Member Exclusive, Payments

Cheat Sheet: What it means when the Federal Reserve goes down

  • The Federal Reserve payments system went down yesterday for a few hours.
  • The outage impacted ACH payments, interbank transfers, and payroll.
close

Email a Friend

Cheat Sheet: What it means when the Federal Reserve goes down

Yesterday, Federal Reserve systems that execute millions of financial transactions a day were disrupted by what appeared to be some sort of internal snafu. The systems were down for about four hours and are used for lots of different purposes, including payroll, tax refunds, and interbank transfers.

“Our technical teams have determined that the cause is a Federal Reserve operational error,” the Fed said on Wednesday on its website. “The Federal Reserve Banks have taken steps to help ensure the resilience of the Fedwire and NSS applications, including recovery to the point of failure.”

What happened

  • For a few hours on Wednesday, the Fed attributed an "operational error" to multiple services going down, including its automated clearinghouse system, which connects depository institutions sending electronic credit and debt transfers.
  • Along with the Fed's ACH service, Check 21, FedCash, Fedwire and the national settlement service were also impacted.
  • The outage occurred the same week Fed Chairman Jerome Powell spoke on Capitol Hill about the central bank's intention to develop a “digital dollar.”
  • US Treasury Secretary Janet Yellen, a former Fed chair, this week called Bitcoin an "extremely inefficient" way to conduct transactions.
  • Two other significant disruptions to the Fed’s payment services occurred in 2019.

In December 2020, Fedwire Funds handled more than 835,000 transactions a day on average, with a daily average dollar volume of $3.4 trillion.

The weak point of centralized payment networks

The fintech industry immediately contrasted the Fed's struggles to the uptime of the Bitcoin network.

federal reserve down

The irony of the Fed's issues yesterday is that it wasn't just traditional financial services impacted when the Fed went down -- cryptocurrency exchanges like GeminiKraken and possibly Coinbase also saw delays in Fedwire and ACH transactions. 

Yesterday's outage comes as the Fed's instant payments initiative is gathering steam. It’s developing its own same-day settlement payment system called FedNow. It is expected to directly compete with an industry-run payments system started in 2017.

The FedNow initiative for faster payments mentioned last month that it had 110 participants, including firms like JPMorgan Chase and Citi, in the program that's expected to take a few years to roll out.

CHIPS, a private-sector alternative to Fedwire run by The Clearing House, continued to operate normally, spokesman Greg MacSweeney told Reuters. CHIPS handles about $1.5 trillion a day.

0 comments on “Cheat Sheet: What it means when the Federal Reserve goes down”

Payments

Open AI’s GPT-4 enters financial services with Stripe partnership

  • OpenAI has partnered with Stripe to enable payments for ChatGPT Plus and DALL·E in a move to commercialize its consumer applications. In addition, Stripe has integrated OpenAI’s new GPT-4 into its products and services to improve the user experience for its customers.
  • Stripe is currently exploring and experimenting with the GPT-powered model on a limited number of products to better assess its impact on its consumers and different areas of the business.
Sara Khairi | March 31, 2023
Payments

Apple (finally) releases Apple Pay Later

  • After an extended waiting period, Apple launched its Apple Pay Later service yesterday.
  • Pay Later allows consumers to split up single purchases into 4 payments over 6 weeks.
Zachary Miller | March 29, 2023
Payments

Behind Wise, G-P collaboration on cross-border payments for independent workers

  • Independent worker payment issues already existed before the pandemic but the recent surge in flexible, remote work has underlined this issue for growing small businesses. 
  • To expedite international payments for freelancers and contractors, Wise and G-P (Globalization Partners), have forged a partnership to enable businesses to offer timely flexible payments.
Sara Khairi | March 22, 2023
Payments

How American Express and Microsoft’s new AI-powered solution facilitates business travel payments

  • Expense reports are a critical component of any business -- however, business travelers and expense processors often face challenges in keeping track of their expenses while on the go, leading to missing receipts, lost records, and missed reimbursements.
  • In a move to evolve the way business travel payments are processed, American Express and Microsoft have partnered to develop a portfolio of solutions built on Microsoft Cloud and AI technologies – aimed to minimize the stumbling blocks in business travel for employees and businesses.
Sara Khairi | March 14, 2023
Payments

5 questions about ACH payments with Plaid’s John Anderson

  • Visa's acquisition of Plaid was blocked because the firm was interested in facilitating ACH payments.
  • Fast forward a few years and the firm is already doing a billion ACH transactions a year and it's just getting started.
Zachary Miller | March 14, 2023
More Articles