FedNow To Take Few Years To Connect With Global Payment System, Says Fed Governor Waller
Domestic networks needs to be developed first. If this condition is not fulfilled fast, the global payment system will not succeed, Waller said.
The FedNow, an instant payment system the US Federal Reserve launched in July 2023, will likely take a few years to connect with the global faster payment system, Christopher Waller, member, Fed's Board of Governors said at the Global Fintech Festival in Mumbai.
"We've to take time to build our network before we seriously think it's going to add value to any fast payment network," Waller said.
The FedNow has 1,000 banks across the country signed up for it. However, there are 9,000 banks in the US. It's a long process to get all these banks to opt out for the system, he explained.
The valuable global networks is required to be founded on underlying domestic networks. Domestic networks needs to be developed first. If this condition is not fulfilled fast, the global payment system will not succeed, Waller said.
In case India's united payment interface system is interested to connect with US payment system for cross border payments, private instant payment system is available, Waller said.
Interlinking it with the FedNow will not help as most of the banks are not connected to the system. Hence, in case of a transaction between India and the US through UPI and FedNow, the payments will go nowhere, Waller said.
For UPI, all banks in India are connected to the system, so payments happen. If all the banks are not connected, payments goes nowhere. So, the value proposition isn't there in FedNow yet.
The Fed is behind in terms of global faster, cheaper payment system, he noted. The US central bank is hoping to get there in next few years.
The payment landscape in America is unique compared to other countries, he said.
"We've over 9,000 depository institutions, and different authorities than other countries. The Federal Reserve determined that it was needed to build a fast payment system for all depositories to achieve our policy goal," he said.
At the time of the decision, it was only one private instant payment system in the US market, which the largest banks in the US built. Based on experiences, the central bank realised, it may not reach all depository institutions nor other private sector institutions.
Smaller banks across the US wanted a broadly accessible interlink payment system. "We stepped in to address what was a clear co-ordination problem in the market."
In India, collaboration of government, central bank, and private sector established the digital public infrastructure which bought huge success to UPI, Waller said.
Broader financial inclusion has been done in low cost in India. Building on the foundation established by the public sector, innovators in the private sector sees the opportunity to enhance payment through the introduction of new capabilities which alleviate frictions, while remaining in regulatory guardrail.
Private and public sector co-operation is likely to be the key to enhance cross border payments, Waller said.
