FedNow Just LAUNCHED - Credit Cards As We Know them OVER?...

Well, it is live. FedNow, the new instant payment system from the Federal Reserve that will replace credit cards, usher in a central bank digital dollar and replace cash, forcing you to use a system that could be switched off for you at any time if you post the wrong meme on the internet. Guys, I recommend you buy gold, emergency food and gas stoves if you live in New York. But anyway, is FedNow actually anything like what the conspiracy theorists say? Well, they didn't just turn on Skynet. It's not self-aware. So what functions does this new system have? No, it doesn't allow you to pay for things using a chip in your hand, although in the future I guess it could. But for now, FedNow is just a faster version of ACH or wire transfers which those two typically take at least one business day to go through, sometimes longer. It's the Fed's answer to competition from cryptocurrency where transactions take a few seconds and just cost a cent. Unless you're using Ethereum. In this video, we are going to tell you exactly what services FedNow provides, which banks are on the early adopter list and which services you can hope to see in the future. And also I'll tell you if you should get rid of your American Express card or not. That is well and truly not bulletproof. But before we start, my name is Ben Hedges. You can follow me here for more credit card, personal finance and luxury travel videos. You can also follow me on many of the micro content sites like Instagram, TikTok, etc. My handles and usernames are on screen now. Also this video is brought to you by Webull and you can get up to 12 free stocks when you sign up and deposit any amount of money in a new Webull brokerage account. Link for that is below as well. So on Thursday, July 20th, FedNow was switched on. The Fed said in a press release, Banks and credit unions of all sizes can sign up and use this tool to instantly transfer money for their customers any time of the day on any day of the year. The Fed identified 35 early adopting banks that have signed on to the system and are now developing ways to use it. These include JP Morgan Chase, US Bank and Wells Fargo, as well as a load of other small regional banks. But when I opened up my Chase account this morning, I didn't see FedNow listed on their payment center page. So when will I be able to use it and what fees will I pay for the service? Let's talk about the cost first, because we do actually have the fee schedule that the Fed is going to charge the banks. Here it is. So to send a payment, it will cost banks 4.5 cents to send. There's also a monthly participation fee of $25 per month for each routing number that receives payments and a one cent fee to request a payment. Although many of these fees are discounted for the rest of 2023. And that's significantly more than ACH transfers, where fees are less than half a cent for the banks to send. ACH does have a few other fees associated with it, but it is cheaper. But remember, that's only the fee that the Fed is charging the banks. The average ACH transfer costs 29 cents. That's way more than half a cent. So the banks are definitely going to add on to this. Chase, for example, currently charges 1% of the transaction up to $25 for same day ACH and real time payments. Although real time payments only work with certain banks. Now, perhaps with FedNow, those real time payment fees will come down somewhat, but I think it's still going to at least be what they charge for ACH. At Chase, for example, that's $2.50 per transaction. So this isn't a system like Venmo or Zelle that you could use to transfer money amongst each other. This is a system for larger transactions. All right. I think the average FedNow payment is probably going to be measured in the thousands rather than in the hundreds or tens of dollars. You'd need it to be a large amount of money to make the fees worth it. You're not going to pay Chase $2.50 to process a FedNow payment for a $5 cappuccino. And who drinks $5 cappuccinos anyway? I only drink $8 coffees. This is actually an $8 coffee. But anyway, that's irrelevant. But with FedNow, you would, in theory, be able to go somewhere like a car dealership and send them $30,000 or so for a new car over the FedNow network, and they'd be able to receive it instantly and securely. That's way more convenient than having to go to a physical branch of a bank and pay for a cashier's check that you then take to the car dealership. But for this and a few other reasons, I don't think FedNow is going to replace credit cards either. Credit card merchant fees are the other way around to the fees charged by FedNow. OK, so with FedNow, it's the person sending the money, the bank that's sending the money that pays that $4.50 fee. And then obviously that bank is going to pass on higher fees to their customer, probably at least $2.50 or more. With credit card merchant fees, the merchant is paying 2 to 3 percent. So you're not going to want to go into a coffee shop, like we said, and pay for your $8 coffee. Yes, I'm not going to use the $5 example anymore. It's too low class. But anyway, pay for your $8 coffee and pay a $2.50 fee. OK, that's ridiculous. Then what about a medium sized transaction of several hundred dollars? That may be acceptable to the person paying in terms of fees, all right, paying $2.50 or something. But there's another problem. FedNow transfers your own money and many people are not going to like that. I like to pay the things with other people's money and then pay those people back. I love other people's money. And that's a huge reason why people use credit cards. You see, when you use a credit card, you are protected by U.S. law for any purchase over $50. And many credit card companies like Visa, American Express, etc. actually have full zero dollar liability for every transaction. That means the company is liable. The credit card company is liable. If there is a fraudulent transaction on your account, they will wipe it or do a chargeback and bring that money back into your account. OK, your own money is protected by a barrier of their money. That is not so for ACH or wire transfers or FedNow. These are systems where you actually transfer your own money from your account to the other person's account. ACH and wire transfers tend to be used by parties that trust each other. They may have even signed a legal contract like business to business transfers or consumer payments for large items such as cars, hot tubs or home renovations. So that's another reason why I don't think the FedNow instant payment system is going to replace credit cards. And that's before we even mention the other perks on credit cards like points, cashback, airport lounge access, etc. So when will you be able to use FedNow? Well, we're not sure yet since banks only just got access to it. It's going to take some time before they set up their systems and implement it for consumers. Also remember, both the sending and receiving bank have to be signed up for FedNow for it to work. So it's not going to work with every single transaction that you want to make. And that's actually currently the same with the real time ACH transactions that you can do. Come to think of it, FedNow is basically the same thing as the RTP network run by the clearinghouse, which is what the real time ACH transfers run over. That network has been running since 2017. So I guess FedNow is really just the Fed catching up with the private sector. Anyway, I'm excited to send my first ever FedNow payment whenever that may be. Probably not for quite some time. And guys, let me know what you think about all this in the comments below. Don't forget, you can get up to 12 free stocks from Webull when you sign up and deposit any amount of money in a new brokerage account. Absolute minimum value is $34. But if you're really lucky and you get all the best stocks, it could be several thousand dollars or more. Webull, of course, it is a zero commission investing app. It's kind of like Robinhood, but with way better charts and tools. I like to call it Robinhood for grownups. Anyway, link is below for that deal. If you want to check it out, please subscribe to the channel if you're new and we'll see you next time. Bye bye.