FedNow: What You Need to Know

Kathy O’Neill Paese: Well, good afternoon. And thank you for joining us for today's Dialogue with the Fed about FedNow, the new instant payment infrastructure developed by the Federal Reserve. My name is Kathy O'Neill Paese. And I'm interim president and CEO here at the St. Louis Fed. And I also serve as the Federal Reserve System's Treasury product director.

And in case you haven't noticed, I have a little frog in my throat today. So, apologies, you'll have to bear with my squeaky voice today. Joining me here today, from the Federal Reserve System, is my colleague Mark Gould. Mark is the chief payments executive for Federal Reserve Financial Services.

Before we begin our discussion, a few words about today's event. It's part of our ongoing Dialogue with the Fed series, where our goal is always to connect you with experts and information to better understand the economy. Mark, thanks for joining us today to talk about FedNow.

Mark Gould: Thanks, Kathy. It's great to be here. I wish I could remotely send you a cup of hot tea, because it sounds like you need it.

O’Neill Paese: I do need it. And I have a little bit of hot tea to help me out on the side. So thank you. And thanks for spending time with us today. Mark, before we get started, I just want to mention that any views shared by me here in this discussion are my own views or not those-- they don't necessarily reflect those of the Fed system. And I'm gathering you probably feel the same.

Gould: The same for me, yes, absolutely.

O’Neill Paese: All right. Well, let's talk a little bit about FedNow. That's the topic of our conversation here today. And consumers are increasingly prioritizing getting payments 24 by 7 by 365. And so we introduced FedNow back in July of this year. And my question to you is, tell me a little about FedNow and all of our listeners. And is it going to be business as usual? Or is it a game changer? How do you see FedNow and its impact on the payment system?

Gould: Yeah. Kathy, thanks for the opportunity to be here. And this is one of my favorite things to talk about. So this is a terrific opportunity. So let me just say maybe a few words about payments at the Fed generally, because while-- if we were to do word association with just 100 random people on the street about the central bank or the Federal Reserve, most people will probably come up with something related to interest rates.

They might come up with something related to inflation, maybe they'd know Chair Jerome Powell or something like that. But most people don't understand the central bank all that well. So there really are three fundamental functions of the central bank. One, of course, is monetary policy. And that's the thing that people most associate with the central bank.

The second is maintaining a safe and sound banking system. So having a process for supervision and regulation that assures that your money in the bank is safe. And then the third leg of the central banking stool is financial services. And that's what my role is. And in financial services, we essentially have a range of services that we offer to banks and credit unions of every shape and size across the country. There are thousands of banks in the United States.

And those services range from providing currency and coin directly to institutions to enable them to service their customer base, offering check clearing services because while check writing has declined in the United States, there are still lots and lots of checks written every year. In fact, I think the number I recall last year-- I think in the Fed system, we cleared about $9 trillion worth of checks.

We also provide electronic payment services. One of those is called the automated clearing house or ACH for short, because at the Fed we have acronyms for everything. And ACH is really the service that most people think of as direct deposit or bill payment. It's that recurring batch payment, type payment is what ACH is most often used for.

And then we have a large dollar service called Fedwire, wire transfers for very large payments. Most people tend to make maybe only a handful of these in their lifetime related to maybe buying a house, making a down payment, or things like that. What was missing is the ability to make a payment instantly. So across that portfolio, there's time involved. And there's a certain amount of friction involved in every single one of these services.

And so we launched, a number of years ago now, a public consultation process to really sense from the industry, from the general public, from consumer groups, a real broad swath of America, is there a need for the Fed to offer an instant payment solution? The answer-- and I'm shortcutting quite a long process. The answer was yes. And we made the determination to proceed. And that's what led to the work leading up to this launch this past July.

O’Neill Paese: So FedNow really is new. You just described the whole portfolio of the Fed system from checks and cash, which are not very automated all the way up to the latest and greatest in automation. So what are the implications for everyday Americans and businesses? What changes might they see with FedNow?

Gould: Yeah, so I think one thing that I would urge-- I always have to, when I talk about this, I have to temper my excitement and enthusiasm about the future with the reality of the present. And so I'm going to try to do my best two-handed response to that, Kathy.

At maturity, when instant payments are ubiquitously available in the United States and broadly used across a range of use cases, I see the potential for instant payments to transform how payments are made in the United States. And I see that in a lot of different ways.

So for example, if you're just a regular worker, let's say, in a fast food restaurant or a service sector worker. And you're getting paid by the hour. You know, instant payments - and this is already happening today by the way in some use cases - instant payments create the potential for workers to really choose when they want to get paid as opposed to waiting till the end of a two-week pay period.

That's really important because there's a broad swath of Americans that have worked for, let's say, a week. They're a week away from payday. And they need that emergency liquidity. And so today, they might go to a payday lender or something like that. Having the ability to have access to money as you earn it is a capability that I think instant payments really enable.

I think from a business standpoint, it also has the opportunity to just, again, transform how businesses think about liquidity. I think if you're a business person and you think, OK, what types of payments would be important for speed, immediacy, and finality to be important?

Think about a transaction where goods have been delivered, the service has been provided. And you know and you're waiting for that payment. We have the ability to make that payment just immediately and in seconds. That small business is going to be able to move on to the next job.

And then from a consumer standpoint, again, if you think about-- if I were to open up my banking app on my phone right now, it would show me a balance. But that balance is probably not exactly right, because there's money in flight. There are incoming deposits, there are payments scheduled to be made.

But in a world where all payments are instantaneous or close to instantaneous, that balance is going to be an awful lot closer to reality at any moment in time when I look at that. I think that's going to be a real enabler for financial inclusion in this country as well.

Because I think a barrier-- in our research, one of the barriers to people who don't have a bank account, wanting a bank account, is just uncertainty about their ability to maintain a minimum balance and worry that they might incur some fees if they fall short of it. So I see the potential for money to moving instantly to just unlock all kinds of potential in the economy. Now, that's the-- I said I was going to do a two-handed. That's the optimistic.

The present is we've just launched Fed now. And as I mentioned, there are thousands of banks in the United States. As of this morning, I think the number I wrote down, I think we have 252 banks on the platform today. So we have a ways to go, but we're scaling quickly. And we want that to-- we want to get to a point where every financial institution in the country is connected as quickly as possible. But we recognize that's going to take us a little bit of time to get there.

O’Neill Paese: Yeah, absolutely. And I would-- I'm reminded about the ACH. It started in the '60s with the Air Force. And look at how long it took us to get A to all electronic ACH. That took 20 years. And then to get every bank in the country Connected to ACH took another 20. So this is a generational thing, but I know we're ramping hard to try and get as many organizations and financial institutions onboarded.

Gould: Yeah, our goal is to not take 20 years. That's not something we want to replicate. But to your point, this is the first new rail that we've introduced in about 50 years. And so that makes it really exciting. I guess, I'm curious, Kathy, from your standpoint. I mean you've been along for the ride, too.

Well, this is happening in financial services. You and I-- I won't say how long we've been around the Fed system. But you and I have worked together for a very long time. You were part of the group that led to the launch of FedNow. How did it feel like to you watching this come to life?

O’Neill Paese: Well, really exciting. I mean, I was involved on the front end of all of this, as you said, when we were doing the request for comment and trying to build the business case about should we build a new system or not. And that was hard analysis. I remember a lot of difficult conversations. But obviously, I think we made the right decision.

Gould: I think that's one of the things that I think maybe is underappreciated about the path to get here is that the Fed System-- we move slowly and deliberately. And so we want to make certain that before we do something that there's a real need for it. And there's support in the country for it. And that was the deliberative process that we went through.

Launching it this year, I will tell you, I was in the room with the team that built this. And we were watching banks that night-- that first night we went live, we were watching our big screen. And we could see banks starting to log in. And that was exciting. And then we saw the first transaction flow.

O’Neill Paese: Yeah.

Gould: And I just sitting here today, thinking back to that, I still kinda get goosebumps thinking, yeah, we watched the first payment flow over a new rail. And I turned to the person sitting next to me in the room. And I said, we'll never be closed again.

O’Neill Paese: Yes, exactly.

Gould: Because this new system, it's 24/7/365, which is unlike any of our other payment platforms.

O’Neill Paese: That's exactly right. Well, you've outlined and we've talked a little bit about the unique role that the Federal Reserve plays in the payment system, but we're not the only ones in the payment system. And for us to be successful, for the United States really to reap the benefit of FedNow, we need a lot of partners-- financial institutions, others. So can you talk a little bit about efforts to partner with others in industry to get FedNow launched and to market?

Gould: Yeah, you could not be more right about that, Kathy. I mean, the way that I've described this is we've invested in bringing FedNow to the market. And we need everyone else in the economy to invest in bringing it to life. And that's absolutely the case.

So I'll highlight a few different groups, but I won't be able to possibly capture everyone. One group that I want to give credit to, right off the bat, is our early adopters. We started with-- there were roughly I think 30 banks live that first night. And this group of banks, I'm just going to tell you, were so excited. I know of one financial institution. And we move to the next business day, basically, in the middle of the night.

And there was a bank somewhere in the Midwest that invited their entire board of directors to watch their first payments flow that night. I mean, that's the level of excitement in the industry and among our early adopters that, honestly, we can't thank our customers enough for that group of early adopters that were really game to jump on board right away and provide an innovative solution to their customers.

The second group that I would highlight that is absolutely key to our success are all of the core processors, the technology providers that banks around the country rely upon. There's a relatively small number of dominant players in this space, but there's also a lot of smaller players in this space. And they're really enabling banks to connect to FedNow and to other payment platforms.

And so having their support for FedNow and enabling FedNow connectivity to their entire customer base is something that's really key for adoption. In fact, it's one of the reasons I'm very bullish about our ability to scale quickly is that many banks in this country rely on a relatively small group of core processors for that type of basic connection to our payment services.

I'd highlight a third group. And that's really all of the industry associations and other trade groups that we really leverage to provide education and awareness about what FedNow is, how it's different, what you need to think about. We've also invested heavily in a lot of online resources that they've generously shared with their membership base. I think that's one of the ways that we can get the word out.

And then finally a group that I've really recently been spending an awful lot more time with is the fintech community. I think the fintech community, in many cases, these are smaller companies targeting either specific use cases or specific opportunities to enable banks to connect more quickly or more easily. And I really think that that group could be key, too - not to not just helping to promote connection to FedNow and instant payments but also coming up with ways to fully leverage the platform.

So, I mentioned this notion of payroll earlier. There's a company I talked with last week, actually, that provides what they call earned wage access. So if you work today, you get paid today platform. And those kinds of ideas, I think, the creative sector of the economy is going to kick in once we reach scale. And I think instant payments, 10 years from now, are going to be used in ways that none of us could possibly have imagined today.

And the reason that I say that with confidence is I know that the ACH system, today, is being used in ways that nobody could have possibly imagined in the late '60s or early '70s. And I really believe that same thing will happen with instant payments.

O’Neill Paese: Oh, I'm sure you're right, absolutely. And we're beginning to see little hints of that, aren't we? With some of the banks who are early adopters here.

The other one that I know you and I have been working on jointly with is the U.S. Treasury. And they were one of the early adopters of FedNow. And conversations continue with them about possible use cases for them to jump on board. But I think they've expressed their desire to use FedNow going forward in the future. And I know you and I are looking forward to working with them to figure out what those use cases look like.

Gould: Yeah, I think there's a lot of opportunity there. And again, it's wherever-- whether you're the Treasury, a business, a consumer, a nonprofit, an educational institution, I mean any entity, anyone who makes or receives a payment in the United States, the question everyone should be asking themselves is, would immediacy matter for this payment? Would having this payment be available in seconds, be instantaneous, and irrevocable, would that be a good thing for our business? And how could we make use of that?

I think there are just hundreds and thousands of use cases to explore that the-- key though is getting this network built. And so that's one of the reasons that we're so focused right now on getting every financial institution in this country connected. Kathy, it's a little bit like if I was running a shipping company. And you came in and you said, well, I want to mail a package to my friend in Washington D.C. And I said, well, I can get you as far as Minneapolis. That wouldn't really be helpful.

And a payment system is all about scale and network. And we have to have the scale in order to build the network effects to really accomplish our goals. Our goal, obviously, was to get to market, but our ultimate goal is, as I said earlier, for instant payments to be ubiquitously available and broadly used for a range of use cases all around the country.

O’Neill Paese: Yeah. And I know we'll get there in time. It just takes a little bit of time. But we got a couple of questions ahead of time that I want to start lobbing your way because they're starting to come through as well on the system. So one question, and I've heard this a lot, is with the advent of FedNow, is it going to eliminate the need for paper money? Are we going to get rid of cash, finally?

Gould: Well, yeah. So I'm going to give you a quiz, Kathy. So I'm sitting here in my office in San Francisco. And I often hear from people, if I'm out and around town here or in Silicon Valley. And I talk about what we do. They say, cash? I mean, didn't everybody stop using cash 20 years ago, didn't they?

And I'll ask them a simple question: what do you think the amount of currency in circulation is-- U.S. currency in circulation is today versus 10 years ago? Do you think it's about the same, up a little, down a little, up a lot, down a lot? You may already know the answer.

O’Neill Paese: I do. I can't cheat. Why don't you share it?

Gould: Yeah.

O’Neill Paese: It's up. We know it's up.

Gould: The amount of US currency in circulation is roughly double today what it was 10 years ago. When I say that in audiences, speaking sessions, or one-on-one meetings, people are universally flabbergasted. And it's one of the reasons when I talk about this portfolio of payment services that we offer, we're really focused on not just speed and not just resilience, but also choice.

I think one thing that I've learned is that this is a really big and diverse country with people of all backgrounds and businesses of all sizes. And they need different things from their payment services. And some people are quite reliant on cash still. And cash is a store of value, both in this country and in around the world. It's still quite popular.

So do I think-- that's a long way of saying, do I think that the FedNow system being available will lead to cash no longer being used? Now, this is the part where we said our views. This is my personal view. That's not in our lifetime. I mean cash is-- in many respects, when you think about all of the innovation that we see in the payment space, it's actually trying to replicate what's good about cash.

Cash is immediate. It's final. It's anonymous. It works if the power is out. It works if the power is on. I mean, it doesn't matter. And it's universally acceptable. I've never had someone say no to cash. And so all of those qualities that have made it durable across time I think we'll continue for the foreseeable future. What do you think, Kathy?

O’Neill Paese: I absolutely agree. I mean, I don't use a lot of cash. I always have some with me, however. But I do agree that more and more and more money is moving electronically, digitally. And that's definitely the direction that we're going to go in.

So, Mark, let's go back and just level set a little bit for anybody who may have joined us late about FedNow itself and how does it work. This is something banks can use. It's not an app on our phone. Tell us a little bit about how you originate-- how FedNow works between banks.

Gould: Sure. Yeah, so what FedNow is is basically an infrastructure that enables money to move between financial institutions in seconds. And so what this isn't going to look like-- if you're a consumer, you won't see a FedNow app or the Federal Reserve app on your phone or something like that. This would be a feature in your mobile banking app.

And I'll give you an example that one of our early adopters is using. So they enabled this on their mobile banking platform. And essentially, when a customer input a payment, they input the data to make a payment to another person or company on the other side of the country.

They implemented a system where it can look up, is that other institution a FedNow participant? If the answer is, yes, it will ask customer, the consumer, would you like to make this payment instantly or would you like to make it over a two or three day period of time? And customers universally are wanting to make the payment instantly. And they're seeing payments flow back into their account instantly as well.

And so it's going to be a choice for customers to make. And every bank will approach this slightly differently, but that's essentially how it works. There's a lot of technology behind the scenes. This is a cloud-based application that our team built that's available 24/7/365.

So Kathy if you want to repay me for that dinner that we had two weeks ago at 2:00 in the morning on Saturday, you could. Again, at maturity, once we have everyone signed up on the system and the platform fully enabled, it's a kind of payment that you'd be able to make around the clock 24/7/365, which is a completely different equation than any of our payment services today.

O’Neill Paese: That's so true. And to me, the other really unique thing about FedNow is that its credit push. So you're just you're not pulling money out of anybody's account. You're pushing money. And I know that there's implications for fraud there. And payment fraud is something that we think about all the time. So what are your thoughts about FedNow, and fraud, and how are we thinking about fraud for FedNow and controlling it?

Yeah, well, I mean, so fraud-- I mean, fraud exists across the economy, across different payment platforms. So it's definitely something we spend an awful lot of time thinking about. The way that we're approaching it at launch, we enabled a core set of capabilities for banks to implement controls, dollar controls for example.

And we also are requiring every bank on the network to report when they experience a fraudulent transaction, which isn't something that we've done in any of our other systems. That will enable us, over time, to build essentially a database of accounts that are associated with fraud and that that' bank would be able to block going forward.

So we really see this as something that's an all-- it's a whole of industry effort. I think banks need to be investing in fraud prevention and mitigation tools. They absolutely are. I think fintechs are innovating in this space. We will continue evolving our practices and capabilities centrally as well. And it's something that we're going to have to really focus on.

I mean, again, going back to cash, the original instant payment, we are innovating on cash today new security features to inhibit counterfeiting for the next 10 or 20 years. So that's a focus that likely will never go away.

O’Neill Paese: Yeah, I can see that. And it will be something-- I mean, we've had to look at fraud in all of our payment rails that we have today and put in place mechanisms to control it.

So I want to go back and talk a little bit more about fintechs. You mentioned them earlier on. And I know, in some of my conversations, I've heard things like Uber or Lyft drivers being able to get their pay at the end of their shift and be able to buy gas if they want to keep going with FedNow. Have you heard, in any of your discussions with people, more about how the fintechs might use FedNow?

Gould: Yeah, so we think this early access to wages earned definitely is a use case that resonated with me, that to your point of an Uber driver getting paid at the end of every ride or shift as opposed to some other frequency. I think that fintechs-- because of their scale and just the nature of those organizations and the talent that they're able to recruit, they're going to be able to move quickly on a particular use case and innovate around it.

And when I meet with fintechs, often, the first question I get is, so can we have an account directly with the Fed? And I say, no. That's not how it works in this country. We only provide service directly to financial institutions, but that remains-- that still leaves a rich set of opportunities for fintechs to provide enabling capabilities to financial institutions. And I just think that's a really target rich environment for fintechs.

And it's also an opportunity for banks because if you're a startup, what are you looking for? You're looking for scale. Who has scale? Financial institutions have scale. So it's the opportunity for innovation to meet scale in a way that moves the industry forward.

O’Neill Paese: Yeah, I can see that. And I know we've been seeing, over time, many companies in fintechs. You want to put payments embedded in the technology. People don't want to think about payments. You want to get your Uber or Lyft ride, and get out, and not have to deal with making a payment. So I think that's weaving it into the fabric of what the fintechs are doing in terms of technology will be really helpful in the future.

Gould: And I really think that is the future of payments, Kathy. I mean, I gave a talk recently, a few weeks ago, where I made the comment that I think the future of payments is going to be both faster and more embedded. When you take an Uber ride or you buy something on Amazon, you don't make a purchasing decision and a payment decision.

So you're not telling the Uber driver where you want to go and then separately making a payment decision. It's just all part of one unified experience. And I think that that's where-- I think that's what the future holds for us. And I think that instant payments can be a true enabler of that.

O’Neill Paese: Totally agree. So I'm getting a couple of questions coming in here I want to fly over your way. The first one is, can banks join as send and receive or just receive only? What does it take to get started and signed up with FedNow?

Gould: Yeah, so some banks-- so it is possible to join as receive only. And some banks are doing that, I think a little bit to get their feet wet and experiment. And I've had bankers ask me my opinion, should I join a send? Can I join as a receive only? And I've always said, look, I mean, the key is to join. And if you join as a receive only, you're going to start gaining experience. And then eventually, you'll start sending.

I think it's an important point when I'm asked this question. Not every technology provider is fully supporting yet the whole range of processes that we have with FedNow. And so I think that's also a bit of a factor. But it's absolutely possible to join as a receive only bank and then gain experience that I think will be really valuable.

O’Neill Paese: Yeah, I agree. So another question we've got-- I know you stated this a little bit earlier, but how many banks do we have live - and I should say financial institution - and do you have any thoughts about what that trajectory might look like over the course of the next year or so?

Gould: Yeah, so I think earlier-- I don't remember the number that I said. I think it's about 250. I just got an update this morning, but it's 250, 252, something like that. We launched with around 30 institutions in July. And so when I've talked with people in the industry about this, what I've heard from them is surprise. They're surprised at actually how quickly we've ramped up that number.

And what I've said to them is my goal is for us to keep surprising them. And that's what-- we're really working hard at this. And obviously, grateful to all of our customers who have signed up. Honestly, that's the real key to success. We need every financial institution connected, so that use cases have more economic value, because if we were to stop at 250 customers out of the thousands of financial institutions that we have in this country, then the instant payments aren't going to take off because they just can't reach enough people.

One question I get asked when we talk about this a lot is, well, why don't you just mandate that everybody join? And that actually is what happens in some other countries. And it has happened. And usually in the countries where you've seen instant payment systems really take off, it's been a government mandate.

And I think in some cases, the number of banks in those countries is quite a lot smaller also. Mandating participation is not something that the Fed has the legal authority to do. And so we're really focused on making the case that every financial institution should join because of the opportunity set available.

And I think over time, competitive issues will enter the game too, where if you're a bank that enables immediate access to incoming funds and immediate ability to transfer money, say, between accounts even for yourself-- if I want to move money between financial institutions, be able to do it instantly-- that's going to be a competitive differentiator at some point for banks that have that capability versus banks that don't offer that capability to their customers.

That's why I'm so bullish on our ability to eventually reach ubiquity, just recognizing that's not a two-month, six-month, or 12-month effort. It's really something that will take dedicated focus, and patience, and persistence to achieve.

O’Neill Paese: Understand and agree. And so I know the Federal Reserve, we just published our prices for financial services recently. Can you talk a little bit about the cost to join FedNow, what are the fees for transactions?

Gould: Yeah, so for a typical financial institution, the cost, there isn't specifically a cost with us to join, but there is a cost associated with the electronic connections that we maintain with every financial institution. But every financial institution already has those connections for other services.

That's how we provide things like check clearing services, ACH, Fedwire, and even cash services. That's how banks order currency and coin from us. The bulk of the implementation cost is really in financial institutions own back rooms. And that's between them and their technology providers, their core providers, and also understanding how they need to evolve to support 24/7/365 service.

That's a larger change for some institutions than others. And the cost for that really varies. There isn't a universal number for that. And large institutions have more systems that they're interfacing with, too. So there's cost for that as well.

O’Neill Paese: So another question that we've gotten has to do with the ACH. And you mentioned it earlier. We've talked a little bit about will cash go away. So what are the implications for ACH? And will the ACH continue to exist five or 10 years from now as FedNow takes off?

Gould: Well, Kathy, I see a little icon in this that says it's being recorded. And so I live in fear that five years from now, you're going to pull this out, and replay it, and explain to me how I was wrong. So let me just emphasize once again. This is Mark's perspective, what I'm about to say. And other people may disagree, including you. So I'm going to ask you the same question.

ACH today is really the backbone of the payment system. It is how the vast majority of payments are cleared. The vast majority of the dollars clear on the Fedwire system. That's where very, very large systemically important payments clear every single day.

But the vast majority of individual payments that affect people like you and me on a typical daily basis, those tend to happen via ACH, which means ACH is deeply embedded in the fiber of our financial system. So do I see ACH going away anytime soon? No, I do not.

Now, the cost for ACH is lower than the cost for a FedNow transaction. And so that's something that I think, over time, we'll need to take into consideration. We need to price our services though to recover our costs. And so that's really the driver of our pricing decisions.

Now, having said all of that, I expect-- and in our business case, I guess Kathy as you know, we expect certain payments, certain numbers of ACH payments, certain number of Fedwire payments, and a certain amount of cash transactions-- we fully expect some of those to transition to FedNow.

In fact, that's one of the reasons, a couple of years ago-- we didn't talk about this earlier, but it's a couple of years ago-- we made the decision to reorganize financial services within the Fed system to put all of our payment services under one unified umbrella with a single person in charge.

Because one of the things that we were a little, that we were thinking about was, we want to encourage payments to flow to the best channel to meet whatever use case the originator of that payment is seeking to accomplish. In some cases, that might be ACH. In some cases, that might be Fedwire. And in a lot of cases, we think it might be instant payments. So we expect to see payments move around between channels. But I will tell you, I also expect the total number of payments to go up significantly.

Now, this is the most risky prediction that I'm making. This is why I say it's my own personal view. But when payments are easy and they're immediate, easily accessible, and ubiquitously you can reach anyone in the country, I think we'll see more payments happen. So, I think the total number of payments will rise, potentially, very significantly. So, we will see transition between legacy payment rails and FedNow, but I do think that the total size of the pie will increase as well. So now, what do you think?

O’Neill Paese: Well, I knew, I know, and I agree with you. I mean, we've often seen a correlation between GDP and the payment system. And as the economy is strong and there's a lot of growth in the economy, we do see payments increase. I also believe that ACH is the workhorse of the payment system. And it really-- it's been in place a long time. It works well. And it accomplishes a lot. So I agree with you.

Gould: I remember early in my career, Kathy, you remember this too. We'd see couriers show up at the loading dock unloading giant reels of tape that we would run to clear that night's ACH payments. It sounds like 100 years ago, but I don't think I'm 100 years old. So it can't be that long.

O’Neill Paese: No, it isn't, but you're right. And that just goes to show you how the ACH has evolved over time. And we've gone to more settlement windows and faster settlement on ACH. So how do you see FedNow evolving? I mean, I know we got to market in July with our base product. What are some of the other features or things that we're focused on building and delivering in the future?

Gould: Yeah, well, so there's a couple of things that I'd highlight. And I won't share everything, but I will say we have a pretty robust roadmap planned for the next five years or so. One thing we touched on already and that's fraud. We view this as a place where that's always going to be-- I would bet that's always going to be on our investment list-- building, enhancing capabilities, working with our customers to spot new opportunities and to add new capabilities.

So that's something that we plan to continually evolve our thinking and our service there. Another that we're actively thinking about is some kind of a directory service that would enable alias-based payments to occur without having to know everybody's financial information, account number, routing number, and things like that.

So those are a couple of things that we're thinking about. But the number one thing that we're focused on as I said is just building the network, building the reach of the system so that we can then really see more use cases develop and reach more people in the country.

O’Neill Paese: Well, Mark when we were doing the analysis to determine the business case for FedNow, one of the things we looked at was other countries. And where were their instant payment systems in other countries. So can you talk a little bit about, how does FedNow fit in the U.S. Central bank with other countries and other instant payment systems?

Gould: So this is something, Kathy, as you know, you and I meet with our colleagues from other central banks periodically around the world. And every country is unique. And the U.S. is definitely unique among countries that are unique. So our financial system is incredibly complex and very decentralized. Thousands and thousands of financial institutions, as opposed to some countries might have three or five or six financial institutions. And so getting to ubiquity is a completely different situation.

Some countries offer direct access to the payment system to non-financial institutions. And so it's really difficult to compare in an apples to apples way around the world. But what we do try to do is learn from our central bank colleagues in other parts of the world about what works, and what they're seeing, what they're experiencing.

I think the other thing that I would observe is, not every country is starting from the same place. And so there are a lot of countries in the world where their move to instant payments came from a starting point where 90% of transactions were made using cash. Our starting point is quite different. As you highlighted earlier, the vast majority of money movement in this country already happens digitally.

So starting points are different. The structure of the financial system is different. And as I said earlier, our country's ability to mandate participation also is different. And so where we've seen this-- where we've seen, in the world, instant payments really take off is where it's both mandated and it's broadly available, including to non-bank participants.

And each country has their own reasons for that. But I think a couple of prominent examples I can think of it was to encourage people to move away from a primarily cash-based economy, which is quite different, as I said, from our starting point.

O’Neill Paese: That's so true. The questions are flooding in now. So I hope you're ready. We might go to the lightning round here in just a minute. But can you talk a little bit about the difference between other faster payment products and FedNow, we won't name names here. But there are person-to-person platforms that people use to settle up on dinner and things like that. So how do those products differ from FedNow?

Gould: So those products differ from FedNow in one important respect, in that those do not involve the instantaneous, real-time movement of money from one financial institution to another. You can think of those in a lot of cases, and it's hard to make generalizations, as an experience where it looks like the money has moved from a user experience standpoint, but the money is actually going to be moving later. And so there's a little bit of intraday risk there.

And obviously, people have determined that that's sufficiently low to enable these things to happen. In our view, actually moving the money instantaneously is a better solution, but that remains to be seen if everyone in the industry agrees with us. I think the important thing as I said earlier is this is really all about having a range of services that provide choice.

This is an incredibly big and super diverse country. I remind myself that every day when I sit in my office, if I look out the window and I form a conclusion about the world or the United States based exclusively on what I see out of this particular window, I will be wrong about everything. And that's true about payments. It's true about really anything.

And so we really need to make sure that we offer a set of services that is broadly inclusive, recognizing that not everyone in the country has a bank account, not everyone has full access to the full range of financial services available to many others in the country. Making sure that we, in our enthusiasm for instantaneous payments, that we not leave anyone behind.

I think that that's-- I get asked, are checks going away or will we get rid of them? No, I've said it, when the whenever the last check is processed in the United States and I don't know when that will be, it'll probably be processed by the Federal Reserve because we're really trying to provide that backstop to the payment system, with a broadly inclusive set of payment services that meets the needs of this really diverse country that we have.

O’Neill Paese: Yeah, I agree. And I know that financial inclusion is a major area of focus for us. We want to make sure that all payment rails are available to all people so that we can have financial inclusion, people who have equal ability to access the system. And so I think one of the major enablers of people accessing FedNow are third party processors. And you mentioned before that we've been working with a number of them. But can you talk about what they're doing to try and help financial institutions ramp up and come online with FedNow?

Gould: So this group of companies in the United States I would say has been very enthusiastic about instant payments. And so as we've worked with them to encourage them to make instant payments available to their customers. We found them to be very receptive, very willing to talk with us, and really working hard.

I think if there's-- so it's hard to generalize exactly how they make this available to their customers, but I will say that we found this group of companies to be super, super excited about the potential and very happy to work with us.

And ultimately, like I said, that's how we're going to get to-- that's how we're going to get to scale is by making sure that financial institutions have access through their systems that they're already operating or through systems they could use to augment capabilities that they have the ability to not just connect but then to fully leverage the platform for innovation on behalf of their customers.

O’Neill Paese: That's going to be really important because a lot of those smaller banks out there just don't have large IT shops and support. So they really rely on those third party processors.

Gould: But I really see that as an opportunity for-- particularly with instant payments is the smallest banks in this country. And one of my coworkers reminds me of one that's open twice a week. And it's a very, very, very small institution in this country. And I always have that institution in mind when I think about, how do they compete? How do they compete against the best resourced financial institutions in this country that in a lot of cases are probably across the street?

And so that's one of the reasons why FedNow, I think, is important is to enable the small, medium sized, regional, super regional banks in this country to provide a set of services that's competitive, even though they may lack the full technology back office of perhaps some of their larger competitors.

O’Neill Paese: And we got another question in is, is there a list of the banks that were early adopters? And I believe that's on our website frbservices.org under the FedNow tab.

Gould: Yeah, we have a full-- we're trying to keep this-- it's changing a lot as I said, but there's a current list of current financial institutions at that website frbservices.org under the FedNow product tab. And yeah, you can click on that and see who's participating.

O’Neill Paese: Great. So one other thing I wanted to ask about, and this is something we hear about too, is international payments and how there's friction. You talked about friction in the payment system earlier. So what do you think is the likelihood that at some point in the future FedNow could be used to interconnect with other countries' instant payment systems and have us figure out that international payments issue once and for all? What do you think?

Gould: Yeah, this is one of the number one questions I'm asked when I speak and attend conferences in different parts of the world. And so you said, at any point in the future, I think is how you phrased your question. Do I see that as a potential at any point in the future? Absolutely, I'll say that unequivocally.

The question is, at what point in the future? And so I think the number one thing that we need to focus on right away and immediately is getting the U.S. financial system connected. And then we can start to think about other potential linkages. But do I see benefits to doing this? Absolutely. And particularly with our major trading partners.

And so I think, exactly how we go about that, what the technology is, how we maintain strict compliance and all of that, that's the complex part. I don't see technology standing in the way of that. But there's a lot of other issues that we'll need to work through. But I absolutely see that potential in the future. But I would be honest that I don't see that in the immediate near future because the first thing that we need to do is get this country connected up.

O’Neill Paese: Absolutely. And so we've got sort of an operational question that's come over the wires. Can you recall, meaning pull back, a FedNow payment like you can an ACH payment?

Gould: We've published our operating rules. And so there are some things that can be done in terms of notifying a bank of a payment made in error. But payments are, as I said, they are settled, and immediate, and irrevocable in seconds. And so this is a system as if I was handing you $100 bill. You might be nice and give it back to me, but you wouldn't be obligated to. And so there are some conditions under which banks can work with one another to identify maybe a payment that was sent in error.

O’Neill Paese: That's great.

Gould: I have a question for you, Kathy.

O’Neill Paese: All right, I'm ready.

Gould: What's it like being interim president?

O’Neill Paese: That's quite a shift from FedNow, but you were interim president in San Francisco too, weren't you?

Gould: I was.

O’Neill Paese: So you and I both have had the chance to play that role. It's an interesting role and I think one that a lot of people maybe don't fully appreciate and understand. Obviously, the presidents are most well known for what we do with monetary policy. But we've got banking supervision responsibilities, and operations, like what we've talked here about with FedNow.

So it's a lot to be the CEO of the organization, and make sure we're working to support the mission of the Federal Reserve more broadly, while carrying out what is probably one of our more important jobs on monetary policy. It's been an interesting time to be an interim president, I'll just say that.

Gould: Yeah, one of the things that I learned in my experience, which was back in 2018, I always heard FOMC participants talk about-- they were either a voting member, as the votes rotate between banks or they described their participation in the FOMC as fully participating in the FOMC. And I didn't really know or fully appreciate what that was until I went to a meeting and actually participated in a couple of meetings.

And what I recognized now is it certainly matters who has a vote, because votes definitely matter in terms of the specific decisions that happen on interest rates. But I didn't fully appreciate how everyone at the table actually has the same level of influence in terms of what they bring to the conversation. And it's something that you really have to-- I think it might be difficult to pick up in the transcripts if you were to just read every word in the transcripts for meeting after meeting.

But in the meeting, I definitely noticed how something that one person says triggers someone else to either potentially agree or maybe disagree strongly with what that first person said. And that's something that I learned to really appreciate and didn't fully-- probably didn't fully understand before actually having the experience.

O’Neill Paese: Yeah. And the diversity around the table is interesting and amazing. And I think it's what helps us support the American people and our economy so well.

So Mark, we are at 2:25 Central Time. I think it's something much less than that San Francisco time.

So we've got five more minutes and maybe one more question, if somebody wants to pull one in from the audience. But I'll ask you one. So you've been through the development of FedNow, and the launch, and getting us ramped up. What surprised you most about the process to bring FedNow to market?

Gould: I think the thing that-- I don't want to say that this surprised me because I knew we could do this, but I think-- maybe the thing that I would say that I'm most pleased by, is that I think we surprised the industry with when we launched this. When we initially expressed our intent to launch FedNow, we gave the industry a window, as you'll remember. We said it would be in the 2023 to 2024 timeframe.

And I think that many people, maybe not everyone, but many people in the industry, when they heard, OK, it's going to be between 2023 and 2024, many people assumed it would be on New Year's Eve 2024 going into 2025. I've asked a couple of people in the industry, what was your guess when you saw that range? One person told me New Year's Eve. One person told me 2027. I've gotten a whole bunch of different answers to that question.

But I don't know that anybody would have guessed July of 2023. And so I could not be more proud of the team that worked on this. Ken Montgomery, the first VP in Boston had been leading a team for the past several years to get this product to market. And they just did a terrific job of getting it done on time. At a time that I think, like I said, I think we surprised the industry with our ability to get it done in that timeframe.

But as we described that, I always have to end with this the notion that, yes, it's in the market. It's available. And it's not yet ubiquitously available in the United States. And that's why we need every financial institution, every business, every nonprofit, every consumer, really everyone who sends or receives a payment to be thinking about use cases where immediacy, finality, and certainty really matter in sending or receiving a payment. Those are the target rich opportunities for instant payments in the future. And I'm just really excited to see where this all goes.

O’Neill Paese: Well, thanks, Mark. We're coming to the end of our hour together. And so it's time to close. And Mark, thanks so much for talking with me and our audience participants today about FedNow. And I just ask everybody in the audience to please stay connected with us through social media or sign up on our website to be notified about our blogs, newsletters, or other future events. And you'll see more information about that on your screen in just a minute. With that, thanks again for joining us today. And thanks, Mark, for all of your comments.

Gould: Thanks, Kathy.