It appears that there will be a second round of stimulus funding with the next few weeks for some citizens. I was waiting for someone to write an article about how real-time payments or a Federal checking account offering would solve the issue of quickly processing these payments. And here it is.
The article outlines the issues that plagued the first round of payments back in April, including:
- Millions of payments were made through checks since account details were unknown
- Direct deposits transactions were sent to closed accounts and checks were mailed to old addresses
- Payments made on a prepaid card were inadvertently thrown away by recipients
The article suggests that real-time payments could solve these issues:
One measure that could reduce the amount of time it takes for people to access their stimulus payments could be implemented by the Federal Reserve. It’s simply a matter of reducing the amount of time it takes for a check from the government to clear.
Some banks gave people early access to their stimulus checks, instead of waiting until the next business day. “After all, a Treasury check is not going to bounce,” Klein wrote. But that wasn’t the case across the board.
In addition, the Federal Reserve introduced in August 2019 its proposal for FedNow, a real-time payment system. But a September hearing in the House Committee on Financial Services demonstrated that support of these measures isn’t universal. A real-time payment system run by the federal government could stanch competition in the banking scene, opponents have claimed.
While real-time payments are already offered through The Clearing House and will eventually be offered through FedNow, these payment rails move funds quickly between accounts when account details or an established account alias is known. They will not speed up check clearing.
Another recommendation the article makes to solve the identified issues is the development of an account offered by the Fed through the Post Office:
Meanwhile, there is ongoing discussion about the possibility of having the Federal Reserve dive into the banking scene even further, by launching digital accounts to get funds to recipients more quickly.
In March 2020, in advance of the passage of the CARES Act, Rep. Maxine Waters (D-CA) introduced legislation that would create digital payment accounts for people without bank accounts. These digital accounts, called “FedAccounts,” would be maintained by Federal Reserve banks and charge zero fees for participants. The move would make it easier for underbanked and unbanked people to access their economic relief payments without having to pay check-cashing or other access fees.
While the hardships faced by individuals without a bank account are very real, there is in fact an abundance of options. Many financial institutions offer free or very low cost account options. There are digital-only banks that offer cost effective solutions that can be opened anytime, digitally. If a person does not have internet access, general purpose reloadable prepaid cards that can be purchased at many retailers offer a wide variety of banking services including ATM access, bill pay and P2P transfers.
So if these low cost options are available to the unbanked today and consumes choose not to acquire them, how would a post office account change that equation? The U.S. doesn’t lack solutions, it struggles with current and accurate data on each individual.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group