Will Your Credit Union be Providing Real Time Payments by 2024?

It’s Possible, just Possible, that yesterday marks a key development in how people send and receive payments. If I am correct then this is a change that will help all consumers and  all businesses, as well as all credit unions and community banks that will be able to compete with the banking behemoths in the years to come.

Yesterday, if all goes according to plan, the Federal Reserve committed itself to implementing a real time payment system by 2024. That’s right by 2024 all credit unions and banks irrespective of their size and location will be able to clear checks, debits and credits instantaneously. 7 days a week, 24 hours a day, and 365 days a year.

Why is this such a big deal? Do I really have to tell you? As the Fed put it yesterday in an FAQ and a Request for Comment accompanying its announcement “Everyone deserves the same ability to make and receive payments immediately and securely, and every bank deserves the same opportunity to offer that service to its community,” said Federal Reserve Board Governor Lael Brainard. “FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers.” The Fed also noted that even though it was using the term bank it intended to give credit unions  access to this platform.

Just as my kids examine  dilapidated phone booths as if they were  examining relics of an ancient  civilization   or look at me quizzically when I talk about buying CD’s to play music, I predict  that in about 8 years a younger generation will shriek at horror at the notion that you had to deposit a a $10.00 paper check from your grandmother and wait for it to clear, provided that you got it to the bank before it got stale dated. This is a grossly inefficient system which hampers liquidity, hampers the growth of small business and makes life that much more difficult for the sizable number of Americans living paycheck-to-paycheck.

The Feds announcement is also crucial to credit unions. The big guys have already joined together to create such a platform. The Feds commitment to a quasi-public platform will ensure that community banks and credit unions will be able to provide this game changing service to their members on a level playing field. This is why it is so important for credit unions and community banks to comment early and often on the Federal Reserve Request for Comment. In today’s American Banker the big guys are already grumbling that the Fed should stay in its lane and let the private sector continue to take the lead. Anyone who believes this line should reread The Three Little Pigs with their kids one night.

The announcement is also significant because it signals that the Federal Reserve is finally really committing itself to getting this country up-to speed when it comes to payments. This country is far behind other nations when it comes to harnessing technology to speed up our antiquated payment system. We are still trying to modernize a payment system that evolved at a time when the stage coach was cutting edge technology. In an era when companies like Apple have demonstrated for years how easy it is to facilitate electronic payments. In other words, the Feds announcement is way too late, but let’s hopes it actually leads to changes that help bring about a fundamental shift in the payment paradigm.

I actually think it will. A top priority for the industry should be to make sure that the FED makes yesterday’s announcement a reality as quickly as possible.