Why? Because one big problem with our current system is the fraud (and mistrust) that results from ACH/checks being sent under the impression they are guaranteed funds, but being reversed by the sender or because they didn't actually clear, days (up to weeks) later. This is a big source of scams. People are out lots of money because of this, and continuing every day that this doesn't get resolved. Not saying that we can protect everyone from everything, but this is a no-brainer. Are the transactions final (unless there is legal action and both parties are identified)?
2. Is it a "push" only system?
Push, obviously meaning that only the account owner can initiate a transaction to transfer funds out of the account. I figure it must be, if things are instantaneous and irreversible (but that is to be confirmed). I don't want any more of our current system where someone knowing my bank account numbers can accidentally or purposefully withdraw money from my account and it's up to me to detect and ask for that to be fixed. This is ridiculous that we still have a system that allows that.
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Of course, this new system means that people will need to be educated/trained on some of the dangers that may not be apparent when a system changes. Like, if someone gets duped into sending money, it is now irreversible. Or if fraud is committed somehow, there is no recovering from it. It probably (hopefully) will have to come with new types of account protection given these facts. Some problems will now be prevented, but new problems may be caused. An updated diligence on the part of users (and the system) will also be needed.
I think it's a welcome and overdue development though.
It seems the idea here is that they are irreversible as settlement and clearing both happen instantaneously, and both the sender and recipient should have that information updated for them immediately.
It didn't seem entirely clear, but it seems like request-for-payment is a supported feature, and that they will charge 1 cent per RfP transaction. The wording as a "request" makes it sound like the one paying will still have to approve the transaction on their side for it to go through
Actually yes, FedNow will only support one way transfers (push credits), when the owner of the account can initiate a transfer. Request for Payments supposed to support this as well, when merchant can send you a request to pay for something, but the account owner is the one who authorizes the transfer (ad oppose to direct debits in the ach world).
Fraud isn't one big problem, it's the biggest problem. Fraud is rampant. And no ability to reverse transactions means that fraud will keep going until no one trusts the technology at all and we are back to square one.
Without trust, it just won't work and that's where the credit card companies did it right by guaranteeing against fraud. Of course, they did this off the backs of the merchants instead of putting their own money at risk but that's a different discussion.
You can always reverse a transaction as long as you know where it went - call up the other bank in some secure way and ask them to send it back. Whether or not they listen to you isn't necessarily a technical question.
Really? You have tried calling a bank with whom you have no direct relationship with and asked them to reverse a charge? “Hi I’m Bob and I want you to send me back the $50 I sent Chuck?” Banks are pretty stupid and most of their security is performance art at best, but their response is going to be “Work it out with Chuck.”
Reversibility also supports scams unfortunately. Probably better to learn to be careful rather than thinking you can recover but the other party disappeared at the moment you need them.
In India, we have UPI, a tokenized peer to peer payments network powered by the National Payments Corporation of India (NPCI).
Banks participate on the NPCI payment network.
I can assign a Virtual Payment Address (VPA) such as payxyz@mybank and give that VPA to anyone that needs to transfer funds to me. At the moment, there are no transaction fees with a transaction limit of INR 200,000 (approx. $2500). This makes it unnecessary to share any sensitive bank routing numbers / account numbers etc., One can create different VPAs for different purposes/payers.
The transfers are instantaneous (i.e., completed within seconds) and accounts debited/credited. The system works transparently across banks due to the network being managed by NPCI.
Routing numbers aren't, but account numbers are: traditionally in the US it's possible to use a routing+account number to withdraw from someone's account.
Banks implement the UPI protocol (an API essentially) to talk to the NPCI infrastructure network. Your UPI VPA is linked to your bank account. Most banks in India are already on the NPCI/UPI network.
Thirdparty apps can also implement the API to provide services on top of UPI eg: bill pay, ticket booking for buses, trains, movies etc.,
Payment processors provide UPI as a payment method (in addition to debit cards/credit cards/netbanking/digital wallets etc.,).
To answer your question on credit cards usage with UPI: No, you only need a bank account. UPI is a p2p payment overlay over the banking network.
> Neighborhoods are leading segments with no specific meaning, whose purpose is to help route to the right area. At this time, there is no official list of neighborhoods, but the following list of examples should illustrate what might constitute a neighborhood:
> `crypto.` for ledgers related to decentralized crypto-currencies such as Bitcoin, Ethereum, or XRP.
> `sepa.` for ledgers in the Single Euro Payments Area.*
> `dev.` for Interledger Protocol development and early adopters
From "ILP Addresses - v2.0.0" [2]:
> Example Global Allocation Scheme Addresses
> `g.acme.bob` - a destination address to the account "bob" held with the connector "acme".
> `g.us-fed.ach.0.acmebank.swx0a0.acmecorp.sales.199.~ipr.cdfa5e16-e759-4ba3-88f6-8b9dc83c1868.2` - destination address for a particular invoice, which can break down as follows:
The WebMonetization spec [4] and docs [5] specifies the `monetization` <meta> tag for indicating where supporting browsers can send payments and micropayments:
It would seem from the article here [0] that pricing for FedNow is $25/mo per routing number (which generally means per bank not per account, since many accounts at a bank share the same routing number) and about $0.05 per credit transaction. Not sure how that will be passed thru in costs from the bank(s) or if they will absorb what seems to be a small cost?
"The service will include a $25 monthly participation fee for every routing transit number enrolling in the service. Then there will be a $0.045 per credit transfer and one cent for a RFP message to be paid by the requestor."
And a routing transit number is a 9 digit number that identifies the bank, not the variable number that identifies each individual account [1]
"A routing transit number is a nine-digit number used to identify a bank or financial institution when clearing funds for electronic transfers or processing checks in the United States. A routing transit number is also used in online banking and clearinghouses for financial transactions. Only federally chartered and state-chartered banks that are eligible to maintain an account at a Federal Reserve Bank are issued routing transit numbers. "
Informally, a senior banker once told me that Interac E-transfer reduces bank transfer costs to less than a penny each. The $1-1.50 fee is pure profit, hence the availability of unlimited transaction plans.
For comparison, Square, which usually charges 2.65% of each transaction only charges a flat 10 cents for contactless Interac payments. Not technically e-transfers, but one imagines that the pricing model is roughly the same per transaction.
I should point out that Interac as a method of direct payment to online merchants by clicking a button on your vendor’s website/invoice has not had as much success. Only two banks and a handful of credit unions supported Interac Online Payment when I last checked, while basically all banks and credit unions in Canada now support Interac E-transfer. Going to a website and clicking Pay and signing in with your bank account to initiate the payment isn’t supported by most banks. Instead, the Interac E-transfer has to be initiated or responded to via the bank’s website. It also has nothing to do with the bill payments system, which often uses “EFT” (the Canadian version of “ACH”) to pay utility bills, etc.
The # of banks and financial institutions stays fairly stable so that covers the ongoing fixed costs. The number of transactions is highly variable so that covers the variable costs.
According to https://bank.codes/us-routing-number/bank/ there are around 18,000 current routing transit codes active, which would amount to about $5.4M annually if all 18,000 were enrolled in FedNow.
Am I understanding this correctly? It seems like this simple feature if added to US bank accounts would make Zelle, Venmo, cash app, maybe even PayPal, completely irrelevant
It doesn't. Some countries in Europe have this already. The UK has FASTER which is instant transfers between UK bank accounts (I seem to remember these transactions are settled instantly interbank at the BoE, so good tech if I have remembered right).
For non-P2P stuff like PayPal is very good because bank transfers are non-reversible. You can do G&S on PayPal and reverse that if you need to.
For P2P, stuff like Revolut, PayPal, whatever is still easier because you don't need to remember your bank account number. There is also no interoperability between banking apps either (the only interaction is through FASTER and your number). So you end up needing someone in the middle, like PayPal, which (in the end) is just doing bank transfers...not ideal but it is, at least, cheap.
Reason would suggest the latter will eventually change, but that day is not today.
Also, cross-currency transfers are significantly easier with apps. I agree that it is all a bit unnecessary but...banks are banks. In the UK, there has been a lot of competition and services are still (imo) dire.
All major banks participate in it, and it's both P2P (send to target phone number, which will behind the scenes resolve to a bank account) and web payments (use a one-time code from your bank app and then confirm in the app, without sharing any permanent data like card numbers).
Also, it's instantaneous and free.
And in fact almost nobody in Poland uses Revolut nor PayPal for P2P, everybody uses BLIK. People do use Revolut for their great exchange rates though.
Phone numbers and one-time codes, sensible. I am in the UK and the term "fintech hub" is used too loosely (part of the problem is that banks have got so large and lazy here, there is competition, most of it terribly ineffective).
> (seem to remember these transactions are settled instantly interbank at the BoE, so good tech if I have remembered right)
No, participants have nostro/vostro accounts with each other, and payments are immediately settled using those. Participants shuffle money between those, including via accounts at the Bank of England if necessary, to maintain sufficient liquidity; they do that throughout the day, with a big cleanup at the end of the day, but it's not part of the transaction.
Which means that banks need to keep track of their balances with other participants, and not send customers' payments if that would take them overdrawn. Obviously this would be highly undesirable, so they work hard to keep those accounts topped up.
Thank you. I remembered I read something like that. Do you know if it is possible to clear with the central bank instantly? Over short enough timeframes I presume it becomes like trying to hit a moving target.
In Australia, our New Payments Platform (which has been rolled out to almost all banks at this point) allows you to set up an email address or mobile phone number as your "PayID", which negates the major advantage you mention for P2P transfers. (People are still getting used to using PayIDs at the moment, so I still get many friends sending me their bank account numbers like they always have, but usage is definitely picking up.)
It blows my mind how badly Zelle has failed. It already is integrated to US bank accounts. It started as a cooperative venture over a decade ago by several US banks with the explicit goal of being integrated with your bank so you don't need a separate account!
My bank offers me like 50 garbage services every time I log in. Zelle falls into that bucket. I've never used it and barely know what it is, I just assume it's a scam like everything else banks offer.
It's a little too instant. If you send money to the wrong place it's gone and IIRC it doesn't really help you confirm you're sending to the person you meant to.
Zelle does roughly $490B/year in transaction volume (1/4 of total annual US card volume, ~$2T). If that's failure, I want to fail too! Venmo is closer to $230B in volume.
I feel like the branding really shot it in the foot. If they'd named it something less "startup-y" sounding, and marketed it as secure, instant transfers backed by the banks themselves, they might be in a better position.
I still use it all the time since it's a superior to any other offering for instantaneous high-dollar transfers, but it always feels like a "Venmo got embedded in my banking app" type of interface vs. "my bank is offering a direct payment service to it's other networked banks".
Hard to define, but I do think the marketing/branding/rollout were more to blame than the merits of the service itself (IMHO, Zelle is great).
Chase used to call it "Chase QuickPay", which was a great name. And when they joined Zelle and started supporting other banks it became "Chase QuickPay With Zelle". I don't know why it needed 2 product names but at least one of them told you what it did. And now it's just Zelle...
Since EWS (The company that runs zelle) is effectively co-owned by a bunch of the large banks in the US, which has caused many of the small and mid-sized banks don't want to take part. They worry transaction information and the size of their bank (based on traffic) when leak its way to the large banks giving them some kind of advantage.
Yeah Zelle doesn't really work well for that because I think you can only ever have one Zelle-enabled account because it's based on phone number or email.
Some banks offer external bank transfers through their online portal, and sometimes with a small transaction fee. I've been told by my bank with that transaction fee that you can avoid it by using the "bill pay" feature and just inputting your other bank account's routing and account information. I think that all works over ACH anyways.
I was hoping to use my catch all domain to resolve that e.g. td@mydomain.com, wellsfargo@mydomain.com which is what I do with Interac. Looks like it got me flagged.
Most bank accounts I've ever had in the US let you set up bank-to-bank transfers via the web site. It only requires a routing number and an account number.
TD too but that takes 24-48 hours and you have to go through a weird validation process. Two deposits are made to the receiving bank under and you're asked to confirm.
TD also wanted me to come into a branch with a bank statement from my other bank. Not ideal since they don't operate west of South Carolina and I'm in California.
The two deposit thing is pretty standard. A little odd, but it gets the job done and presumably does so using existing ACH interfaces (so they don't need to implement anything new or rely on the receiving bank to do the same)
Most services I use integrate Plaid. I believe Plaid is just a federated authentication glue that accesses your bank's systems and is granted access to account balances and ACH details (routing/bank account numbers).
It always struck me as an odd product, since I can just plug my ACH info in directly, but it does provide some level of convenience by allowing, say, a roboadviser app to show the embedded balances of my other accounts.
Plaid is a disaster waiting to happen—they store your banking username and password, and then use them to log in to your online banking on your behalf where they scrape the info they need.
The annoying thing with zelle is that every bank has different limitations. USAA for example has a 1k daily zelle limit. So it's completely useless for things like paying rent to a landlord unless you want to split a rent payment up over several days.
Yeah, honestly I didn't know it wasn't bank specific until I opened an account at a local credit union and it showed up as an option for transferring funds.
In the UK at least Zelle, Venmo, cash app are not a thing in my experience.
We have the wonderful Faster Payments System[0], that allows near instant payments to any account. Banks have nice phone apps, with push notifications and emoji.
Paypal is a thing usually just a way to avoid putting in card details directly.
Faster payments is good in a way but also.... weird. At least the way my bank implements it.
Want to pay someone new? Better have your smartphone with the app, and your bank card and your card reader. Be ready to provide your fingerprint and your card PIN number. And they'll send you a text message telling you a new payment recipient has been added. That's a fine level of security if you're paying thousands of pounds - but if you're paying £5 for lunch the process is just as strict.
And despite all that security, it's still limited to payments <£10,000 for some reason.
This is specifically a behind-the-scenes product offered to banks that replaces the existing clearinghouse system. I can't imagine it being offered directly to consumers, but we might see it in the form of faster deposit/withdrawal times.
As I understand it, this is settlement infrastructure for banks. How the consumer experience is actually implemented is up to each bank.
Perhaps Zelle will switch to it for settlement without changing the user experience? Some limits might be removed, but then again I’d guess that the limits are at least partly there for security purposes (to prevent bank accounts from being drained too easily) and the risks don’t go away just because settlement is easier.
(In a similar way, ATM transactions have daily limits and it’s not because there’s any technical reason for daily limits to exist.)
To some extent crypto too. HN constantly shits on me for saying I use crypto for this purpose, but there are vendors in the US I legitimately use crypto for because it is the only low-fee way for me to send something that will clear in under 30 minutes.
Seriously though, what kind of vendors are you finding crypto useful for that no other payment method can match or beat? I haven't found a single need for crypto in my life, aside from pure financial speculation. Maybe I just don't run in the right circles.
metal bullion. If you have free wire transfers, some of the time it might clear as fast for cheaper, but then again usually not and none of my banks offer free wires.
Most bullion dealers charge absurd markups for cards because people will steal credit cards or paypal account and drain it buying metals, which means the fraud premium for credit is sky high. Crypto is irreversible so you don't get stuck paying insurance premiums for fraud you're not engaging in.
Funny enough, the pot shops really embraced BTC in their infancy because anything to reduce cash was good (banks will not touch them due to the federal gov‘t), but they‘ve all since dropped it due to volatility being too expensive to deal with.
The existence of most of those apps has long seemed crazy from a UK perspective. Our bank transfers take seconds to hours, to pretty much anyone. Payments are one of the banking areas where the US has been stuck far in the past.
They were shims around Congress not providing the Fed the authority to establish instant payment infra until very recently (~3-4 years ago). With instant payment utility capabilities, you can eliminate the need for these shims and other antiquated financial infra previously supporting faster settlement (RTP, Zelle, credit/debit cards, etc).
Very pleasant to see the US catch up to the developed world in this regard [1].
The Fed has no interest in direct retail access (see narrow banking[1]). This is all about improving the plumbing for those services, not replacing them.
Yes. None of those are a thing here in Canada in my experience. We have Interac E-Transfers which is allow you to send money to anyone just by knowing their email address or phone number.
Either the person gets an email/text with instruction to deposit the money, or they can register their email in a central database which allows for automatic deposit and nearly instant transfer.
Nearly instant depending on your bank. Waiting 45 minutes to an hour is not unheard of. They do a really poor job of assessing risk e.g. sending money to myself routinely still results in slow transfers.
There's also ridiculously low limits on daily/weekly/monthly transfers making it useless for say moving a house deposit between banks.
Zelle is owned and controlled by seven of the largest banks in the US. It was basically created the fill the gap and create a standard for consumer bank to bank transfers.
This doesn't replace Venmo for P2P since it requires $25/month fee if you want to receive credits. It can certainly replace paypal &c. for payments though
It's $25/mo per routing transit number, which means basically per bank or financial institution, since each bank has usually one or a handful of routing numbers, even if they have millions of accounts.
Oh, I missed that it was per RTN, and just focused on the "that can receive debits" part; yeah, that's super cheap then, particularly since they don't take a percentage of the transaction value and it has a default maximum transaction limit of $100k.
The fee is so minimal ($25/mo per bank / $0.05 per transaction) that any bank that even attempts to pass it through is really doing a disservice to their account holders. That said, I put nothing past Wells Fargo or Bank of America.
Given that the sender pays the bulk of the transaction fee, and smaller customers are more likely to send a lot than receive a lot, I suspect the $0.045 to be passed through. Of course, merchants might want to eat the fee by charging $0.045 less in order to encourage people to use this instead of credit cards (which are far costlier to merchants, and can incur chargebacks).
This is one of the best things about living in Southeast Asia.
Instant bank transfers.
Because of this you csn just scan the QR code of your taxi, the fruit seller on the street, transfer to your friends.
Everyone gets it instantly.
Now this is not third party services. It’s bank account to bank account. As a result things like PayPal or Cash app make no sense in this part of the world and have no uptake here.
In fact it’s a downgrade to use those kinds of services.
Remembering the bank issues in North America is quite painful. Hope it really happens next year.
This will never happen in North America because the existing payments establishment is collectively worth trillions of dollars (think Visa, Mastercard, Paypal, Square, Stripe, all credit card issuing banks, all smaller second and third degree players) and will be ready to spend a big chunk of it to lobby and keep themselves relevant. Look at the case with tax filings, for example.
The US government will never be permitted to enter a business area and displace existing corporations regardless of whether it makes life easier for citizens or not.
This pessimism is pretty popular, and it's just wrong. It's not about whether the U.S. government will "displace existing corporations." It's about whether a publicly funded and developed solution to a problem is clearly better than a private solution.
Should the U.S. have an official tax preparation system? That would sure save a lot of people a lot of money, but I'm personally grateful for the fact that a bunch of private companies have been spending a lot of dough trying to develop good online tax prep utilities. Self-service tax prep is in a much better place than it was 15 years ago because of the efforts of those private companies. And an official option for tax prep would undercut those efforts. (At this point, of course, it's high time for the IRS to create an official option, and they are moving towards that.)
Congress is aware of the above concern. The lawmaking "meta" since the Reagan years is to not undercut the normal operations of a competitive market unless there's a clear reason to. But sometimes there are clear reasons to. That's why we have things like FDA rules that tell companies what can or cannot be labeled as "peanut butter" or "milk chocolate." It's why we strictly regulate the radio spectrum. It's why we have healthy anti-trust, anti-cartel, and anti-foreign-bribery laws. Congress understands traditional examples of market failures and is very interested in fixing them. But the tax prep industry, for example, is not an example of a market failure, so Congress is not excited about getting involved.
Getting back to FedNow, creating a standardized payment system to be used throughout the financial industry is a prime example of fixing a market failure: the difficulty of coordination, and the obvious benefit of getting every bank onto the same payment system. So I am not especially pessimistic about the prospects of this system.
100% disagree with your comments on tax preparation. Something like 80%+ of tax payers could have their 1040s automatically generated by the government because they only have stuff like wage and bank interest income. The proposal was just to have the government send these taxpayers a summary that they can accept or amend, the default being they wouldn't have to do anything at all to file their taxes.
Intuit et al fought tooth and nail against this, because they knew it would cost them big time.
These companies aren't benefiting from "the free market", they are rent-seeking regulatory capture organizations.
"Something like 80%+ of tax payers could have their 1040s automatically generated by the government[.] The proposal was just to have the government send these taxpayers a summary that they can accept or amend, the default being they wouldn't have to do anything at all to file their taxes."
Sure, that sounds good on paper. But here's a list of people who would be hurt by this system unless they were sophisticated enough to realize that they should revise their return:
- Most people with a kid
- Most people supporting a relative
- Most people supporting someone who has no income and lives with them
- Most people who made charitable contributions in 2021
- Many people with a home energy deduction
- Most people who participated in post-secondary education
- Anyone in the gig economy
That's a big list, and it's far from complete. So it's not clear that your proposed "do people's taxes, leave it up to them whether to acquiesce or not" plan is good for consumers overall.
Agree with SideballOfDoom. Other countries do this, this isn't hard. Besides, most of your examples are specious. First off, it's not hard for the first page of this to be "any changes to your life situation?" which would be simple, straightforward, and account for the vast majority of deductions/credits in the real world (i.e. dependents).
Most of your other examples aren't really valid because the vast majority of people take the standard deduction anyway, so things like charitable contributions, home energy deductions etc. don't matter.
But most importantly, the whole proposal always leaves the "You're welcome to do your own taxes if you have anything we haven't addressed." It's just that Intuit didn't want to even allow this option because they know the vast majority of people don't have complicating factors, and they hadn't gotten really good at scamming "free filing!" users into buying upgrades they didn't need.
This isn't hard, and tons of other countries do this.
I shouldn't have called the home energy thing a "deduction." It is a credit. And in 2021, some amount of charitable contributions could be claimed on top of the standard deduction.
"This isn't hard" -- as illustrated by both my and your mistake, this is as far from the truth as could be. Everything related to taxes is absurdly hard, whether it's setting up the right tax prep system, the right level of complexity in the tax law, or simply the right return to file as a taxpayer. My overarching point here is that Congress made a certain value judgment as to one of these very hard problems—that a healthy industry dedicated to getting people's tax returns correct might be in the best interests of both the government and taxpayers—and this might not actually be the product of corruption.
I still don't buy, at all, the argument that "default do nothing" is better than "default pay TurboTax".
The fact is the vast majority of taxpayers do not have special situations, and it's straightforward to say "if you think you have any custom situation that may apply to you, file yourself".
And Intuit's behavior, as well documented in the ProPublica report, absolutely point to corruption and scammy behavior.
Note that some European countries like Nordics already operate like the parent comment. These corner cases are naturally included in the four page paper where you can mark any corrections with tick boxes and amounts. So it is definitely doable, and not very hard, because other countries manage to do it as well.
> So it's not clear that your proposed "do people's taxes, leave it up to them whether to acquiesce or not" plan is good for consumers overall.
I disagree, if you want clarity, look at other countries (e.g. UK) that already do this kind of thing. There is no "how can we know?" argument to be made. And IMHO, It's so much better for consumers overall.
Looking at other countries is unproductive, since their tax laws and tax credit systems are completely different.
For example, in the UK, I believe where a child is living is tracked through some centralized benefits system throughout the year. That hugely changes the calculus as to whether an automated tax return makes sense. If the U.S. had a similar sort of centralized system for tracking dependents or at least children, then an automated return would make a lot more sense, since claiming children/dependents is a huge part of getting the credits you deserve, and it would be great if it were possible to do that automatically. But it isn't.
I've already explained why I think automated returns are bad in the United States. If you disagree, make counterarguments based on how taxes work here, not in some other country with an entirely different system.
IDK, this is a variation on the good old "The USA can't do this proven common sense thing that delivers benefit to citizens in many other developed countries, because ... uh ... USA special!" (1)
There's a chance that it's correct, but institutions that cannot learn from examples right in front of them are "special" in a different way, not a good one. Being able to learn would set a better trajectory towards greatness.
Anyone who works for a FAANG couldn't have their taxes done automatically - the IRS doesn't know the cost basis of your share compensation. Same for anyone with crypto trades, or more prosaically anyone who's sold anything at a flea market or garage sale.
Conversely if you buy and sell the same stock with two different brokers and cause wash sales, or do anything with HSA investments in California, TurboTax and any other consumer tax product will not get your taxes right, and it may not even be possible to do them properly by hand, so everyone is doing them wrong and the IRS just isn't noticing.
> Self-service tax prep is in a much better place than it was 15 years ago because of the efforts of those private companies.
I guess, if you're only looking at the US. My understanding of the history is very different. In 2001-2002, the US was already behind other countries since it had no e-file option. The IRS was considering an official tax prep service. Because Bush was in office and there was huge pushback from the tax prep industry, it was pitched that a public/private partnership would be the fastest way to "catch up."
In 2019, ProPublica runs a story about TurboTax's shady behaviors hiding and up charging for what was agreed to be a free service. It should cover 70% of tax payers, but in practice is only used by 2-3%.
To me, this looks like an example where the government explicitly tried not to replace a large, private industry and the result could only possibly benefit 30% of people (likely significantly fewer since much of that 30% will still require personal tax prep). Even after 20 years of fallout and very explicit bad-faith behavior, the threshold for change hasn't been crossed.
> Should the U.S. have an official tax preparation system? That would sure save a lot of people a lot of money,
Would it? Seems like a conflict of interest to me. Down the road the government might be tempted to abuse its control of both tax laws and ubiquitous tax preparation software.
I think it would be better if:
- Tax laws and tax law updates are required to be released in machine-readable format (i.e. JSON) using a machine-parsable protocol (i.e. converted from "English" to "Tax Grammar")
- IRS was required to maintain a public API for submitting returns
This would lower barrier-to-entry of tax filing software and weaken incumbents' (i.e. Intuit's) lobbying power. Furthermore, IRS is free to build a tool if they want, so long as it is both open source and dogfoods the public API and public tax law data that everyone else has access to.
> the government might be tempted to abuse its control of both tax laws and ubiquitous tax preparation software.
Could you describe a scenario where this could be the case? What kind of things would abusive tax prep software do? Would it lie to get people to overpay? Why would the government take that approach instead of just levying directly from people's accounts and/or reducing their refunds?
The government is naturally incentivized to maximize revenue. Individuals are incentivized to pay as little tax as they can, legally. Private tax prep software is pretty aggressive about identifying all possible deductions to reported income. The government would not be as motivated in designing their own system. You can see this in the paper filing forms, they have detailed instructions, but almost nothing on how to reduce tax paid, besides things like the child tax credit and earned income tax credit.
> The government is naturally incentivized to maximize revenue
This is a fundamental misunderstanding of the situation. The tax law is what it Congress decides it is. The law depends on taxpayers to report their incomes as well as deductions and other facets of their financial lives (e.g. household size, addresses, etc.).
A government-run tax prep site couldn't necessarily pull in all of your deductions, that's correct. But it also couldn't necessarily pull in all your income (especially business income, offshore income, etc.). It's mostly neutral in that respect.
But most Americans have at least a few deductions. How many Americans have offshore income? Especially the ones that would be relying on gov. tax prep?
Roughly 90% of Americans file using the standard deduction ($13k for a single person, $26k for a married couple filing jointly). Median household income is ~$67k, so the median household is not itemizing.
The remaining 10% of people would not be bound to use the free public system.
Well the U.S. tax system is heavily dependent on deductions which the IRS often does not have information on. So I'd imagine a lot of people would go with the default when in reality they might be able to save money.
That said, Trumps tax law greatly increased the standard deduction so it's not as big of an issue any more.
I agree but was just pointing out one method through which this could be turned against filers. If the standard deduction was greatly reduced it could cause taxpayers to pay more tax than they needed.
Personally I hate the fact we have so many deductions. I'd love a simplified tax code but I think that would be a tough sell.
There are basically easy bank transfers in the U.K. which are almost always very fast but they aren’t used for most payments. You’d use them to transfer between friends/family and paying for something like rent (with a standing order) or moving money between accounts.
While the payments industry (ie Mastercard/Visa) is a big one, they do actually provide a service. The cards allow people to buy things on credit (so stores can let people buy things on credit without needing their own collections departments or taking on default risk) and they provide various consumer protection mechanisms (which consumers want even if they won’t care about buying things on credit and paying back the loan over a long time).
It also isn’t obvious to me that this market won’t see disruption. There are a lot of BNPL firms trying to get in on it, for example.
In the US, I've generally avoided debit cards (but still would recommend them to people who aren't good at budgeting) because while disputes are settled you're missing the money.
My brief experience in other European countries is that debit cards are common, but credit cards aren't. I've heard this is because of strict caps on fees, which means few promos and benefits (like the US has). Sweden has a digital p2p service called Swish. Small businesses seemed to prefer it, but was a little annoying because you had to key in the code or use your camera to scan their QR code. This wasn't a huge hassle for sending money to friends. From what another commenter said, the UK requires you to manually key in the sort-code and account number. I can see that preventing adoption for casual purchases.
I was never sure of what protections I had around fraud with other payment options. I imagine consumer trust will be difficult to build.
This has existed in Canada for a very long time via Interac e-Transfers and it doesn't cost anything. You can send money instantly from one bank to any other bank. You do this by sending to someone's email or phone number. The recipient can setup auto-deposit so the money is deposited instantly. For this reason, Venmo, Cash App, etc. makes no sense in Canada either.
Interac is not really the same thing. It's much closer to Venmo, but with more integration with your bank. Mostly because not all banks are actually in the interac network and the transfers are between interac accounts, not bank accounts. You can set it up to autodeposit but it's still a "third" party layer more than actual interbank transfers.
Zelle is roughly that in the US. Where Venmo is an intermediary that makes money by having your money before you take the extra step to transfer to your bank (for free in 3 days or instantly for a fee), Zelle is bank account to bank account. Transfers with it show up as debit card transactions in my statement, and I can look people up with phone or email.
Then why don't corporations regulate the government, instead of it being the other way around? Why did the minimum corporate tax rate just go up to 15%? Why is there any corporate tax at all? The US government pushes companies around anytime they see fit. They're a superpower with the world's most powerful military, the FBI, CIA, NSA, and dozens of prominent regulatory agencies that control every aspect of the US economy.
When they decided to go after Google, guess what happened? The founders of Google immediately ran away in fear. They promptly resigned simultaneously and shrank from view. They knew what would happen and they got out in front of it.
When they went after Microsoft, guess what happened? Bill Gates resigned from leading the company that he founded and had been in charge of for a quarter century. The most powerful, richest private citizen in the US gave up control over one of the world's most powerful corporations.
The feds are drastically more powerful than any private citizens or corporations. Corporations are run by people, and people are very easy to target and easy to break, especially when you have powers of an epic scale central government.
Even a company the size of Apple is barely a spec to the US Government (a government which is currently engaged with Ukraine in smashing the supposed #2 military, Russia, using just a modest flex of its weapons and capabilities). Only China's government comes close to rivaling the US Government for power, corporations are a joke by comparison.
If the feds want to implement an instant payment system, then that's exactly what they'll do, whether Visa or PayPal likes it or not.
> Corporations are run by people, and people are very easy to target and easy to break, especially when you have powers of an epic scale central government.
This is true of governments too. Tech lobbyists doesn't sway the people who make up the government that much. But oil, guns, and real estate very much do.
It's weirder than that. The Board of Governors of the Federal Reserve is an agency of the US federal government. The system as a whole has "a combination of public and private characteristics".
Thanks for this clarification. I had a hunch it was a weird mix of the two. In reality I'm glad congresspeople don't have a lens into the money printing business.
What do you mean by this? As far as I know, the Fed was established by an Act of Congress and it is overseen by a Board of Governors whose members are appointed by the President and report to the Congress. To me it doesn't necessarily seem too different from many other government agencies, the biggest difference being that it is self-funded.
Because of its autonomy it doesn't seem to fall well within any of the three classical branches of government, but it sure seems to me like a part of the government nonetheless.
I think you’re wrong. The credit card system’s days are numbered. In 5 years I think digital wallets will be common in the US, and it won’t be because of anything the government did except get out of the way.
I really doubt it. Credit is a fundamentally different system than debit with different use cases. US credit cards have all sorts of attractions for consumers, like cashback or frequent flyer miles. And they‘re still one of the most accessible ways to build credit score history.
Credit cards these days are pretty much usable as digital only; all of mine are addable to Apple or Google Pay, and usable at pretty much any contactless pay terminal.
Credit cards are popular because of government regulation, namely that you have better fraud protection on your credit card than your debit card.
If they go away it's because their credit product will be replaced by BNPLs, and transactions with trustworthy stores will move to FedNow to avoid that 3%ish interchange fee.
> Now this is not third party services. It’s bank account to bank account. As a result things like PayPal or Cash app make no sense in this part of the world and have no uptake here.
Aren't WeChat Pay and AliPay basically embedded versions of paypal/cash app?
I feel like they are talking about the UPI (unified payment interface) that exists in India. It works way better than Zelle because you don’t need to use your bank’s app (you can if you want to, but most people use PayTM/Google Pay/PhonePe), and you can add multiple bank accounts in your preferred UPI client.
You just get a UPI ID that looks like whatever@yourapporbank. Then for online payments you can just enter that ID and approve/deny the transaction request in your UPI client. You could also just generate a QR code for that transaction and scan it with the UPI client
I see that a lot of people are unaware about UPI on HN, I might summarise my experience in a separate post and comparing it to Zelle
> I see that a lot of people are unaware about UPI on HN, I might summarise my experience in a separate post and comparing it to Zelle
Please do! I would buy you a coffee or similar for doing so. Likewise if someone wants to create and maintain a Wikipedia page listing instant payment systems and their details (because FiServ keeps taking down their marketing enumerating this information while also excluding it back from Wayback Machine[1]), I'd be willing to throw some fiat at that.
I hear this a lot, but Visa/MC do the exact same thing (though it has died down now that Westerners see universal NFC pay as rightly superior to QR codes)
And before you tell me they charge for it, I agree they do, but I also get fraud protection that's 1000x better than anything in SEA or on Venmo/Cash app.
Does anyone seriously think QR codes will still be around in 10 years? They always struck me as clunky. They often don't work, require holding your phone in awkward positions for uncomfortably long periods of time and in many circumstances (e.g. a cashier wishing to expose a dynamically generated QR code to a customer) aren't practical. It's only because we haven't come up with cheap/reliable alternatives that all manufacturers agree to support that they're still in use.
Oh I understand now. It's the fault of the implementation of the QR reader that you use.
For example all UPI apps have near instant qr recognition at any angle. In fact on my phone, it takes longer for the camera to start than for the QR recognition to finish.
I also think there are a lot of things that QRs can do but NFC cannot. But the opposite is not true
Currently, yes. But in principle NFC or alternatives (that could be cheaply/ instantly generated anywhere, including by non-digital physical objects like pieces of paper) should be better and I'm willing to bet will be in the foreseeable future.
Because at every pos in existence, I have the option of using my phone, my watch, or a card.
I am not exclusively tied to any of those devices (or their camera, which is a relative weakpoint in a smartphone).
I am also able to trust that the payment medium is so complex that there's a very low chance of phishing (i.e. pretty easy to print out a QR code to a malicious domain, hard to do that over ApplePay).
> This is one of the best things about living in Southeast Asia.
UK also has near-instant bank transfers. It usually just takes me about 30s to receive one.
But you do have to specify the sort-code and account number by hand.
I remember reading Matt Ridley's book "The Rational Optimist" and he said that society only progresses when we trade, and we only trade productively when we have trust.
So basically I think there must be trust otherwise it will hamper the growth of society.
So, the current situation if you get scammed via Venmo/PayPal or other electronic payment methods is for the FBI / local law enforcement to subpoena the provider for records about the incident.
Now, imagine all that data is sitting on Federal servers by default. No subpoena required, and fraud systems would be integrated directly with investigative services at the Federal level. This integration should strike fear in the heart of anyone who currently scams via 3rd-party payment providers.
I am bothered that fraud isn't directly addressed in this page, but it's only an FAQ and it'd be silly to think the Fed wouldn't build industry standard (or better) fraud protections into a system they're building from scratch.
No, the current situation if you get scammed via a credit card or PayPal is that you file a chargeback, and PP/card company reverses the transaction, because withdrawing money takes time. And if the transaction is not reversible, then PP/CC company take the hit on their own bottom line.
Is the federal government going to take on that risk? What makes you think they can afford to hire programmers who are skilled enough to build out a sophisticated fraud detection system? The highest GS pay scale is lower than what a new grad makes at Stripe/PayPal.
> The highest GS pay scale is lower than what a new grad makes at Stripe/PayPal.
It's better if you compare benefits and cost of living. Or if Stripe fires you because your manager didn't like that you tweeted a joke about Elon Musk once (apparently this happens).
The only better benefit is a guaranteed pension after you work 20+ years in government. But since pensions nowadays are chronically underfunded and you make literally 3x (!) more at the equivalent level at Stripe/Paypal/etc. a 401k is a more than good enough substitute for the pension.
Health insurance is definitely better at the tech company. Cost of living varies - Washington DC/Northern VA is not cheap, and Washington state (where Stripe is based) has no state income tax.
I think very few people would take the government job, particularly the type of people okay with taking big risks that you need to build out a greenfield fraud detection and payment system.
>So, the current situation if you get scammed via Venmo/PayPal or other electronic payment methods is for the FBI / local law enforcement to subpoena the provider for records about the incident.
Imagine so confidently posting something so wrong. No, that’s not how it works in the US. Every credit card company (and PayPal-like company) has a massive anti-fraud department that both automatically detects fraud and responds to consumer complaints. If I see a charge I don’t recognize, or a seller fleeced me, I call my credit card company and they give me my money back and fine the shit out of the seller’s account unless the seller can prove to them that the charge is legitimate. Yes, ultimate recourse is to court, but very rarely is that necessary.
I have to believe that there is constant, baseline fraud that everyone in these areas puts up with.
In the US, if someone steals my phone or credit card, or intercepts my payments in any way, I pretty much expect to get all my money back. When payments are instant, what's there to stop scammers and fraudsters disappearing with my money?
I'm not an expert in this area. But a fairer comparison would be a US service like Venmo. In my experience Fraudulent payments with venmo are much harder to recover.
I think a lot of fraud prevention tech can reasonably be done in a matter of seconds. FedNow also proposes to be domestic only for the time being, which means the recipient accounts are in US jurisdiction and easier to shut down and prosecute. Finally, there's no reason a wait-period/cooldown can't be implemented in another layer.
The problem is when someone spins up a scam account, gets a fraudulent payment, and then cashes it and shuts down the account. If they already have the money in cash, it may be impossible to prosecute.
Any fraud prevention is going to have to be privacy intrusive by it's nature.
This is a horrible excuse for the terrible banking system in the US. We have both instant payments in Denmark and laws to require banks to cover fraud.
UK isn't a good example since they don't have fraud protections in place. This bill needs to into effect before the banks are on the hook. https://bills.parliament.uk/bills/3326
Most banks are signed up to the "Authorised Push Payment Scam Code" and cover fraud, however it's not a legal requirement.
But all banks, of course, have a level of fraud protection in place (just not the legal obligation to replace funds from a scam and compensate/reimburse victims).
It's also worth noting that this is a legal decision, and not a technology issue.
There is a constant need of OTP for every transaction. That sms says again and again Do not share it with anybody or, something similar to that. Instant transfers are only from bank to bank accounts, and not to any personal wallets. Banks have strict KYC requirements to get the documents again every few years. So whoever account is getting the money, bank gas most of their information.
So even after all those multiple warnings, if somebody gets frauded (which happens, because people get greedy, they pay a small amount to get a bigger prize, or a work from home job etc scams), police in some places now have IT Crime cell, which follows up with banks and try to recover the money. No guarantee. But there is no constant stream of fraud anymore thatln what happens here in US with people who fall for scams.
> There is a constant need of OTP for every transaction. That
Not necessary - My UK bank (Monzo) allows FASTER payments without a OTP (the UK version of this that has been around for about 15 years) via their app.
You just sign into the app, put in the bank account number you are sending it to, sort code and recipients name, it verifies you with Face-ID then sends the cash.
I awas replying in context of Indian people facing a constant stream of fraud, so I mean almost every money transfer transaction needs an OTP, which could be an SMS, or a number from grid on the back of the card, or from bank's own app.
The baseline level of payments fraud is through the roof in the States. I have never had a fraudulent transaction on any card or service in Ireland. In the US, it’s literally a monthly event. I have to actually check my statements for the fraudulent transactions. That’s not normal elsewhere.
I'm calling BS. Virtually everyone I know has either had zero, or at most one or two experiences with fraudulent charges, and they're cleared up immediately with a phone call.
Fraud is still very much a real problem though (not just in the US). Maybe the circle of people you know aren't typical and actually take reasonable steps to protect their account details.
My sole experience with credit card compromise was almost as good--there was one fraudulent charge, but the bank reversed it, canceled, and issued a new card before I could get a chance to notice it.
The problem in east asia is now you are beholden to smartphones. You can't even give money to a street beggar without a smartphone.
The only convenience added by their way is qrcode scanning as opposed to typing up a recipient name. Which I admit is verh nice so long as they mandate accepting cash payments as a condition of a business participating in commerce. Every transaction you make is tracked and being banned from that app means you can't even buy basic survival items and services like food, shelter and even public toilet access lol. You can't even beg people for money because you are banned and your account is tied to your government ID. You effectively accept wepay or whatever monopoly app as your master. Freaky stuff.
No thanks, cash is still nicer and convenient (to consumer not merchant).
> This is one of the best things about living in Southeast Asia.
> Instant bank transfers.
Really? One of the BEST things? That sets a pretty darned low bar.. I mean, I've never once been even remotely inconvenienced by the US way of handling money and payments.
Yes. It's one of the best things. The first time you are sitting with your friend and you want to transfer some money to them - and they get it as soon as you tap the button in your bank app -- you will get it.
It's normal to people in Asia. But weird to people in the USA and Canada.
We have also instant transfers with many (most?) EU banks, even between countries (SEPA). Granted, it's not yet used to pay taxis or fruit sellers, at least not in Germany.
Look like the US version of SEPA transfers (technology-wise) like (somewhat) described at https://www.europeanpaymentscouncil.eu/what-we-do/sepa-payme... but instead of just SWIFT (which is what is also ISO 20022 supported) its more for internal transfers as well.
I do wonder why the 12-year lag in the US implementation of essentially the same standards (and the same ones they had implemented on SWIFT much earlier) was there to begin with. You'd think that with the states in the US not being nation-states it would be much easier/faster to implement something like this nation-wide.
The US banking system is notably decentralized/fragmented, with a fat tail of regional banks. That extends to regulation, where banks are chartered at both the federal and state levels (both of which jealously guard their authority). Large banks started to offer a direct-transfer service called Zelle[1] a few years ago, but making it "standard" is a slog thanks to all of those regional banks. Instead, most people use third-party apps that operate over ACH.
I just want to clarify that Zelle was basically a 2017 rebranding of clearXchange, which existed since way back in 2011. Both Zelle and clearXchange were mostly marketing failures. The basic use-case of nearly-instant person-to-person transfers has been constant and functional throughout its existence.
And you're 100% correct that uptake in the long tail of smaller banks and credit unions is probably one of the biggest "issues" with the service. If your bank isn't signed up, there's nothing you can do as an individual except move to a bank that is. Systems like CashApp and Venmo don't have that issue.
Thanks for that clarification. I had only used regional banks or credit unions before a few years ago (when I learned about bank account bonuses), so it was a new-to-me product when they started to market Zelle.
No worries. It also didn't help that, if I recall correctly, clearXchange was also marketed by the different banks under their own pet names for the service. So there wasn't even a single name for it.
Let others work out the defects and shortcomings while learning from their mistakes to develop best practices for your own implementation. In this particular situation, there is no "first mover" advantage.
In Brazil, we have PIX, a way to make instant transfers 24/7 that is always free for individuals. It was launched in Nov/2020 as last month alone it had 1.8B transactions on its network.
It's really ubiquitous right now, as you can pay pretty much anything using it.
And they recently launched the ability for trusted apps to start a Pix transaction. It'll open your banking app with the recipient and amount pre-filled, and all you have to do is authorise it.
They're working on an offline version now, we'll see... that'd be amazing.
All in all, I'll keep using credit cards for security (Pix transactions can't be disputed) and miles.
There's also a trend of kidnaping people in Brazil to force them to execute PIX transactions using their phones. It hasn't been exactly smooth sailing.
>Only drawback is there is no protection like with debit/credit cards, so no chargeback.
I see that as an upside though. Fraud (and other protection) is essentially an insurance service you pay for, often in several percent premium. This service would lose its utility to me if I had to pay a premium to cover fraud. We already have debit/credit for those who want fraud protection.
100% agreed. Zelle is somewhat similar to this, but overly complicated + doesn't always settle instantly.
I'd love to be able to hand folks a simple string or image, and have them able to send funds to me instantly, irrevocably, with no fees, and in a way that they can't pull funds back from my account (cough checks / ach).
RE: Swish - have you found int'l travellers still having issues with it? There were many stories about non-Swedish visitors being locked out of commerce a few years ago.
One of the most important questions (IMHO) is what the cost is going to be. Some googling says it's going to be ~$0.05 which would be insane and amazing. I know that middlemen will probably be required to build on top of this and take their cut but I'd love nothing more than Visa and Mastercard to lose their near-duopoly.
This will be a nice little win for account verification processes. Just doing this to connect two accounts and having to wait the days for the transfers to show up to verify.
> As with current Federal Reserve Bank services, the FedNow Service will be available to depository institutions eligible to hold accounts at the Reserve Banks under applicable federal statutes and Federal Reserve rules, policies, and procedures.
I wish this would be more available to directly connect with versus having to go through an existing bank. It also leads me to believe that adoption won't be widespread for a few years after release.
With Real time payments (RTP, the clearing house instant payment rail) it still has banks onboarding to the network each month. RTP was launched in late 2017
Europe and Asia have been doing instant bank transfers for a while now.
Bitcoin has been doing 24/7 payments since 2009 and instant payments since at least 2018. Not to mention Bitcoin is decentralized and not reliant on government and bank bureaucracy to function.
I recently initiated a transfer from a American Express Business Checking account to a business checking account at a different bank. The funds were deposited the same day which seemed way too fast to be ACH. Does anyone know how the funds could be transferred so quickly?
Your receiving bank can very quickly get notification of the incoming transfer, and 'spot' you an arbitrary amount (or all) while it _actually_ clears in the background.
Same day ACH has been available since 2017 and expanded in 2021. It's very slightly more expensive for the bank.
Whether or not the funds are made available mostly depends on how much the receiver trusts the transmitting account; even if it shows up the same day it still might turn out to be fraud a few days later.
> The Federal Reserve is committed to using the widely accepted ISO 20022 standard and other industry best practices to remove unnecessary and burdensome incompatibilities that could be a barrier to payment routing, a model of interoperability.
So the underlying technology that is going to basically power and be compatible this standard will most certainly be in collaboration of the creators of XRP, (RippleNet), Stellar Network, Algorand and XDC chains as they are notable cryptocurrency technologies and ledgers that are gaining general compliance with the ISO 20020 standard. [0]
So like it or not, there is a compliant few cryptocurrency DLT technologies that are already being evaluated and are being considered for this use-case.
I think the comments in here really highlight how little people understand the banking system. This is nothing at all like PayPal, credit cards, WePay or other systems.
This is to settle between banks. The thing banks do at the end of the day.
I frequently ask people "If all major American banks got together and implemented a system where you could send money from one bank account to another in a payment system much faster than ACH, would it be big news?"
And yet they did, but it was not big news. There is currently an instant payment system integrated with all major American banks for person-to-person transactions, and yet they somehow fumbled it so Venmo takes all the publicity.
Yes, the platform is arbitrarily limited to $500 transfers and significant disclosures on why/how you want to use your money. ACH, checks and Venmo still win out
Actually you're both right. The last 3 banks I've had have had the $500 limit because if your bank doesn't 'natively' support zelle, Zelle themselves limit it to $500 per week taken via your debit card. If your bank integrates zelle, then the limit seems to be up to the bank up to the $5000 or whatever you quoted.
This can be a major problem, because some landlords only take their rent by Zelle and if you accidently zelle someone at the wrong time and your whole household runs out of Zelle limits you're fucked for paying the rent.
Zelle is weird, you can't actually directly transfer account to account. You transfer to a person's phone number or email, so each person can only have 1 Zelle enabled account. Also people aren't automatically enrolled, you have to enable Zelle. And email/phone is really easy to make a typo. Routing and Acc number are easy to typo too, but hopefully any FedNow based services will handle that automatically.
imo Zelle has a horrible user experience. I tried paying my rent with Zelle at one place and it showed up as "pending" for 6 days. On the 7th, the payment failed and I had to call a phone number to find out why: The recipient was not signed up for Zelle. Or more likely he had signed up, but became unenrolled somehow.
... Really? You couldn't figure that out any sooner? ACH or a paper check would have been faster.
Maybe they've ironed out the kinks these days, but I'm sure Zelle would have been bigger news if it worked well from the start.
No, nothing of note is changing other than speed and ubiquity of transactions. If you believed sloth and paper checks were providing you privacy, think again.
I am a betting man, and I bet all the major banks, Venmo, PayPal, Zelle will all go to court, probably all the way to the supreme court (or does it go to Senate now?) to rule that this is beyond the powers of the Fed.
We will either implement nothing or we will implement a system that lets all these companies profit.
Meanwhile every major country in the world solved this issue 8+ years ago.
I would bet money on the opposite happening: The Fed is not going to release a social app that interrupts the network effects of all of those systems. Zelle may be the one that has the most to worry about, because it is partnered with big banks and powers a lot of their transfer systems.
PayPal, Venmo, etc. will all start to use FedNow in the backend to provide for a better product experience and charge the same fee, but spend less on settlement.
These are better payment rails, not the wholesale replacement of how people send money to each other in the USA.
Zelle isn't partnered with the big banks. It is literally owned by them as a joint venture created for the sole purpose of facilitating the bank-to-bank transfer system.
The Indian Reserve Bank (RBI) and NPCI introduced UPI (Unified Payment Interface) back in 2016, similar to FedNow. This potentially disrupted the business and product that Paytm (similar to Venmo) offered.
Interestingly, NPCI also allowed third-party apps to integrate UPI payments directly into their app. Users could use both the Paytm wallet and UPI for transactions. These apps that integrated UPI saw a huge rise in daily usage and volume of transactions, which was ultimately beneficial for them (they could channel promotional coupons/offers through the apps). UPI was generally preferred over online wallets as the medium of payment because of direct bank-to-bank transactions.
So if the Fed does something similar, might just be a win-win.
Venmo, PayPal, and Zelle are all consumer-facing products. FedNow is a service for interbank settlement only, not a consumer product. FedNow does create an opportunity for banks to provide instant payments for their customers, but that just means banks (even small banks) will be able to compete well with Venmo and others. That seems like a win for everyone to me.
Adding onto this, the Fed has proposed opening up Fed Master Accounts to non-bank fintechs (e.g., PayPal/Venmo). That would allow them to improve their own services by moving off of ACH.
For those interested in the Fed Master Accounts topic, I recommend this Macro Musings podcast episode with George Selgin.[1]
The Federal Reserve is independent, in the sense that monetary policy and related decisions are made autonomously and are not subject to approval by the federal government.
Judging by the article, it sounds like they are reaching for technological parity with other governments around the world:
>In fact, among the many countries that have either developed or are in the process of developing instant payment capabilities, the vast majority have done so with the direct operational involvement of their central banks. This progress means that the U.S. retail payment system lags behind systems in other countries.
Furthermore, they don't have confidence in the private sector to achieve this sort of thing:
>Based on its assessment, the Board concluded that private-sector real-time gross settlement services for instant payments alone were unlikely to provide an infrastructure for instant payments with reasonable effectiveness, scope, and equity. In particular, private-sector services are likely to face significant challenges in extending equitable access to the more than 10,000 diverse depository institutions across the country.
The truth and the fact is that it already has and only a few crypto projects are compliant with the ISO 20020 standard such as XRP (RippleNet), Algorand, Stellar Network, etc which are becoming compliant with the standard to be used for that use case.
The furthest and the most compliant crypto project compatible with the ISO 20020 standard which fits this use-case so far is XRP.
1. Are the transfers irreversible?
Why? Because one big problem with our current system is the fraud (and mistrust) that results from ACH/checks being sent under the impression they are guaranteed funds, but being reversed by the sender or because they didn't actually clear, days (up to weeks) later. This is a big source of scams. People are out lots of money because of this, and continuing every day that this doesn't get resolved. Not saying that we can protect everyone from everything, but this is a no-brainer. Are the transactions final (unless there is legal action and both parties are identified)?
2. Is it a "push" only system?
Push, obviously meaning that only the account owner can initiate a transaction to transfer funds out of the account. I figure it must be, if things are instantaneous and irreversible (but that is to be confirmed). I don't want any more of our current system where someone knowing my bank account numbers can accidentally or purposefully withdraw money from my account and it's up to me to detect and ask for that to be fixed. This is ridiculous that we still have a system that allows that.
------
Of course, this new system means that people will need to be educated/trained on some of the dangers that may not be apparent when a system changes. Like, if someone gets duped into sending money, it is now irreversible. Or if fraud is committed somehow, there is no recovering from it. It probably (hopefully) will have to come with new types of account protection given these facts. Some problems will now be prevented, but new problems may be caused. An updated diligence on the part of users (and the system) will also be needed.
I think it's a welcome and overdue development though.