With Faster Payments, The Fed Takes a Slow and Steady Approach
As the Federal Reserve continues its push to establish faster payments in the U.S., other organizations are developing the pieces it needs to assemble a working system.
Rather than view the work of others as a distraction to the Fed project, the Faster Payments Task Force views external projects as an enhancement to the process, said Sean Rodriguez, senior vice president and faster payments strategy leader for the Federal Reserve System.
This month, the Society for Worldwide Interbank Financial Telecommunication [SWIFT] unveiled its Global Payments Initiative to establish same-day business-to-business payments in early 2016. At the same time, Vocalink and The Clearing House finalized a partnership to develop a faster payments system in the U.S.
"Both of those organizations are on our task force, and The Clearing House is on the steering committee," Rodriguez said. "We were intent on creating a process to facilitate this dialogue of faster payments for the U.S. in a way that it would not compete with market developments."
Because many faster payments projects had already kicked off when the task force was formed three years ago, the Fed designed its process "to be complementary to that," Rodriguez added.
What others are working on may ultimately play a key role in the system the U.S. develops. That would certainly be the case with recent clearing and settlement developments. In September, the Federal Reserve Board approved same-day enhancements to its automated clearing house service and fees, emulating those of Nacha's Same Day ACH rule.
All of these pieces may fit into the task force's first phase of establishing "faster payments system effectiveness criteria" that are worth studying in the second phase, which is set to start early in 2016. Proposal development and assessment will take most of the next year, with a communication phase beginning in 2017.
"We have to communicate what has been done in terms of these assessments of faster payment solutions and a key component will be determining if we have the right ones and whether there is enough energy and inertia to see those things happen," Rodriguez said.
During the communication process, the task force will be responsible for determining additional work streams, identifying gaps in the proposals and discussing how a faster payment system would be managed and governed over time, Rodriguez added.
The task force, now a diverse group of more than 300 people, will weigh the proposals against established criteria and provide voices from banks, corporations, merchants, payment providers, government agencies, consultants and academics.
Some of those in the academic field have studied global faster payments projects, pointing out the challenges the U.S. faces with its numerous banks, weaker regulatory powers and significant political differences compared to other regions.
The task force, however, continues to forge ahead with its complicated agenda in hand and a timetable designed to keep the input and feedback flowing, while also monitoring faster payments developments around the world.
As many as 28 other countries have a faster payments system in place or are ready to implement one, Rodriguez said. "There is a lot of benefit to not being on the leading edge because it gives us a chance to learn and observe to see what will work in the U.S."
The Fed has determined that the process in the U.S. will be a bottom-up model, with actual users of the system providing the most input. Many other countries developed a faster payments system more quickly because they were created through government or central bank mandates, Rodriguez said.
"Our process might be harder and longer, but we hope we all end up with something more widely used, while solving the ubiquity question we wrestle with," he added.
A side benefit to the faster payments initiative is giving banks more time to catch up to developments through the education process.
But it doesn't mean everyone is on board with the current process or will be in the Fed's cheering section when a system ultimately takes hold.
"We knew going into this that everyone is not going to agree," Rodriguez said. "There are tough issues and commercial interests at stake, and lots of things that come into play."
The process, so far, has been encouraging to the Federal Reserve Bank because the task force work clearly illustrates that all voices and perspectives are being heard, Rodriguez said.
"It isn't all going to be happy all of the time, but in the end we will be in a better spot because we have all talked to one another."