The US central bank has spent the intervening years to engage with stakeholders in the US payments system (including banks, credit unions, software vendors, payment processors, government agencies, trade associations and consumer organizations and corporations large and small). The central bank says it has no plans, at this point, to mandate rules for faster payments, but instead wants to harness the private sector to implement its recommendations, and develop the technology required ensure real time payments are secure.
Following an extended consultation period, which included sponsored qualitative and quantitative end-user research to study the meaning and importance of payment speed and other payment attributes to consumers and businesses, the Fed reports that over 75% of participants agreed that the following attributes would be important in a (near) real-time payments system. Participation must be ubiquitous (in other words, everyone has to be involved); senders do not need to know the bank account number of the recipient, confirmation of good funds is made at the initiation of the payment; sender and receiver receive timely notification that the payment has been made and funds are debited from the payer and made available in near-real time to the payee
However, several commenters asserted that (near) real-time payments should be pursued only if a clear business case exists and is supported by demonstrated end-user needs in targeted use cases. Also, some commenters noted that only certain elements of payments need to be faster (such as confirmation of good funds, notification of payment status, posting to the payer and payee) and that the specifics will depend on the circumstances surrounding the payment. Some commenters also suggested that the speed of interbank settlement should be more explicitly addressed in this desired outcome.
The Fed then sponsored more research designed to refine its design of an optimal system. Studies covered issues such as the demand for particular payment attributes across different use cases; (estimates of the number of payments that are likely to benefit from and migrate to a faster payments solution; and alternative approaches to improve the speed of US payments, including a (near) real-time retail payment system.
The central bank says it learned that payment speed is important to both consumers and businesses, and faster payments features are generally preferred to slower ones. “The faster payments analysis demonstrated that increased payment speed would initially benefit at least 29bn transactions per year, which is 12%of the total for the country.
Additionally, Fed staff said they see opportunities for expanding the National Settlement Service, which allows private businesses, such as financial institutions, to exchange and settle transactions through master accounts held at Federal Reserve banks. These net settlement arrangements allow businesses to batch settle wires and ACH transactions throughout the day between 7:30 a.m. and 5:30 p.m. ET. Currently, approximately 17 NSS arrangements have been established by financial-market utilities, check clearinghouse associations and automated clearinghouse networks.
By the end of 2016, the Fed plans to offer this type of net settlement on a 24/7 basis, essentially making NSS transactions real-time.
In a 58-page roadmap report, called Strategies for Improving the US Payment System, the Fed calls for establishing a task force that will advise the Fed about how to reduce payments fraud while also advancing resiliency of the payment system.
Payments security is a big worry for the industry, the report notes, pointing out that industry input collected over the last 18 months highlighted the need for the development of a fraud database. The Fed also notes that not all security and fraud concerns have yet been fleshed out, and that the security gaps noted in its report do not reflect a comprehensive list; more input from the industry is needed.
"Many [survey participants] suggested that the industry work together to develop a coordinated fraud database and to enhance other fraud information services," the report states. "Many also advocated for the development and adoption of standards for user and device authentication, tokenization, dynamic credentialing (like EMV) and encryption - especially if a (near) real-time payment solution is developed and implemented. Many believe consumers need better education and incentives to motivate them to make fraud-reducing payment choices."
The Fed also plans to launch a task force that will focus on best ways to implement faster payment capabilities through collaboration with the industry and consumers, the report notes.
To begin the next phase of industry engagement, Esther George, president of the Federal Reserve Bank of Kansas City and a member of the Federal Reserve's Financial Services Policy Committee, and Federal Reserve Board Governor Jerome H. Powell, who will co-chair the initiative's oversight committee, are hosting teleseminars in early February to present an overview of the strategies.