The U.S. payments industry lacks common standards for interoperability, and that’s standing in the way of faster payments and better payments security. That’s the conclusion of a Federal Reserve-sponsored symposium on payments innovation, according to the Chicago Fed Letter.
The two-day symposium was part of the Fed’s effort to nudge along near-real-time payments between banks, as well as to promote alternative payments technologies and reduce use of outdated payment instruments like checks, which are still heavily used in B2B payments.
While central banks in Europe and the UK have pushed through new standards and faster-payments initiatives, the situation in complicated in the U.S. by highly decentralized payment system governance, making broad improvements harder to implement. Large banks have also shot down previous efforts to speed up payments clearing between banks, both due to fears of lost revenue from special services such as wire transfers and concerns about cost and the risk of new systems.
That’s one reason a U.S. version of the UK’s Faster Payments Service, which was spearheaded by 10 financial institutions, could be key to improving coordination among stakeholders, participants said.
But buy-in from those major payments stakeholders — especially big banks — is crucial, especially for new security technologies and standards such as homogenization and ISO 2022 financial messaging, according to Tony Richards, head of payments at the Reserve Bank of Australia, and Chris Hamilton, CEO of the Australian Payments Clearing Association. They’re helping to lead Australia’s ongoing payments modernization effort.
Those big stakeholders must come to recognize that consumers will soon demand faster payment resolution, accept that a positive business case would emerge in the long run, realize that faster payments would bring in new revenue and reduce costs — and recognize that if they didn’t modernize, non bank payment providers would replace them, Richards and Hamilton said.