Fed accelerates fast payments in 2017

Payments analysts expect real-time payments to become a reality in 2017. Changing consumer behavior and advances in mobile communications are driving demand for real-time remittances, payments and banking, researchers noted. The Faster Payments Task Force, led by the Federal Reserve in collaboration with private sector businesses, financial institutions and government agencies, is a far-reaching initiative designed to energize payment providers by making payments faster. A progress report published in January 2017 provides insights on the group's progress standardizing and implementing real-time payments and automated clearing house (ACH) schemes.

Esther George, President and Chief Executive Officer of the Federal Reserve Bank of Kansas City, has led the payment system improvement initiatives on behalf of the Federal Reserve. "The Fed's priority is to advance improvements that are in the public interest so that consumers and businesses alike have access to efficient, real-time and highly secure payments in the United States," she said. "Through a number of collaborative efforts, the industry is making real progress on all fronts and we're expecting to achieve a number of significant milestones in 2017."

Five key strategies

The faster payments initiative originated in 2015, when the Fed published Strategies for Improving the U.S. Payment System, which detailed a multi-year plan focused on improving speed and operational efficiencies across the financial services ecosystem. Following are five underlying strategies designed to move the initiative forward:

• Stakeholder engagement: An online stakeholder community of 4,000 members has actively participated in research, webinars and ongoing dialog.

• Effectiveness criteria: The task force established criteria for proposing and assessing approaches to faster payments. The group solicited and received 22 proposals from task force participants, and 19 were approved for further review.

• Payment security: The Secure Payments Task Force was established in April 2015 to advise the Federal Reserve on a range of issues related to fraud management, detection and monitoring. Their guidance and participation ensures that new payment schemes will meet and exceed compliance guidelines and protect sensitive data.

• Payment efficiency: The Federal Reserve is working with the Business Payments Directory Association and Business Payments Coalition E-invoicing Work Group to improve efficiencies in invoice, payment and remittance schemes. Joint efforts with NACHA – The Electronic Payments Association, The Clearing House, the Business Payments Coalition Vendor Forum Education and Promotion Work Group and ISO 20022 Education and Promotion Work Group focused on implementing the ISO 20022 Standard and educating consumers and vendors about resources designed to support same-day ACH and marketplace integration.

• Enhanced Federal Reserve services: As the Fed continues to identify secure and sustainable approaches to efficient and immediate payments, it is focusing efforts on Same Day ACH, directory services and enhanced risk management tools. Significant progress has been made in identifying obstacles and gaps that could potentially impede progress.

To be continued

The Faster Payments Task Force plans to continue to identify a clear path forward for improving payment identity management practices and standardized definitions for fraud and risk data. Additional details, including a detailed framework for risk assessment and protection of sensitive data will be shared in Part Two of its progress report.

"Protecting payment systems and transactions has become a critical function for central banks, financial institutions and technology providers as sophisticated cyber threats have increased in size and scale throughout the world," said Jerome H. Powell, Federal Reserve Board Governor and co-chair of the Faster Payments Task Force oversight committee.

As the task force nears its two-year milestone, the Federal Reserve invites payments industry stakeholders to join its extended payments improvement community and participate in the ongoing initiative to make faster payments secure, efficient and ubiquitous.

"Momentum across the payments industry continues to be strong, resulting in substantial progress on each of the identified strategies for improving the U.S. payment system," report authors wrote. "To help ensure that you receive updates and information as it becomes available, join the FedPayments Improvement Community." A copy of the report is available at fedpaymentsimprovement.org/wp-content/uploads/progress-report-january-17.pdf.

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