If you’re an employee looking for a paycheck to touch your checking account or a vendor awaiting payment for the last delivery of merchandise to a grocery store, you probably know the three to five day wait for a payment. to clean.

In the age of electric cars and meatless meat, why isn’t there instant person-to-person, person-to-business, or business-to-business payment processing?

Enter: the race to build a real-time payments network. Private market players like The Clearing House are trying to revamp bank-to-bank transfers while fintech companies like PayPal (PYPL) Venmo are offering instant peer-to-peer money transfers. Then there’s Project Libra, Facebook’s (FB) effort to create a digital currency that would facilitate instant payments on a blockchain.

Latest actor to throw his hat in the ring: the Federal Reserve, which last week announced its intention to launch its own real-time payments system, FedNow, by 2023 or 2024.

“[O]One thing is clear: Consumers and businesses across the country want and expect real-time payments, and the banks they trust should be able to provide this service securely, regardless of their location. size, ”Fed Governor Lael Brainard said Aug. 5, while unveiling plans for FedNow.

The Fed, which typically interfaces the most with the banking industry, found an unusual cheerleader in its proposal to build a real-time payments system: the gas station lobby.

While some express concern about the ability of private players to compete with the Fed, gas stations say the central bank has long been slow to put in place an accessible and reliable public service that would reduce friction in the payments system.

A pair of kicks

Mike Fortson’s cousin wanted to give him a pair of all-white Nike Vapormaxes, retailing at $ 190, as a gift. The plan: send the money through PayPal so he can deposit the money in his bank, then withdraw the money for once.

But then PayPal said Fortson had to wait three to five days for the money to be available. He contacted PayPal, but a representative said “there’s really nothing they can do.”

“It’s ridiculous,” Fortson told Yahoo Finance, noting that he ultimately turned to Square’s (SQ) Cash app to transfer the money.

PayPal has mostly defended its three to five day waiting period, which is also the norm for bank transfers. This is because the current infrastructure involves an intermediary that few consumers know: the clearing house.

Take the example of a person trying to pay their monthly rent of $ 800 through an online portal where they linked their bank account for payments. When the tenant authorizes the bank to send the rent money to the landlord, the landlord’s bank will ask the tenant’s bank for $ 800. The tenant’s bank then debits the tenant for the requested funds and sends the data to an Automated Clearing House (ACH) which is currently operated by the Federal Reserve and the electronic payments network.

An example of an Automated Clearing House (ACH) process underlying a person-to-person bank transfer. Credit: David Foster / Yahoo Finance

The ACH verifies that the tenant has available funds, then sends the information to the landlord’s bank, which credits the $ 800 to their account.

The problem: ACH only processes transfers in batches three times a day and does not work on holidays or weekends.

For Mike Fortson, not being able to access funds meant waiting a little longer on these Vapormaxes, but for people who live paycheck to paycheck, not having access to more immediate payment methods can mean turn to temporary solutions like payday loans with dangerously high interest. rates.

Businesses aren’t happy either. At gas stations, people who cash checks to refuel their cars for the week, ignoring the obscure mechanics behind America’s payment system, will lash out at the gas stations themselves.

“Sometimes they blame that frustration on the local retailer they’re dealing with,” said Doug Kantor, legal counsel for the National Association of Convenience Stores (NACS) and the Society of Independent Gasoline Marketers of America (SIGMA).

Everything except Kwik

Retailers also face business-to-business issues.

Take the example of a convenience store who places an order for a few fresh treats on the shelves on a Friday. Even if the supplier receives the check in person on the same day and goes to the bank to cash it, the ACH payment will not be processed for at least two days (Saturday and Sunday) or even three (if Monday is a day holiday) .

To cover the risk of non-payment, the supplier may charge a premium to the price of the order, forcing the store to pay extra for a system beyond their control.

Dave Wagner, controller of Wisconsin-based Kwik Trip convenience stores, told Yahoo Finance that a real-time payment system would allow retailers to get “a little more discounts” because the vendor would know it could get his money earlier.

“It helps them on their balance sheet, it helps us because then we negotiated a better deal,” Wagner said. “It kind of works hand in hand, you can get around faster. “

La Crosse, Wisconsin, USA – September 14, 2012: The nation’s first alternative fueling station, opened earlier this year, owned and operated by Kwik Trip, Inc., one of the largest convenience store chains in the Upper Midwest. “

Wagner said the problem with payments also spills over to almost every other B2B transaction, from paying plumbers to electricians. It also affects how quickly paychecks reach Kwik Trip employees, who must receive the money in the mail, cash it in a bank, and then wait for the funds to arrive in their account.

Kwik Trip wrote to the Fed in favor of creating its own real-time payments system when the Fed first proposed it last year, accusing private companies of charging “anti-competitive” prices for them. real-time services.

The clearinghouse has been offering a real-time payment system for about two years now and says it serves more than 51% of demand deposit accounts in the country.

Steve Ledford, spokesperson for TCH, told Yahoo Finance he was “not a fan” of a government entity offering its own service.

“At the end of the day, the private sector has an interest in coming up with innovative solutions,” Ledford said.

Among the concerns with the Fed entering the ring: a multiplicity of payment systems that may not interact well with each other, and Fed pricing that could undermine private market offerings.

Take the Libra

Fintech companies have come up with alternatives for consumers trying to send money to other consumers.

Venmo, for example, allows a consumer to instantly send money from a wallet (linked to a bank account or debit card) to another person’s wallet. Venmo now has a debit card backed by funds in a user’s Venmo account, allowing the user to instantly spend that money at merchants that accept Mastercard.

But no matter which fintech wallet you use (Venmo, Cash App, or PayPal), once you try to send funds from the app to your checking account, the money should clear the ACH system and get stuck. in the dreaded three – to five-day limbo.

The most interesting proposal lately has been from Facebook, which offers a digital “Calibra” wallet in which users would store units of Libra (after converting their local currency). Libra would run on its own blockchain and would involve the participation of 28 founding members, including payment processors like Mastercard (MA) and Visa (V) in addition to service providers like Lyft (LYFT) and Spotify (SPOT).

A proposed use case for Libra would be to easily transfer money between international jurisdictions.

The Fed faced pressure on Capitol Hill soon after the Libra project was announced, and President Jerome Powell insisted he “cannot move forward” without addressing concerns about money laundering, data protection and consumer privacy.

But in unveiling FedNow, Brainard acknowledged that the Libra project is an effort to “establish a payments system that bypasses our banks and our currency.”

While FedNow doesn’t offer to address many Libra use cases, faster payments could make more Americans stick with bank-to-bank payment systems instead of raising cash. in Libra.

Calibra declined to comment. Visa also declined to comment on the story and Mastercard did not respond to requests for comment. PayPal and Square also did not respond to comments for this story.

In the race for payouts, the winner may be the player who hits the market fastest. Libra is hoping to launch next year but could be delayed by regulatory issues.

Aaron Klein, a member of the Brookings Institute, said the longer the Fed waits, the more the United States lags behind countries that already have real-time payment systems.

“I am apoplectic that the Fed does not impose the check clearing technology that the rest of the world has enjoyed for over 10 years,” Klein said.

Brian Cheung is a reporter covering the banking industry and the intersection of finance and politics for Yahoo Finance. You can follow him on Twitter @bcheungz.

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