Faster payments will reach a standstill without collaboration
CHICAGO – The push for faster payments in the U.S. has suffered from the lack of a government mandate, which in other countries resulted in a common, streamlined system. Now it's time for the disparate U.S. platforms to come together.
The Federal Reserve Bank’s desire for an improved payments system in the U.S. has grinded through various phases the past six years, but the phase relying most heavily on industry collaboration is unfolding now.
The Faster Payments Task Force has called for a governance framework to be in place by 2020 as a way to establish wide-ranging guidelines for broad adoption and trust in what will become a payments system with various solutions embedded. With an eye also toward interoperability and ubiquity, it promises to be a difficult task.
“The Faster Payments Task Force was fairly easy because it was all hypothetical then,” said Steve Ledford, senior vice president of products and strategy at The Clearing House, which operates its own Real-Time Payments rails.
“Now it’s getting real,” Ledford said during the annual payments symposium at the Federal Reserve Bank of Chicago.
Development of faster payments in the U.S. is getting real, in part, because of The Clearing House’s efforts to complement other systems such as the Same-Day ACH from Nacha, and the various person-to-person systems from banks and third-party providers. All are likely to be part of an overall faster payments play in the U.S. in the next two years.
But the U.S. casts a somewhat wary eye toward other countries’ faster payment development because many of those countries operate from government mandates. And those involved on the front lines of those types of systems don’t always look on collaboration as a vital part of the process.
It especially started that way for Payments Canada.
“Early on in the process, we underestimated the engagement factor, as we really had no stakeholder engagement,” Jan Pilbauer, executive director of Payments Canada, said of his country’s current work on a faster payments system. “Banks don’t share information with each other, or sometimes even inside their own bank’s verticals.”
As a government-created agency, Payments Canada has to focus more on how it will manage such a system as a rules maker, not the regulator. As such, the agency has to make sure the government is there for support when needed, Pilbauer said. Still, the process has called for more input from the banks as it has moved along.
“We would like to hear more from the industry and banks, because we have to make sure the banks will stand behind the system we create,” Pilbauer added.
Because the Federal Reserve has taken more of a leader/catalyst role in the faster payments initiative in the U.S., as opposed to being a service provider of a congressional mandate, it's up to the individual stakeholders to hammer out the difficult details with a willingness to collaborate.
“Payments are inherently (about) collaboration,” Ledford said. “You can’t have payments go on without at least two parties agreeing on something. We built the RTP because 25 banks told us to do it, and we went to our friends at VocaLink and collaborated to get it done, and we also sat with Federal Reserve as part of the task force.”
Merchants have been seeking a stronger voice in the whole process, particularly in light of the often contentious relationship with the card networks over interchange fees, and the cost of compliance with various security standards.
The key, as the faster payments process moves toward its 2020 goal, is for all involved to “understand the other person’s perspective and find those bridges,” said John Drechny, president of the Merchant Advisory Group, and incoming CEO. “It takes a lot of talking and listening.”
Jane Larimer, chief operating officer at Nacha, said she is confident that those working on the faster payments initiative are aware of the critical role collaboration will play in the process.
“One of my first tasks at Nacha was to move the food stamps program forward from being paper-based to operating on the debit networks, and it became nationwide because many people worked on it together,” Larimer said. “Payments is an endurance sport. It takes a while to get everyone involved and having input.”
At the head of any such collaboration, of course, have been the Federal Reserve Banks. But the Fed's future role has yet to be determined.
"We always go back to our mantra ... and ask what is the societal benefit of the Fed moving forward, as a leader catalyst," said Dave Sapenaro, first vice president and chief operating officer of the Federal Reserve Bank of St. Louis.
If asked to have a more active role, the Fed has to ponder if it can "improve integrity, efficiency and accessibility of the payments system" in addition to benefiting society in doing so, Sapenaro added.
"We do have this service provider role that we have played effectively over the years — ACH, checks and the Fedwire service, all of which we believe there has been a societal benefit in us doing so," Sapenaro said.
Ultimately, the U.S. payments industry would like to get to a place in which payment routing, acceptance and settlement occurs 24 hours a day, seven days a week, and that the window on ACH payments becomes even shorter.
And none of it is easy to do, considering payment messaging layers and network security, which include the inherent risks with anything digital happening faster.