The Fed to
Stay in Check and ACH Services
In October 1996 Fed Chairman
Alan Greenspan appointed a committee to examine the future role of
the Federal Reserve in Payment Services. In early 1998, the committee
issued The Rivlin Report, named for the Vice-Chairperson Alice M.
Rivlin. The bottom line of The Rivlin Report is a recommendation that
The Federal Reserve continue as a provider of both check collection
services and (ACH) Automated Clearing House services, and that it
should take an active role in enhancing efficiency, effectiveness,
and convenience for all depository institutions. Short of total
privatization of check clearing, which had been discussed in some
circles, this pronouncement is all mom and apple pie.
The report continues to
provide additional recommendations that may go much further, and may
be misunderstood by some. It recommends that the Federal Reserve
banks continue their efforts to provide Electronic Check Presentment
and Check Truncation services to meet "market demands." While it is
clear that banks have good reason to process with both the Fed and
Private Clearing Houses as efficiently as possible (market demands),
it is less clear that consumers or even retailers are demanders of
ECP.
The Rivlin Report also
recommends that the Fed use their operational presence as major check
collection intermediaries to facilitate the growth of ECP and
truncation where "demand exists." But then it actually recommends
creating the demand, suggesting that the Fed price electronic check
services low enough to encourage the use of electronic check
presentment and other electronic check services.
(Editor's Note: Can these
savings find their way to retailers in sufficient quantity to pay for
the equipment and services necessary to truncate
checks?)
Without considering the
Fed's current 25% stake of current check processing, the report also
recommends that the Fed should play a more active role in the
evolution of strategies to move to the next generation of payment
instruments (whatever they may be).
POS ECP differs from
truncation and electronic presentment because the latter originate at
the originating financial institution. While some Point-of-Sale ECP
proponents argue that DDA/MICR mismatch or ability to get to the DDA
is limited and controllable, The Rivlin Report states that the Fed
should address the technical ACH format related issues that limit the
ability of depository institutions and corporations to receive and
process vendor payment information.
I did find it interesting
that the report mentions it is not yet clear whether the whole check
system would benefit from moving toward ECP truncation, and the
working groups studying this process should assess whether a
coordinated move to ECP and truncation is feasible and cost
effective.
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