Page 18 - GS170801
P. 18
Views
Faster payments don't necessarily have to be in real time.
Insider’sreport Same-day ACH, for example, has been a big hit, according
to NACHA ‒ The Electronic Payments Association, even
on payments: though final settlement occurs hours after payment
initiation.
Meanwhile, ample evidence shows the answer to the
second question is a resounding no. It took seven years to
implement the United Kingdom's Faster Payment Service
– a system the Fed has pointed to as something to emulate,
and by most accounts, it only handles a fraction of that
nation's payments.
Road to faster payments Seven years is fast compared to the pace of change in the
is still a work in progress United States. The ACH, for example, was created in the
1970s as a faster, better alternative to checks. But ACH
transaction volumes only surpassed check volume a few
By Patti Murphy years ago; the biggest shift has been among consumers
shunning checks for debit cards. Nearly half of all
ProScribes Inc. business-to-business payments in the United States are
still made by check, according to the Fed.
hen I was a young reporter, the prime rate
was hovering well above 10 percent, and A more recent example is the move to EMV (Europay,
banks and other businesses made money Mastercard and Visa) technology for credit and debit
W playing payments float. A banker at the card acceptance. Despite several years' prep time and the
time explained the essence of cash management: corpo- threat of ruinous financial liability if EMV devices are
rations want to collect payments at the speed of light not deployed and customer card data becomes hacked,
and disburse funds by dog sled. Today the prime rate is millions of U.S. merchants still authorize cards using mag
hovering just above 4 percent, operational float has been stripe readers.
effectively squeezed out of most payment mechanisms,
and nearly everyone with skin in the game is talking about Fed lays out vision; IDs challenges
sending and receiving payments faster.
The Fed established a public-private sector task force
In July 2017, a Federal Reserve-commissioned task force in 2015 to help lay the groundwork for initiatives that
issued a call to action that, if heeded, would make faster would speed up payments with an eye toward real-time
payments available to every consumer and business in (or near real-time) payment options for consumers and
America by 2020. businesses. Hundreds of payments experts, banks and
solution providers have been involved; some participating
Faster payments is a relative term. When the automated organizations have been actively working on projects that
clearing house (ACH) system took off in the 1980s, move payments in near real time.
ACH payments cleared far faster than checks (two to
three days versus a week or more). Over time, process In June, for example, a big-bank owned network named
improvements and "electronification" have made inter- Zelle began making available a person-to-person payment
bank check clearing a one- to two-day routine. The ACH app participating financial institutions can offer mobile
now supports same-day settlement. And then there are banking customers. Payment initiation requires just an
mobile payment applications which can make payments email address or mobile phone number. To date, over 30
seem near instantaneous to consumers. financial institutions have signed on to offer Zelle. Early
Warning Services LLC, the bank-owned consortium that
So upon receiving the Fed's report, two questions quickly runs the network, said it also has strategic agreements
came to mind: with leading payment processors that can make Zelle
available through community banks and credit unions.
1. How much faster do payments need to be?
Early Warning estimates the network will make near real-
2. Is it realistic to expect a major shift in the way the time payments (minutes from initiation to available funds)
nation's payment system operates in less than three available to more than 86 million U.S. mobile banking
years? consumers. (Think of it as a bank-owned version of PayPal
or Venmo.) It's a good start, but it doesn't really meet the
Fed task force's vision.
18
