In late October, the Federal Reserve Bank of Kansas City hosted the first of what will eventually be 12 town hall-style meetings at its district banks throughout the U.S. The purpose of these meetings: to introduce financial industry types to two proposals for central bank involvement in faster, real-time payments and gauge their reactions.
Addressing the Kansas City crowd, Susan Foley, senior associate director, Federal Reserve Board, said, “To be clear, these are not service proposals. They are, specifically, concepts of what we think we could do to promote real-time gross settlement in the United States.”
Foley went on to explain the two options:
- The Fed could build a 24x7x365 real-time gross settlement system; or
- The Fed could develop a liquidity tool to support RTGS regardless of whether settlement is occurring at a central bank or through a credit card entity.
But before the Fed will proceed with either (or neither) of the proposals, it needs bankers to weigh in by submitting written comments. This means the two options, which were recommended to the bank by the Faster Payments Task Force in 2017, are still no closer to becoming reality than they were in 2015, when the task force first began convening.
Many participants in the Kansas City meeting expressed the feeling that a RTGS system was needed immediately, or “yesterday” as one attendee succinctly put it. Anne-Marie Bartels, CEO of Kansas City-based Electronic Payments Core of Knowledge (EPCOR) and a member of the original task force, agrees.
“In its final report, the Faster Payments Task Force called upon ‘all stakeholders to seize this historic opportunity to realize the vision for a payment system in the United States that is faster, ubiquitous, broadly inclusive, safe, highly secure and efficient by 2020,’” she said. “While 2020 is probably not realistic, the Fed needs to act sooner rather than later so they are not slowing down the nation’s move to faster payments.”
Bartels believes that community banks and credit unions expect the Fed to take on the role of operator. “The Fed provides settlement for checks, wires and ACH, why not for faster payments? I do think there are some important considerations … the top two are time to market and interoperability,” she noted. “As far as the liquidity management tool is concerned, this will enable financial institutions to better manage their accounts at the Fed. I think it could be helpful if there were some intelligence built into the tool, so financial institutions would not be forced to check balances at all times of the day and night.”
Moreover, Bartels believes that continued inaction (or delayed action) will allow non-traditional payments providers to gain an even stronger foothold in the market.
“There are already non-traditional providers in the payments space, some are utilizing the existing payment rails while others are circumventing these safe and secure systems,” she said. “End-users frequently do not recognize the difference and are subject to risks they don’t fully understand.”
Having attended both the Kansas City event and a subsequent town hall in St. Louis, Bartels was able to gauge responses to both proposals. “There was more discussion and a greater sense of urgency around the need for the Fed to develop a settlement service. I’m not sure most of the participants recognized that there is already a need for the liquidity management tool.”
Ultimately, though, Bartels feels the Fed needs to communicate its intentions with the industry, “as quickly as possible. My personal opinion is that not telling the industry what their intentions are is a disservice to their constituents.”
Alaina Webster is Managing Editor, firstname.lastname@example.org