'Three day wait' for checks to clear could speed up

The standard 'three day wait' for a check to clear could become a thing of the past. Eventually.
Banknotes
The new service isn't expected to be available before 2023.Xaume Olleros / Bloomberg via Getty Images

Breaking News Emails

Get breaking news alerts and special reports. The news and stories that matter, delivered weekday mornings.
SUBSCRIBE
By Martha C. White

The Federal Reserve on Monday announced plans to develop a new real-time payment system that will let consumers clear paychecks, bill payments, and money transfers much faster.

When the new "FedNow Service" is launched, the standard "three day wait" for a check to clear could become a thing of the past for both households on a tight budget or small businesses who need to pay vendors and make payroll.

Federal Reserve Governor Lael Brainard.Evan Vucci / AP file

"Everyone deserves the same ability to make and receive payments immediately and securely," Fed governor Lael Brainard said in a speech at the Federal Reserve Bank of Kansas City Monday.

Let our news meet your inbox. The news and stories that matters, delivered weekday mornings.

"Immediate access to funds could be especially important for households on fixed incomes or living paycheck to paycheck, when waiting days for the funds to be available to pay a bill can mean overdraft fees or late fees that can compound," she said. According to a recent CareerBuilder survey, 80% of Americans live paycheck to paycheck.

The central bank’s new payment clearing initiative plans to develop infrastructure to facilitate real-time money transfers between banks. That holds the tantalizing prospect for workers and small business owners of being able to immediately access their money.

"The longer it takes for payments to move, the longer it takes for us to get paychecks, for small businesses to get funds,” said Karen Shaw Petrou, managing partner of consulting firm Federal Financial Analytics. “It’s costly because people run overdrafts or take out short-term loans, and it’s economically inefficient,” she said.

In other parts of the world, including less-developed countries, these transactions are executed much more quickly, often in conjunction with a nation’s central bank. But the United States has a much bigger banking system, along with a divergence of opinions about the role the Federal Reserve should play in the private sector. Big banks and some Republican lawmakers also have pushed back on Fed involvement, with Trump appointee and Fed vice chairman for supervision Randal Quarles voting against the decision announced Monday.

Last year, the Federal Reserve Board solicited comments regarding what services it should offer to facilitate faster payments and found that more than 90 percent of respondents asked for real-time payment and settlement services available at all times. The Fed said it now is asking for input on how the system should be designed.

But before the hurry up, there's a wait: the new service isn't expected to be available before 2023.