US Fed’s fast-payments service to try to reach Americans unable to get quick federal aid during pandemic

The US Federal Reserve’s planned instant-payments service is seeking nationwide reach to ensure speedy government relief that many Americans without bank accounts haven’t been able to get during the pandemic, Cleveland Fed President Loretta Mester said.

“The pandemic has underscored the need to ensure that during a crisis, payments can flow quickly and to everyone: those with and those without a bank account,” she said today at a webinar.

About 8.5 million households, or 6.5 percent of all US households, didn’t have bank accounts as of 2017. Many were lower-income people who have needed swift assistance most urgently during the current recession, Mester said.

— FedNow —

The Fed’s so-called FedNow initiative, due for a 2023 or 2024 release, primarily seeks to provide an around-the-clock service for the origination, clearing and settlement of payments within seconds.

But the Fed’s role during the pandemic, as processor of 160 million relief payments to households and small businesses, showed that prompt disbursals could be made primarily to those whose bank account details were known to the government, Mester said.

Those whose account details weren’t known could enter their information on a specially created IRS website.

“Even so, this experience showed that the quality of recipients’ routing information needs to improve in order to reduce the proportion of payments that cannot be posted automatically to the payee,” she said.

— Joining with a directory —

FedNow could address this problem by coupling with a directory that has information on where to route payments for distribution to households and businesses, she said.

Mester acknowledged the complexity of creating such a directory and keeping it up-to-date. Among the challenges are ensuring data privacy and maintaining account information, she said.

The Fed “has been exploring these issues as it evaluates the features to eventually include in FedNow,” she said.