In June, Federal Reserve Financial Services hosted a series of town hall meetings to discuss a variety of initiatives designed to improve B2B transactions, along with P2Ppayments. Among the goals include speeding up transactions, improving efficiency, enhancing payment safety and security, improving cross-border payments, and securing industry engagement.
Details on how the Fed plans to accomplish that goal likely will come next month, when its final decision and direction is expected. The desired outcome, according to the Fed, is “a ubiquitous, faster electronic solution(s) will exist for making a broad variety of business and personal payments, and the Federal Reserve will provide sector arrangements to settle their positions rapidly and with finality."
The approach the Fed is taking is to identify target uses for faster payments by leveraging global lessons; developing potential design options for improving the speed of the U.S. payment system; assessing each design option, including business and technical requirements, business case and stakeholder impact; and providing a potential implementation plan for the path forward.
For B2B in particular, the goal is to speed up transaction time while also improving on the data incorporated into remittances.
NACHA similarly has been moving on a parallel trajectory, having last year launched XML ACH Remittance, where parties can come together and use the ACH network to send payment-remittance information for B2B payments. Through the opt-in program, businesses can use a standardized XML format that is compatible for the FedWire extended-remittance format. And this year, NACHA worked with international players, including the IFX Forum, to make it easier for U.S. companies to transact internationally through the newly approved ISO 20022 remit messaging format standard.
In a recent PYMNTS.com podcast interview, Jan Estep, NACHA president and CEO, acknowledged the complexities in the U.S. payment system, especially with regard to B2B and cross-border activity. The U.S. is different from other geographies because the ACH system has the capability to handle a lot of information. But with ACH B2B transactions and the formatting flexibility, individual parties must agree what is going to be sent in order to anticipate what is going to be received, she said.
"The reason [ACH] isn’t used more widely is because we do have the flexibility,” Estep noted. “Every business in the United States does not have payment information formatted and used in exactly the same way. And because of that, it does require a certain amount of agreement between parties."
In a recent commentary article in InformationWeek, Lawrence F. Buettner, senior vice president at Wausau Financial Systems, which provides receivables technology for financial institutions, noted the long road likely ahead for adoption of the ISO 20022 standard. Banks do not want to make changes until customers request them, he said, and software providers do not want to make investments until there is a buyer for the enhancements. “The cycle continues and progress is begrudgingly made over many years, if at all,” Buettner said.
The Fed’s town hall meetings and its new vision with a broader reach into B2B payments have merit, but even the Fed acknowledges it will take until 2025 to build a new, optimal infrastructure.
Have industry cooperation and vested interest come to a point that the Federal Reserve banks concluded that they must become the market catalysts for change through regulated adoption of new payment features versus the open market, Buettner asked in his commentary piece?
“The reality is that today’s payments system requires major overhaul,” he said. “If American companies are to continue to remain competitive, both domestically and globally, the U.S. payments system must evolve to 21st century standards in order to drive efficiency and effectiveness."
But that doesn’t mean the industry has to sit idly by while the Fed determines their fate. In fact, the Fed already has been soliciting industry input and ideas. During the town hall meetings, for example, 40 percent of 250 total attendees were financial institution representatives, followed by business at 17 percent, giving the two sectors the biggest combined representation.
And the Fed certainly isn’t done seeking advice. “Now is the opportunity for each of us to help shape that future,” Buettner said. “During the next 10 years, new players and products will emerge. In the process, the opportunity will exist for banks and their corporate treasury counterparts to identify the next wave of treasury services."