Faster Payment Becomes A Federal Case

There’s a battle brewing in payments. A big one. It’s the Feds versus the Free Marketeers, and the feud between them is over whose real-time payments (RTP) rails will rule them all.

In the March 2020 PYMNTS Faster Payments Tracker, the antagonists in this particular drama are the Federal Reserve Board (the Fed) and The Clearing House (TCH), whose ACH wire transfer tech was the industry standard until FinTech interlopers began repurposing payments rails with tons of venture capital.

Sensing that existing fast payments are not accessible enough, the Fed proposed the FedNow℠ service, expected by 2024 as a national fast payments platform available to the public.

“Through the FedNow Service, we will provide a foundation for the future — a modern payment infrastructure that allows innovation and competition to flourish and delivers faster payments safely and securely for all,” said Fed Governor Lael Brainard, chair of the committees on Financial Stability, Federal Reserve Bank Affairs, Consumer and Community Affairs, and Payments, Clearing and Settlements. “To ensure fast payments are available to everyone, FedNow will be accessible to all banks, no matter the size. Given our long-standing service connections with more than 10,000 banks across the country, the Federal Reserve is uniquely placed to deliver this outcome.”

How the government’s plan conflicts with private-sector instant money efforts remains to be seen as years of slow money break free from traditional constraints.

Public vs. Private RTP

The U.S. Federal Reserve is hardly alone in envisioning a national fast payments/rapid settlements system. From Brazil to Canada to India and beyond national governments are exploring fast payments networks to democratize payments and speed up economies, while also acting a public utility, much as Internet 1.0 was sold as “the information superhighway.”

That doesn’t mean private players are thrilled about the Fed’s plan. “We are going to keep doing the same things we were doing,” Steve Ledford, senior vice president of product strategy and development at The Clearing House, told PYMNTS. “We are expanding the network. The number of banks and credit unions in our pipeline to implement the RTP network actually went up five-fold since the Aug. 5 [2019] announcement of FedNow. The fact that FedNow is taking some uncertainty out of the market has actually freed up folks to make decisions.”

In fact, TCH is working to expand the use of the RTP network. “We are also working on use of the network … with third-party software providers [that are] enabling end users [and] financial institutions [to use] the product,” Ledford said. “We are … talking directly to corporations [about] the kinds of things they are thinking about. Our intent is that when the Fed comes into the market — whenever that may be — that we will have established a thriving network with a lot of folks using it, and they won’t see a reason to change.”

RTP and Ubiquity

National high-speed payment rails open to the public for nominal usage fees (or for free) could … no, will have far-reaching economic and lifestyle impacts. It’s a question of when.

“Real-time payment rails can gain ubiquity once third-party developers start leveraging them for new apps and other services,” Ledford told PYMNTS. “Payments providers can encourage such growth by ensuring their rails are easy to work with, such as by implementing ISO 20022 for payments messaging — a standard that developers often use for other web and mobile application projects.”