Real-time payments in the US: right said Fed
The roll-out of faster payments in the US will not look like Faster Payments in the UK or FAST in Singapore
Will everyone really benefit from the real-time payments coming to the US? Can the US regulator mandate the banking sector to adopt it? And what are the chances of this new faster payments system becoming ubiquitous? Banking Technology digs deeper, past the hype.
It’s a pretty safe bet that the roll-out of faster payments in the US is not going to look like Faster Payments in the UK or FAST in Singapore. The most obvious difference is scale – the US has more than 11,000 financial institutions including 5,260 commercial banks and more than 6,000 credit unions.
The second key difference is a much more hesitant regulatory regime in the US. While the Financial Conduct Authority (FCA) in London and the Monetary Authority in Singapore pushed banks to move to real-time payments, the Federal Reserve has never claimed such authority. With Washington controlled by anti-regulation Republicans, the Fed probably wouldn’t have a chance of gaining support for a real-time mandate even if it wanted.
The Fed’s official position, repeated frequently, is that an approach based on industry consensus is a good thing, and it has a 300+ member Faster Payments Task Force to back it up.
“I have come to the conclusion after all this work that a legislative mandate probably isn’t the best way,” says Sean Rodriguez, the Fed’s senior vice-president and faster payments strategy leader, reiterating a point he has made over the years. “A solution generated and created by a broad range of stakeholders will end up providing faster capabilities in a way that not only makes sense to people, but ultimately gets adopted.”
In response to the Fed’s request for proposals, 22 have been submitted by vendors or consortia ahead of the 27th May deadline. McKinsey will evaluate them, looking at issues like ubiquity and interoperability.
As the Fed’s Faster Payments Task Force moves into a new phase, it rewrote the terms for participants to cover changes in intellectual property and risk; 260 had re-upped and 20 newcomers have signed up for a task that requires substantial time commitments.
Rather than a consolidated big-bang launch in the first quarter of 2017, look for the faster payments services in the US to roll out unevenly and take some time to reach all of the country’s financial institutions.
The Clearing House (TCH), owned by the nation’s largest banks, has said it will be ready with some real-time bill pay in the first quarter. It has also announced an alliance with tech vendor FIS to connect with the FIS PayNet real-time network, which uses debit card rails. FIS in turn provides a link to CO-OP Financial Services, based in Rancho Cucamonga, California, which provides real-time good funds among its 3,500 member credit unions and their 46 million accounts. It has linked with FIS PayNet so its members can now connect to TCH and PayNet banks.
Caroline Willard, executive vice-president for markets and strategy at CO-OP Financial Services, warns that complexity and multiple connection points raises risks, as Swift’s breaches have shown in international payments.
“You can look at multiple networks as a mess or as an innovation,” says Chad Ballard, director of business development and professional services for BBVA’s global team. “We see it as the latter, we want to be part of the change in the industry.”
Credit unions and community banks are concerned that they might have to connect to multiple networks to participate in real-time payments…
This is an excerpt. The full article is available in the June 2016 edition of Banking Technology. Click here to view the magazine online.
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