Deep Dives

Fed's instant payment system challenges PayPal and Venmo

July 21, 2023
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The US Federal Reserve has launched FedNow, a new system for instant payments between banks and credit unions. Initially rolled out to 35 institutions, the system aims to connect over 9,000 nationwide, potentially making apps like PayPal and Venmo obsolete.

FedNow Introduction: FedNow is a newly launched system by the US Federal Reserve for immediate processing of payments between financial institutions.
  • It is currently available to 35 banks and credit unions that adopted the system early.
  • The eventual goal is to incorporate more than 9,000 institutions across the nation.

  • Potential Impact on Cash Apps: The success of FedNow could pose challenges to apps like PayPal and Venmo.
  • These apps currently facilitate quick payments between banks.
  • However, if FedNow becomes popular, these apps could seem slow or unnecessary, risking obsolescence.

  • Initial Analysis: Initially, FedNow appears to pose no threat to peer-to-peer payments apps.
  • Analysts suggest that the system is likely to benefit consumers and small businesses the most.

  • FedNow's Potential Benefits: Federal Reserve Chair Jerome Powell emphasizes the future benefits of the service.
  • Powell stated that FedNow was designed to make everyday payments faster and more convenient over the coming years.
  • As more banks adopt this tool, individuals and businesses could see benefits such as immediate access to paychecks and invoice payments.

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