It’s been more than two years since the Federal Reserve issued its Strategies for Improving the U.S. Payment System paper, in which the Fed outlined initiatives for the payments industry and its stakeholders to promote progress.
For the Fed, progress means improving the speed, security and efficiency of the payments system, and to focus on international payments capabilities and promote collaboration within the field.
Now, the Federal Reserve wants to keep the momentum going.
On Wednesday (Sept. 6), it announced the publication of its follow-up paper, Federal Reserve Next Steps in the Payments Improvement Journey. Within the text the Fed highlights some of the progress that has been made in each of the categories upon which the Fed is focusing its payments improvement efforts and outlines next steps for industry stakeholders to take in order to continue making progress.
“Our 2015 paper laid out ambitious goals for the U.S. payment system that will require the sustained commitment of the Federal Reserve and the industry to achieve,” said Esther George, chief executive of the Federal Reserve Bank of Kansas City, who also serves as executive sponsor of the payments improvement initiative.
“Thanks to the collective efforts of hundreds of payment system stakeholders during the past two years, we’ve made real progress,” George said. “Through the strategies and tactics outlined in this next steps plan, the Federal Reserve will support continued industry momentum toward safe, ubiquitous, faster payments for our country.”
According to the Fed, payments must not only be faster, they must also be safe and ubiquitous. This year is a critical one for this initiative, the Fed said, with the Fed’s Faster Payments Task Force having already issued the results of its assessment and recommendations for continued progress.
Industry collaboration will be critical to achieving goals of accelerated payments, the Fed said, with top challenges identified as “interoperability, ubiquity and accessibility” of faster payments capabilities. To move forward, the Fed said it will support a working group and other collaborative efforts to continue developing a faster payments ecosystem for the nation, and work with industry stakeholders to address gaps and requirements for real-time payments settlement.
In this regard, the Fed stands largely as a supporter and said it will explore its need, if any, to serve as a service provider.
Since establishing the Secure Payments Task Force, the Fed said efforts on payments security have been closely aligned with those on payments speed. Again, the Fed said, industry collaboration will be critical in this regard, and noted that there is no end goal in payments security. Rather, the goal is to promote an ongoing ecosystem of security and confidence in the nation’s payments industry.
“The dynamic nature of the threat environment makes ‘security that remains very strong’ a continuously moving target,” the Fed wrote. With that in mind, the Fed plans to continue to analyze vulnerabilities and move forward with a study aimed at identifying factors that may impede payments security.
Efficiency is closely linked to digitization, so the Fed’s efforts to promote payments efficiency mean promoting the use of electronic payments. This includes the implementation of ISO 20022 messaging standards across organizations like NACHA and SWIFT.
Promoting the adoption of electronic B2B payments is also a critical step in this regard, the Fed said, and again will focus on industry collaboration and education, alongside the Business Payments Coalition, to work toward this goal. Electronic invoicing, too, will be an important focus to boosting payments efficiency, the Fed said.
Other payments initiatives and innovations like faster payments could help promote the end-to-end digitization of payments, the Fed noted. Its role in this regard will be to support the industry as it establishes standards for end-to-end electronic B2B invoice, payments and remittance processing.
The Fed’s top goal in the area of international payments is to promote a broader range of choice for both consumers and businesses to send and receive cross-border payments.
While its Strategies paper explored potential enhancements to the Fedwire Funds Service to bolster cross-border payments capabilities, the Fed said it is no longer pursuing that effort.
Compliance, particularly around AML, is a top hurdle for achieving improved global payments capabilities, the Fed said. But it’s an even bigger challenge as improving cross-border payments means improving the speed, security and efficiency of these transactions abroad, just as the Fed is looking to at home.
The common denominator across these initiatives is industry collaboration. The establishment of the two Task Forces and other groups have been significant milestones in its collaborative efforts, the Fed said, though it acknowledged the time and resources required by collaborators to take part in these efforts.
To move forward, the Fed said it will consider narrowing the scope of these industry stakeholder groups to boost the efficiency and effectiveness of such collaboration.
Federal Reserve Board Governor Jerome H. Powell, co-chair of the payments initiative’s oversight committee, said that despite these challenges, collaboration remains a critical component of the overall vision for improved payments.
“With collaboration, inclusiveness and transparency as guiding principles, the Fed will continue to advance improvements through leadership and action,” Powell said in a statement. “Our work with stakeholders over the past two years, including engagement with 500 task force members, has demonstrated that together we can help address industry challenges and seize opportunities.”