Thursday, July 25, 2019
A group of lawmakers introduced legislation in both the House and the Senate this week that would instruct the Fed to build and operate a real-time payment system. The Payment Modernization Act of 2019 was authored by Sens. Chris Van Hollen, D-Md., and Elizabeth Warren, D-Mass., and Reps. Ayanna Pressley, D-Mass., and Jesus "Chuy" Garcia, D-Ill.
"For far too long, consumers and small businesses have unfairly shouldered the costs of our slow payments system – despite the fact that we have the technology to update it and a clear and urgent need to do so. I've pushed the Federal Reserve to develop a system that has the necessary guardrails, but progress there has been too slow," Sen. Van Hollen said.
"We can't rely on big banks or tech monopolies like Facebook to look out for hard working families. Instead, the Federal Reserve should modernize and establish a reliable, efficient system using recommendations from its own task force," Sen. Garcia added.
The Clearing House – a consortium of large banks that offers check, automated clearing house (ACH) and wire transfer services in competition with the Fed – built a real-time payment system, known as RTP. "The RTP network is the first new core payments infrastructure to be built in over four decades and the first ever designed and built for the digital age," TCH President and CEO Jim Aramanda, noted in June 12, 2019, statement.
Aramanda said TCH is working with third-party processors and others to make way for "a wave of smaller banks and credit unions to come onto the RTP network." He also noted that RTP has instituted a single price "for all network participants, regardless of size, with no volume discounts, volume commitments or monthly minimums. This approach to pricing was designed to ensure fair and easy access to the RTP network by depository institutions of all sizes."
The Independent Community Bankers Association, which represents thousands of smaller banks, wants the Fed to get into the game nonetheless. "A Fed-operated real-time settlement system is consistent with the roles it already serves in providing integrity, safely, transparency, equitable access and ubiquity for checks, ACH payments and wire transfers to nearly 11,000 financial institutions of all sizes and charter types," ICBA President and CEO Rebeca Romero Rainey wrote in a July 24 letter to Fed Chairman Powell and members of Congress. "Industry-wide ubiquity may never be achieved without the Federal Reserve developing and operating a real-time gross settlement system and interoperating with the private sector," she added.
In launching its faster payments task force, the Fed said it was gunning for there to be a real-time payments network available in the marketplace by 2020. And in a 2018 request for public comment, the Fed specifically asked if it should build such a system. In addition to the ICBA, several companies, including Google and Walmart, urged the Fed to build a real-time payment system that can compete with the likes of RTP.
"The clearest path to ubiquitous faster payments is an environment with at least two faster payments platform operators, all interoperating with each other," Walmart Senior Vice President Michael Cook wrote in a December 2018 comment letter in which he also noted this was how the ACH achieved ubiquity. "The Federal Reserve is clearly well-positioned to bring this sort of arrangement to the faster payments space," he added.
Under questioning before the House Financial Services Committee on July 10, Fed Chairman Powell suggested the central bank may build a real-time payments network. "We are working on it, but it will not be ready by 2020," he told the panel.
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