Rina Wulfing is the policy and campaign manager for London-based cross-border payments company Wise. She is located in New York.
The potential for a faster payments system in the United States has created significant interest across the financial services industry and beyond. With the Federal Reserve’s announcement that FedNow will launch next summer, recent government reports on the future of payments, and increasing congressional and industry attention, the opportunities for a 24/7 instant payments system are limitless.
FedNow is a crucial first step towards faster and more efficient payments in the U.S. Unfortunately, the current framework does not address the other most pressing issues in the U.S. payments system. By not including nonbanks and cross-border payments, FedNow puts itself at risk for success and doesn’t take into account the needs of U.S. consumers.
The Federal Reserve, U.S. Treasury, White House and other leading government bodies have identified fixing cross-border payments as a priority — and with good reason. They’re slow, costly, inconvenient and lack transparency. Despite this prioritization by financial decision makers to identify and solve problems with international transactions, the FedNow launch will not include cross-border payments.
Remittances are a lifeline to the one billion people sending or receiving transfers, with 1 in 9 people globally supported by funds sent home by migrant workers. Cross-border payments are critical to this group, service members stationed in foreign countries, small businesses going global and more. While many rely on cross-border payments, the fact of the matter is that it remains unnecessarily difficult to move money between different currencies and countries.
By serving cross-border payouts on its faster payments platform, the Fed has an opportunity to support the groups who rely on international payments and address the challenges they face with sending money overseas. To do this, the Fed must evolve past outdated rules like the day-long NACHA delay of international transactions. Ultimately, improved and instant cross-border payments would lift individuals out of poverty, improve economic infrastructure, increase U.S. competitiveness and encourage more engagement in the regulated financial sector.
In addition to cross-border payments, the benefits of FedNow must be widely available to Americans through competitive, diverse providers — including nonbanks. With 82% of Americans making digital payments, including a variety of financial institutions on FedNow is crucial to ensuring uptake and success.
Unfortunately, questions to the Fed on nonbank inclusion have received noncommittal responses. When Chairman Jerome Powell was asked about whether nonbanks would be able to access FedNow in a congressional hearing this summer, Powell responded that FedNow is “mainly for…banks,” and the Fed would “have to look at going beyond that.”
Without nonbank access to FedNow, U.S. payments providers will be forced to rely on traditional banks — often competitors — to provide faster payments for their customers, which increases costs across the ecosystem. The Fed using its existing authority to allow nonbank access to FedNow will significantly enhance the nation’s payment infrastructure. Nonbank access will bring down the cost and speed of transactions, allow a diversity of business models and technology capabilities to keep pace with a quickly changing global marketplace, and address payments risks the Fed has shared, including fraud.
Not prioritizing nonbanks or cross-border payments will, inevitably, lead to future issues with FedNow and these risks can be mitigated from launch by taking steps to provide access to other financial institutions. As an emblem of innovation and the future of payments in the U.S., FedNow cannot simply cement the status quo.