FedNow is cool but it has nothing to do with B2C payments. Think: wires, but cheaper. Or ACH, but faster. Do you frequently pay for goods or services with wires or literal ACH transfers? (No.)
No, but only because the technology + processes for Wires + ACH are pretty complicated and slow. If they can be sped up, simplified with the same or better protections for account holders, then it would would be a game changer.
Of course Visa/Mastercard/Amex/Discover are very well moneied interests, positioned pretty tightly in the market and have no incentive to help it's success along.
> with the same or better protections for account holders, then it would would be a game changer.
This is really the one we need to fix on both ends.
Right now we have a system where fraud is really easy, e.g. an incompetent merchant gets breached and the attackers get thousands of credit cards to use at innocent unrelated merchants. Then the attackers steal goods from those merchants and the merchants get chargebacks from the cardholders. This is crazy.
What you want is a system where the merchant submits a payment request which is then either manually approved by the customer on their bank's website (e.g. for immediate delivery of goods) or has to be submitted and displayed on the customer's statement at least 30 days before the transfer, giving the customer that long to dispute it (e.g. recurring payments/subscriptions). That would eliminate the vast majority of fraud and also make it simple for customers to cancel subscriptions they don't want (just go to your bank's website and ban that merchant).
The reason we don't have this is that the banks like getting credit card fees and chargeback fees, so they have no incentive to build it, and use regulatory capture and anticompetitive practices to keep anyone else from building it.
> What you want is a system where the merchant submits a payment request which is then either manually approved by the customer on their bank's website (e.g. for immediate delivery of goods)
That's how it works with my current bank and my previous one as well here in Italy: the first few transactions require manual approval via app, then the system "learns" that it's you and just notifies you there's been a transaction with your card.
It never happened to me so I'm only speculating, but I suspect that, as soon as it detects suspicious activity, confirmation is requested again.
We don't have this because it would increase friction per transaction, which is a bad thing. Our high-trust system largely works, despite the susceptibility to some level of fraud.
There is no reason it would need to increase friction per transaction. Right now to make the first purchase at a merchant you have to type your bank account or credit card number into the merchant's website. Instead the merchant would redirect you to your bank's website and you would authenticate with your bank. How is that any more difficult? It's just more secure, because the merchant is no longer in possession of everything someone would need to make fraudulent charges to your account at any other merchant.
I think it's likely people will build useful user experiences on top of FedNow. Or migrate existing uses (Zelle?). But it's just the boring settlement system in the background; not what end customers or businesses interact with directly.
Zelle is an alternate payment schema by consortium of major banks. It was introduced a little head of time just to avoid fednow from gaining traction. I'll bet a few years from now they'll attack fednow for being bloated and unused and lobby to marginalize it. Fednow basically means no more overdraft fee. they wont let that happen.
The obvious incentive is that Visa is giving you 1-2% cash back while charging the merchant 3%+, so the merchant will give you a >2% discount to use FedNow. Or charge you the extra 3% to use Visa.
But this is where we get into antitrust issues. Visa imposes a 3% cap on the surcharge you can add, but then typical processing fees (e.g. Stripe) are 2.9% + $0.30. For a $1 transaction that's >30%, but Visa caps the amount exposed to the customer at 3% -- and low value transactions are the exact market where the lower-fee competition would gain the most ground from having a price advantage. How is that not an antitrust violation?
It depends for some of us, though. I have a credit card that gives me 5% back on Amazon purchases. Another card gives me 4.5% back on travel and dining expenses. That card also gives me 15% back on Lyft rides. Even if those businesss were to offer me a 2% or 3% discount to use FedNow, I would stick with the credit card.
And on top of that, I really do value things the credit cards offer, like fraud protection. If I pay for something with a credit card and never receive the goods, I can get the card company to issue a chargeback, and pay nothing. If I buy something with FedNow and never receive the goods, that money is just gone.
> I have a credit card that gives me 5% back on Amazon purchases. Another card gives me 4.5% back on travel and dining expenses. That card also gives me 15% back on Lyft rides. Even if those businesss were to offer me a 2% or 3% discount to use FedNow, I would stick with the credit card.
These are promotions. The card company is gambling that most of your purchases won't be in the promotion category, so they'll come out ahead even if they have to eat 2% when you buy something on Amazon as long as they make 2% when you buy anything else and less than half of your purchases are on Amazon. But if they're making out on net then you're losing out on net, which has to be the case on average or they'd stop offering it.
Many of the promotions are also deals with the merchant. Maybe they're not eating 2% when you buy something on Amazon, maybe Amazon is offering that extra 2% to cause you to perceive a 5% discount and then buy from Amazon instead of Walmart. In which case they're not trying to get you to use FedNow for that.
> And on top of that, I really do value things the credit cards offer, like fraud protection. If I pay for something with a credit card and never receive the goods, I can get the card company to issue a chargeback, and pay nothing. If I buy something with FedNow and never receive the goods, that money is just gone.
The converse of this is buyer fraud. Fraudulent buyers dispute the charge even though the goods were delivered. Merchants then have to incorporate the cost of this into the prices you pay whether you use a credit card or not -- which is another reason why capping the surcharge at 3% is anti-competitive. A competing payment method which is less susceptible to buyer fraud should cost less to use, and then you can decide if you want to pay for the insurance or not. But Visa makes you pay even if you trust the merchant not to defraud you and would rather have the discount than have a greater ability to defraud them.
>even if you trust the merchant not to defraud you
I understand that your point is to do with personal choice, and being able to navigate pros and cons oneself, so I'm not exactly contradicting anything you said; but after an experience I had with Best Buy a couple of years ago, I wouldn't trust any business not to defraud me (or at least, not to put me in a position where I need to dispute a charge).
I ordered a Samsung Galaxy S22 Ultra for delivery from them. When I received the package, it was an S22 Plus instead. I explained the situation to their customer service, who told me to ship it back to them for a refund. Then they shipped it right back to me, with a note saying that they couldn't accept the return because it was the wrong item. (Yes, because they shipped me the wrong item! That was the point!)
I don't think Best Buy was intentionally trying to defraud me -- it was presumably just crossed wires on their end -- but a credit card dispute saved me a lot of aggravation, and perhaps money. My credit card company informed me that when they reached out to Best Buy to get their side of the story, they just repeated that I'd returned the wrong item. Since I'd already explained that to the credit card company, they understood that wasn't a satisfactory explanation, and resolved the dispute in my favor.
> after an experience I had with Best Buy a couple of years ago, I wouldn't trust any business not to defraud me (or at least, not to put me in a position where I need to dispute a charge).
I wonder if that's really true.
Suppose you're making a modest monetary donation to a charity you've been volunteering at for years. You're not even expecting anything in return and the charity is operated by your best friend who would refund the money if you simply asked.
Suppose you're buying a car. You've signed a contract to buy it and owe the money regardless of which payment method you now use for the down payment. Doing a chargeback doesn't get you out of the contract. If the car isn't as described you would have to sue them and then if you won the court would order them to refund your money regardless of which payment method you used. Also, if there are problems you might not discover them within the chargeback window anyway.
Suppose you're paying for lunch at a cafe. You've already eaten the food by the time the check comes. You know whether you were satisfied with it or not before you transfer the money.
Do you really need a percentage to go to a payment processor and to pay higher prices to cover chargeback fraud just to buy the ability to do a chargeback in these cases?
Meanwhile Best Buy would still accept Visa but the price to use it would be a few percent higher than the alternative and then you get to decide if you want to pay extra for the insurance or not.
>Suppose you're making a modest monetary donation to a charity you've been volunteering at for years.
A charity isn't a business, so I don't think this is relevant to my statement.
>Suppose you're buying a car. You've signed a contract to buy it and owe the money regardless of which payment method you now use for the down payment. Doing a chargeback doesn't get you out of the contract. If the car isn't as described you would have to sue them and then if you won the court would order them to refund your money regardless of which payment method you used.
A contract is a two-way street. If the seller didn't hold up their end because the car isn't as described, then in fact I don't owe them money. That fact isn't made true by going to court; it's already true, and the court determines it to be so. A chargeback doesn't "get you out of the contract", but it can be a method of enforcing your pre-existing legal right not to pay without having to spend time in court. It can mean that I don't "have to sue them" to be made whole.
The situation you described with a car isn't particularly different from my situation with Best Buy. The phone wasn't as described, so Best Buy wasn't legally entitled to my money. I enforced my legal right to the money via a chargeback, which was much easier than enforcing it via a lawsuit.
>Suppose you're paying for lunch at a cafe. You've already eaten the food by the time the check comes. You know whether you were satisfied with it or not before you transfer the money.
This is your strongest example, but I can think of circumstances where it would break down. For example, suppose the cafe promised a lactose-free meal, and I later experience unmistakable symptoms from lactose intolerance. Then this is largely analogous to my Best Buy situation.
The protection offered by credit cards has real value.
Some anecdotes from this year:
I attempted to use LetsRoam over a year ago. It was a spectacular failure and offered no value. Cancelled and all was well. Over a year later they started charging me two monthly fees for who knows what reason. I called them, they bumbled around, and referred it asynchronously to some other department. I’m three months into these mysterious charges. All have been clawed back.
I tried educative.io and frequently encountered non-sense that was objectively, demonstrably false being presented with high confidence. I asked for a refund, and they said they don’t do that. I wasn’t really asking…
I paid a $2k deposit for a Harley that the dealer didn’t have in hand yet. There were unreasonable delays (I suspect they sold the bike to someone else for more), and the dealer’s policy was to not refund the deposit, but to only allow me to apply it to another motorcycle. Guess who else has policies. Because of the amount and timeframe, this was a little more involved, but still only took 15 minutes of my time.
I paid to park, but it appeared to fail. So, I tried again. I was doubled billed. Idk who I’d contact to request a refund. So, dispute it is.
I open my banks app, click dispute, and am refunded. It’s saved me untold hours of dealing with incompetence and/or maliciousness.
I simply don’t deal with this BS. I behave ethically (as best as one can judge that for themselves), but as soon as I hit abusive commercial sociopathy, I disengage. As far as I’m concerned, Visa / Chase are earning their 3%.
Nobody is saying that it has no value. The issue is that it has a finite value and the consumer should have the ability to choose how much they value it in a given context, instead of Visa prohibiting merchants from pricing the cost of that system into the customer's decision to use it.
If the total cost of processing fees and chargeback fraud in some industry is 10% and you want to pay the extra 10%, that's fine -- as long as people who don't think it's worth that much have the option to opt out of the insurance and pocket the 10%.
B2B transactions often have different rules. You can also nominally get around it by casting it as a "cash discount" instead of a "credit card surcharge" but that's designed to be anti-competitive too. You then have to advertise the higher price (eliminating the business merchants who accept lower cost competing payment methods would get from advertising the lower price) or produce cluttered ads full of asterisks and caveats, likewise designed to burden merchants who want to present competing payment methods as the default without refusing to accept Visa whatsoever.
Gas is already more than 3% cheaper with cash, rent tends to not accept credit, and for me at least the only significant other expense is dining out. If your goal with a tip is to put $X money in their hand, cash will do that more than 3% more efficiently, saving you the delta.
Where I'm from you can. There are services that give you a code and then you go to some store that offers the service and hand the cash. Similar to what you can do with Western Union
(which is a money saving trick in an of itself: if buying X thing requires you to get up and move your body to the store and look at it and pick it up and check out and haul it back, you’re going to buy a lot less things than if all you have to do is move your index finger 0.25mm once. This is why Amazon made with one click purchasing, to the extent people paid amzn for a license to implant “buying it now”)
That's true for online stores but not necessarily offline, where it's hard to compare prices and it's much more convenient to go to store nearby even if they charge 10% more unless you're buying something expensive.
I'd take my chances with some stores passing on the 3% in cheaper prices (thanks to competition) and others pocketing the profit over the status quo any day.
It'd still be a net win for many people, and the end of what is effectively a redistribution from low-credit to high-credit (i.e. effectively poor to rich).
Not necessarily. Not everyone uses credit cards and not everyone gets cash backs. Effectively those people are subsidizing you, so if you have a generous plan it will be significantly less than 3%.
speak for yourself, travel outside of US to see how well its implemented by even 3rd world countries like India. payment in seconds basically means you can use it (or a derivative) at PoS. that basically mean for vast majority of people who pay of their balances monthly, no income from visa transaction fees which can be 3%+ for small/mid retailers.
I'm speaking from 25 years of first-hand experience. The money doesn't need to move instantly at 99% of POS scenarios, just the understanding that the money will eventually move.
Yes. In Germany there is Giropay, where you get redirected to your online banking (it remembers your bank), you have to log in, and submit the already pre-filled transaction. It's literally a normal bank transfer from the user perspective. Not something that happens on the server side.
I don't know about the others, but Giropay just does a redirect to your online banking account and prefills the bank transfer form. The actual payment is literally the instant bank transfer solution. (I think it's called TIPS, not SWIFT.)
It's a scheme layered on top of regular SEPA bank transfers. As such, it does not work across borders, for example, and not even with all German banks.
> TIPS is a harmonised and standardised pan-European service with common functionalities for the settlement of Instant Payments across different countries and jurisdictions. It is based on the Single Euro Payments Area (SEPA) Instant Credit Transfer scheme.
> In 2020, Lael Brainard announced the upcoming FedNow service would provide "a neutral platform on which the private sector can build to offer safe, efficient instant payment services to users across the country",[20] after 2018 the European Central Bank launched the TIPS instant payment settlement system.[21]
Unfortunately not every country in Europe. Zero banks in Ireland have implemented SEPA Instant and transfers still take at least a day. Thankfully though they have a deadline to implement this that's coming up soon and will be forced to comply.
Sometimes it can be worthwhile to see what other countries have been successfully doing for decades. It won't prevent anyone from reinventing the wheel if they still have their mind set on it :)
In EU I can pay my company's taxes with a FedNow/UPI/Venmo-like system. Just punch a passcode in the bank's app when prompted by notification. Settled within 5 seconds.
Not sure that speed is so important for such transactions. I just paid my 3rd quarter estimated taxes in the USA (both federal and state). Both transactions came straight out of my bank the day after I submitted the payments. Perfectly fine.
It is retail transactions where I and someone/something else trade money for goods that need the "instant" aspects of this.
Walmart is preparing to release pay by bank functionality in their app next year, running on FedNow rails. They currently spend $1B+/year in interchange fees. Moving money is just moving information, and the marginal cost of doing so today is zero.
