The Federal Reserve has announced a timeline for the launch of its long-awaited FedNow payment service that will let banks offer customers instantly available funds and execute real-time payments, with critics flagging concerns like lack of cross-border payment processing and raising questions about surveillance.

The Fed announced on Wednesday that it will begin formal certification of participants in the FedNow system in April in anticipation of a July launch.

First announced in 2019, FedNow will allow banks to instantly transfer payments across the financial system.

As banks and other financial institutions join the program, this will create a growing network with clearing and settlement features that lets businesses and individuals send and receive instant payments at any time of day.

Recipients using the system will have full access to funds immediately, making it easier to make time-sensitive payments.

Some analysts have said that FedNow could reduce demand for payday loans because customers who use the system would receive their pay immediately, without having to wait for checks to clear.

The system will have the capacity to support various types of transactions: consumer-to-consumer, consumer-to-merchant, merchant-to-merchant, and bank-to-bank.

Fed governor Michelle Bowman said last year that FedNow could offer some of the same benefits as a central bank digital currency (CBDC) and thus weakening the case for the adoption of a CBDC, which is, anyway, years away in the United States.

During congressional testimony in early March, Fed chair Jerome Powell was asked by a lawmaker whether there’s an advantage to the FedNow payment system over a CBDC or stablecoins that also tout faster payment services.

Powell replied.

“And I think we can get this into the hands of the public very quickly, and we’ll have real-time payments in this country very very soon.”

FedNow “will enable all the banks–any bank in the United States, not just the big ones–to offer instantly available funds and real-time payments to their customers,” Powell said before the House Financial Services Committee on March 8. “That’s a great thing.”

A similar private-sector payment system that offers instant settlement features like FedNow has been around since 2017.

Reactions

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The Fed’s announcement of a timeline for the launch was met with mixed reactions. Some sought to draw equivalence between FedNow and a CBDC.

Lawrence Lepard, investment manager at Equity Management Associates, stated in a tweet.

Scott Santens, author of the book “Let There Be Money,” disputed this characterization, arguing in a series of tweets that FedNow doesn’t have any smart contract ability and is not equivalent to a digital dollar.

Jordan Schachtel, publisher of The Dossier on Substack, raised concerns about surveillance.

According to a review of FedNow by PYMNTS, the new platform might, over time, incorporate anti-fraud features that “could provide the ability to fine-tune controls for different types of customers and screen non-value messages, such as requests to send payments to potential bad actors.”

The Fed said in its announcement that the service will launch with a “robust set of core clearing and settlement functionality and value-added features” and that that enhancements would be added in future releases including ones related to “safety, resiliency and innovation.”

Matt Stoller, director of research at the American Economic Liberties Project, welcomed FedNow as a better alternative to currently used payment systems.

Payment systems used in the United States face criticism for lack of interoperability, high transactions fees, and slow processing times, which in some cases can take several days.

Rina Wulfing, policy and campaign manager for London-based cross-border payments company Wise, said that a shortcoming of the FedNow system is that it doesn’t include nonbanks and cross-border payments.

CDBC Controversy

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Controversy has surrounded the adoption of CBDCs, with House Republicans warning of the risk that they could amount to an “authoritarian-style” and “surveillance-style” digital dollar.

House Republicans recently introduced the CBDC Anti-Surveillance State Act that would restrict the “unelected bureaucrats” from establishing and issuing a CBDC that they say would threaten the financial privacy of the American people.

said House Majority Whip Tom Emmer (R-Minn.) in a statement.

Rep. Warren Davidson (R-Ohio) argued that the Fed must concentrate on its dual mandate–price stability and maximum employment–instead of “eradicating financial autonomy.”