/tech-policy/2023/07/banks-serving-as-guinea-pigs-for-federal-reserves-instant-payments-system/
The Fed's goal is to connect 9,000 financial institutions nationwide.
Fed’s new instant payment system could be trouble for PayPal, Venmo::The Fed's goal is to connect 9,000 financial institutions nationwide.
This is wild. Here in the UK we just transfer money from bank to bank in an instant using the banks own app.
Here in the US it’s only instant if it’s coming out of your account.
If it’s coming out of the bank’s account
Can you please explain the difference here, because that doesn't make sense to me. When am I ever transferring money out of the banks account instead of mine?
Ah ok, all good. I guess it's showing how bad the state of affairs is with payments in the USA when I had to ask that question haha.
This is what banking looks like if you are poor, unfortunately.
Those cash checking places are fucking evil. Then the payday loan companies with usury…
What bank do you have that charges $35 for a transfer?
I transfer between b of a and chase bank, both known for having decently high fees, without any of those fees.
The $35 amount I've only seen with overdrafting. Do you overdraft every single transfer?
We’re talking about wire transfers, not closing on a mortgage. They take 3-5 days. I pay my loan to Rocket every month
It's been a while since I did it but you can authorize it so all e-transfers are automatically accepted and deposited. I can't think of a scenario where that would be a bad thing.
It’s so normal that I can’t actually remember it ever being any different. Even before the advent of mobile banking it was the same with internet banking. Instant transfers.
In the US we have Zelle which is free and instant, but it's still a third party your bank integrates
In Australia we've had free next business day transfers for as long as I can remember. Decades.
The transition to transfers that clear in seconds was happened gradually as bottlenecks were removed from the infrastructure one by one. Some transactions were instant a couple decades ago, but it's only in the last few years that most transactions are instant here.
These days, Visa/Mastercard are basically the slowest way you can pay someone. It's still the most commonly used option though, since it has the best fraud protection.
I do this in the States. Maybe you haven't noticed the option on the bank's site? Also make sure to use a credit union.
Same in Poland. That, and Blik system which let's you send money to a phone number (if it's also registered with Blik) and it's actually instant. Not "next transfer window" like Elixir transfers, instant.
And yes, completely free.
The US has this, it's called Zelle, every bank seems to have it, and it's instantaneous. For some reason it's just not popular, probably because Paypal and others are already entrenched.
Same in Canada. It's like going back in time when crossing the border when it comes to banking and payment.
In Spain we have Bizum - transfer money using a persons mobile phone number (as long as you’re both registered with your bank). Instant and free
Same with us. I don't know what these other folks are talking about. I transfer seemlessly between my accounts at different banks.
We had bank to bank and bank to merchant over the internet in 1996. And by 2003 the interac e-transfer for customer to customer had rolled out countrywide.
The history is actually pretty impressive.
Yeah we're in the fucking stone age over here. No federal e-transfer, all private healthcare, practically no public transport besides in some of the bigger cities, and even that isnt very good most of the time. Also still using imperial, way behind on a lot of tech legislation, basically relying on EU rules to carry over. There's a reason we're the 3rd world country of 1st world countries
While I’ve used PayPal for, holy shit, decades… my recent need to move cash around with my Gen Z children caused me to venture into Venmo and CashApp. While I’m skeptical of the proper execution of anything new the federal government introduces, I can’t imagine they could create a WORSE experience than these new-age, middle-man processors. I’ve had to call my bank more times in the last two weeks to unlock fraud alerts than I have in the past twenty years. Then, after doing that, the damned processors themselves start declining $5 transactions for no apparent reason. I’d sooner poke myself in the eye than try to make a payment.
While that is true, I have also had issues with Venmo that I have never had with PayPal. I have no clue what the back-end difference is, but I stopped using Venmo after they decided a small payment to a friend was suspicious and locked my account. Meanwhile, payments to that same friend via PayPal have been fine.
I've been locked out of my PayPal since 2005. On their end my account is somehow both locked and nonexistent, creating a loop of error messages. Last time I tried to have a real human fix it they basically shrugged, and that was about 7 years ago haha
Finally, it's ridiculous we have to pay fees to a private company just to easily transfer money.
Finger crossed it'll be compatible with IBAN/SWIFT banking so we can actually be a part of the International community.
So in the UK we have had a standard free "instant" payment system between banks for what feels like a couple of decades now (and compatibility with the IBAN for at least half that time). Given that, how has this taken so long? What did people do before Venmo?
For those that don't know in the US even if you use a third party system the final settlement of the money still has to go through the Fed and it's usually as either a Wire or an ACH transaction. ACH is slow and batch processes which can be daily. Wire can be quicker but more expensive. Some banks give you access to funds sooner but it's still not settled until that NACHA batch file goes through the Fed.
Anyway there are two instant payment systems coming to the US: RTP (by the Automated Clearing House (ACH)) and FedNow.
Outside the US they've already had other instant payment systems.
Thank you for this, because as an Australian I was quite confused. We have had "instant" payment systems for as long as I can remember between banks. The US banking and payment system seems stuck in the dark ages.
This didn't kill things like PayPal though, they're completely different services.
If the money is going from a PayPal account to a PayPal account, why would it have to clear at all?
Word to the wise: if you are buying a house in the USA, make sure that the transfer of funds to the closing attorney/settlement agent is done by WIRE transfer, not ACH. ACH is reversible, and in many jurisdictions, the closing shop is not allowed to accept ACH transfers. Wire transfers are more of a pain in the ass, but you don't want to find out on closing day that your money is no good because you could make it disappear from the closing shop's trust account two days after closing.
Thank god. I very much so dislike having to use 3rd parties to transfer e-bucks. Always have to do the 'I have x, do you have x?' dance. Been using cash fairly often since it's just easier.
Have you seen our presidents or politicians? We're working with what we've got and fighting to urge to sink into depression and dispair
Honestly, once it reaches critical mass. It will mean the end of PayPal, Venmo et al AND the credit card industry as a whole.
I think between rewards and actual credit, credit cards will probably be fine, but I'm curious if you think this solves for either of these use cases.
I can see it going either way. I think it's gonna come down to apple and Google getting on board. If they adopt tap to pay with this system vendors will have less incentive to accept credit card fees. If they don't, it won't become ubiquitous enough for any store to get away with not allowing it and consumers will look out for their own interest to keep taking the credit benefits. (I realize collective action would make that argument void, I doubt true collective action is possible in any senecio.)
That said, I cannot see a world where the banks let it get that far. This system relies on the banks cooperation and it wouldn't be the first time they bought a law.
Credit card rewards are really not worth it. These programs are largely funded by the fees that are charged to merchants which are ultimately passed on to you at time of purchase.
I would much rather have reduced costs of goods rather than have paltry credit card reward programs.
Ok, but if this new payment model takes over and there are no fees to merchants, I'm very skeptical those savings will be passed on to buyers. I think at this point credit card processing is pretty well priced in.
Probably right for most big box stores or multibillion dollar businesses. But you would be surprised how thin the margins are for local grocery stores. That 3-5% in processing could be used to compete or undercut big box competitors that price in the credit/debit card fee.
I think with the right approach (small businesses first) it could see high adoption. Plus it would make it slightly more attractive in setting up shop in places that wouldn’t otherwise get any attention (ie, food deserts)
I doubt it will hit the credit card industry that much. We have something like this in Canada, Interac, and credit cards are alive and well. They may actually prefer this, because people who keep zero balances may be less inclined to use credit cards instead of debit cards and there may be a larger market of businesses with card-processing capability to cater to those who have debit cards but don't have the credit to obtain credit cards.
We have something like this in Canada, Interac
Interac is not the same thing at all, the US equivalent is Zelle.
FedNow does instant EFT payments, which is something Canada does not have.
Processing transactions with credit cards incurs fees from middlemen and unnecessarily complicates the merchant-buyer relationship. The merchant ends up paying these fees and ultimately passes this cost to the consumer in the form of a 3-5% or more markup of goods. In some cases, even cash customers are paying the hidden markup as well.
With FedNow, this has the potential to bypass all of this messiness and severely undercut debit and credit card processing networks. Thus slowly bleeding them out of market share.
I can definitely see a new market segment of payment processing which disrupts the existing status quo. Could very easily cover expenses of running the operation on a shoe string budget, charge 1-2 cents per transaction, and become profitable in just under a year (assuming high adoption).
In the end, smaller merchants are able to compete or in some cases undercut bigger stores since they are saving money on CC fees. Consumer has the benefit of more competition in the market and getting that better price. Overall decreased cost of living.
Most of this doesn't address my specific question, but this sounds a lot more like you expect a diversification/fragmentation of the credit card industry rather than the "end" that was posed originally. Regardless of transactional fees, credit cards would continue to provide their basic function of providing access to credit and people would still desire it.
We have similar system in Europe, cc and debit cards, PayPal (And similar) payment processors remain popular.
Bad news for you. Many countries already have this and PayPal is still super convienient way to pay for stuff. We have standing orders for reoccuring payments to companies direct from bank but otherwise its still done with apps
I used to live in the US before and payments between banks/accounts/government entities where a disaster and confusing unless you were using Zelle IF the other person had Zelle.
I live in Brasil now and I'm surprises of how much more efficient the payment processes are here.
I used to have to pay the USCIS with checks, sending about $500 a year by mail (USPS), something that gave me so much anxiety I could barely sleep because I could barely afford it and it could just... get lost.
Today I paid for my permanent Visa here in Brasil and all ot took was reading a QR code and the website auto-updated as soon as I made the payment. That same service you can use it to transfer money to people, stores, supermarkets, anything you can think of.
Maybe some people prefer the old fashioned way but my question is, wh my is the US still using mail and checks in 2023?
With the USCIS specifically it's because they're bound by laws that are meant to create pain and reduce the number of people who successfully navigate the system. Stupid xenophobes won't let us have a functional immigration system.
UPI and ONDC are two great things that India has. The latter still needs lot's of development and attention though.
I would add Digilocker as well. Completed removed my need for a wallet. But it's not as great as these 2
That's not even the best part. For most of those transfer services, you have fuck all for protection. From the bank's perspective, you authorized transfers between your account and whatever service. The transfer from your bank to the third party middle man is mostly indisputable. Those third parties provide shit protection for consumers since they're not held to any of the dispute related regulations like Regulation E. Accidentally send the wrong person a transfer through zelle? Get scammed buying a puppy on Cash app? Ripped off on an eBay sale through PayPal? Get fucked, that's your problem.