Compared to many parts of the world, infrastructure in the United States is lagging. It's evident from bridges, highways, and airports. In the same way, the U.S.' financial infrastructure is also behind countries in Europe and Asia, where it's much easier, cheaper, and faster to transfer money.

The Federal Reserve is taking one dramatic step to improve the country's "financial infrastructure" with its FedNow service which it expects to be rolled out in 2023 or 2024. FedNow is a new interbank, clearing house that operates 24 hours a day, 7 days a week, and 365 days a year with real-time settlement, clearing functionality, and support instant payments.

In short, it will allow for anyone to immediately transfer money from their bank account to someone else and allow for checks to be deposited immediately - the three-day wait for a check to clear will be a relic. The Fed will have an active role by providing liquidity and security to the system.

Stock Market Impact

Overall, the system will be more efficient. For people living paycheck to paycheck, it will make their lives easier, as they would be able to access their money immediately rather than waiting for their checks to clear. Every year, Americans incur about $1 billion in overdraft fees.

Companies like Square (SQ  ) and Paypal (PYPL  ) already allow for instant transfers for a small fee. Many of the big banks on their own have set up an instant payment system through "Zelle". This will level the playing field for all types of financial institutions.

Criticisms

While most agree that the Fed setting up a real-time payment system that reduces friction, while ensuring liquidity and security, is a positive development, some see it as an overreach of its mandate. Some resist the idea of the Fed competing with private companies and The Clearing House which currently manages transfers and payments.

Many believe it will stifle innovation in the private sector. However, the private sector has had considerable time to work on this - most countries are ahead of the curve on this issue - but it wasn't a priority, because they would be giving up money on an individual level for something that would benefit the financial system at an aggregate level. Markets and private companies aren't good at solving these sorts of problems.