While newer real-time payment systems will help the flow of funds, there is still a large hurdle that prevents real access of faster payments and innovative financial services at the cheapest cost to consumers and businesses. This is the lack of direct access to the domestic payment rails for non-banks. Unlike other countries, non-banks are dependent on big banks to gain access to payment systems in the U.S.
Preventing direct access to the payment rails and forcing access via banks leads to lower competition and higher costs for U.S. consumers and businesses. Also, such a model adds more inherent risk to the financial system as a handful of banks become access points for all non-banks to gain access. This makes said banks single points of failure for a large number of financial services that people start to depend on, leading to a large impact if these partner banks have issues.
Faster payments support financial inclusion, helping consumers avoid hefty fees from overdraft fees and check cashing. These systems also unlock working capital for small businesses who otherwise have to wait days for money to appear in their accounts.
The U.S. has the FedWire system, which allows real-time payments, but sending money through it is prohibitively expensive for most Americans. Banks can charge, on average, anywhere from $25 to $40 for the sender and typically charge recipients receiving fees for sending money instantly in the domestic wire-transfer system.
For sending money abroad, the fees are even higher, with banks on average charging 6% to 8% in fees with the money reaching the recipient in three to five days on average. Wire services, like Western Union or Moneygram, provide some faster options but can be significantly costlier for both sender and recipient. Neobanks and fintechs like Novo and N26 are trying to cater to this demand but are barred by a system that restricts bank and non-bank collaboration.