Faster payments: shoo-in for banks, long game for Fed

Three years after the Federal Reserve Board convened the Faster Payments Task Force and published its May 2015 report, Strategies for Improving the U.S. Payment System (SIPS), payments analysts see barriers to implementing faster payments and real-time interbank settlement.

Aaron McPherson, vice president, research operations at Mercator Advisory Group, said the Fed's strategies now under review will have far-reaching effects on consumers, businesses and financial institutions. "How will merchants gain access to faster payment schemes?" he stated during Mercator's November 2018 quarterly analyst roundtable. "There is currently not a clear path; we still need to clarify pricing models, fraud management, the role of incumbent card networks and other P2P players."

McPherson noted the Federal Reserve defines faster payments as any monetary transaction that is secure, globally available, can be sent and received at any day and time, and provides recipients with irrevocable access to funds upon receipt. "This definition is aspirational, because we don't have a single platform with all these attributes," he said. "Messaging, posting and settlement [are essential considerations]; not all platforms can do all three."

Faster payments now

In a Nov. 6, 2018, post titled "Citizens Bank to Launch Real-Time Payments in 2019," Forbes contributing writer Tom Groenfeldt reported approximately 30 countries worldwide have adopted real-time payments, including the United Kingdom, where it has been used for 10 years.

Adoption has been mixed in the United States, the only country where the practice has not been enforced by government mandate, freeing banks to implement at their own pace, he noted. "Citizens has partnered with Fiserv, which had acquired Dovetail, a payment hub company, to develop real-time capabilities," he wrote.

Matt Richardson, head of product solutions in treasury management at Citizens Bank, advised Groenfeldt that real-time payments capability will help financial institutions improve efficiencies, manage risk and re-engineer collection processes.

Peter Gordon, founder and CEO of Payment Relationship Management, also cited by Groenfeldt, said he is confident in Fed chair Jerome (Jay) Powell's leadership, stating, "He's a business person who understands the need to drive down costs at businesses of all sizes. Now he is looking at growth and productivity tools, and electronic payments could be another tool the Fed uses to improve productivity and support GDP growth in this digital era."

Ubiquity by 2020

Its May 2015 report the Fed wrote, "A variety of new financial products and services can be designed on the foundation of faster, safe, ubiquitous payments capabilities." McPherson agrees that adaptable, tech-driven payments solutions are better equipped to combat future risks and meet evolving end-user needs.

McPherson pointed out that Part 2 of the Fed's report, published in July 2017, states that real-time payments will have little value in a disparate payments landscape that requires stakeholders to implement multiple payment schemes. "I believe global, multichannel capability will be achieved in the future," he noted. "The Fed's goal of achieving faster payments ubiquity by 2020 will require and faster, more rigorous responses to fraud detection and monitoring."

As financial organizations partner with third-party service providers to implement real-time payments, the Fed has opened a public discourse, soliciting recommendations from those who would like to be part of the SIPS initiative discussion. Responses are due by Dec. 14, 2018.

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