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to couple tokenization with blockchain technologies. Under this scenario, Fed going real time, but not now
blockchain would not be used as a store of money, but merely the technology
used to exchange tokenized check images. Nonetheless, the Fed and a growing
army of banks are intent on building
Alex Osh, the article's author, explained that turbocharging checks with tokens, new real-time payment networks, at
blockchain and mobile technologies could drive greater benefits at lower significant cost to financial institu-
cost than replacing the check payment system outright with a new real-time tions, and potentially businesses,
payment system. "We believe the illusion of an instant payment settlement which continue to write and collect
is greatly overvalued"," he wrote. "From a user perspective, a modern check billions of checks a year.
payment app is as 'instant' as any e-money; should a problematic transaction
occur, all fiat payments are reversible to the same extent, be it check or not." The Fed said it expects completion
of its planned new FedNow system
within five years. But that would
seem an optimistic timeline, consid-
ering all that needs to be done and
the Fed's history of moving slowly
to change payment regulations and
procedures.

Like other Fed payment and settle-
ment services, FedNow would settle
payments in Federal Reserve master
accounts. But unlike other services,
FedNow requires changes in operat-
ing hours for the Fed's National Set-
tlement service, which currently is
only available from 7:30 a.m. to 5:30
p.m. Eastern and not on weekends or
national holidays. The Fed said it's
working to support that. It also said
it's working to support exchanges of
payment-related information (think
invoice details) that are common in
business-to-business payments via
FedNow.

But if the objective is to move more
B2B payments away from checks,
FedNow may fall short, as payments
will be capped at $25,000, at least ini-
tially, the Fed said.
"There's a basic problem of, how do
you fund this system without busi-
ness payments?" said David Walker,
president of the consultancy Tiller
Endeavors. "I don't see anything here
that encourages businesses to do this
[from the perspective of] making
payments."

After all, checks already clear fast.
Adding ECIs to the mix creates the
potential to settle checks with the
same speed and efficiency offered by
a real-time service like FedNow.

Patti Murphy is senior editor at The Green
Sheet and president of ProScribes Inc. Follow
her on Twitter @GS_PayMaven.

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