The Fed On Finding A Clear Road To Getting Faster

Whether it’s piloting a high-powered sports car or a super-charged payments system, going faster can be complicated. To minimize risk of a disastrous end, those in the driver’s seat need to know both where they’re going and the rules of the road they must take to get there.

The U.S. economy, like many others around the world, is rapidly changing as technology providers race to debut and develop new capabilities that make exchanging funds faster, easier and safer. To ensure that transformation goes as smoothly as possible, the Federal Reserve is again bringing stakeholders together with a focus on an industry-designed governance framework that can support faster payments technology development.

The Fed’s first effort came in the form of the Faster Payments Task Force. The group, comprised of payments industry executives and stakeholders, was assembled by the Federal Reserve and completed its work this summer after issuing its final report, “The U.S. Path to Faster Payments: A Call to Action.” The report laid out strategies for fostering a ubiquitous, secure, faster payments ecosystem by 2020.

As part of its recommendations, the Task Force established the Governance Framework Formation Team to continue its efforts. According to Connie Theien, senior vice president of industry relations at the Federal Reserve, the group is focused on developing a governance framework for faster payments technology interoperability in the U.S. and implementing the work of the initial Task Force.

Theien worked to bring the 27 members of the Formation Team together and is working with the Team to outline the faster payments governance framework. In a recent interview with PYMNTS, she noted the group’s end goal is simply to push the industry forward in the U.S.

“It was critical to create a group that could shepherd the development of a faster payments ecosystem,” Theien said. “The vision is that this will serve as a mechanism to [guide] the ecosystem to be effective, and be a stepping stone to help the rest of the recommendations be advanced.”

Putting changes in place

The recommendations Theien and the group will be working to implement have been divided into three categories — rules and governance, infrastructure and sustainability — which were placed in list form based on their scope and the priorities of the Formation Team, Theien explained. Rules and governance, along with infrastructure, are considered the most pressing needs.

The creation of directory models to unlock interoperability and enable new solutions, followed by designing settlement capabilities to support 24/7/365 enrollment, were also included in those highly prioritized infrastructure and governance categories.

“Those directory models are key to unlocking all of these solutions, and [they] have been prioritized and we’re kicking those off first,” Theien said.

In a separate interview with PYMNTS, Janet Estep, CEO of NACHA – The Electronic Payments Association, and a member of both the initial Faster Payments Task Force and the new Formation Team, noted that prioritizing and acting swiftly to implement were founding principles of the new group.

“As the last Task Force report was being finalized, the participants really felt that some of the recommendations should be addressed sooner rather than later,” Estep said. “And I think it’s going to be very important that the Formation Team is flexible and efficient.”

Combatting challenges

While the Formation Team’s focus and end goals may be clear, its efforts are not without their fair share of challenges.

Most notably is that while the current payments systems in the U.S. are not active every minute of the day, they still offer “extensive availability,” and are online 21 hours a day, Theien said. As a result, creating a system that can be online 24 hours is not quite the concern it would seem.

“Our greatest challenge is not in designing a 24/7/365 system,” she said. “It’s how do we migrate such critical infrastructure to that over time while [also] ensuring the safety and stability and availability that underpins all these payments systems.”

Theien pointed out that the nature of creating a governance framework is complicated. A group consisting of 27 members means a wide array of providers and participants are involved, and different standards may need to be created to satisfy all parties.

Estep shared similar sentiments during her interview, saying the varying capabilities and priorities of the dozens of different players in the faster payments ecosystem means that very different organizations need to collaborate.

“Not all entities have the same needs,” she said. “Not all of them have the same level of engagement. Some of them don’t have the same focus on specific topics and the environment can change around us over time, as well. So, I think it’s critically important to work together to build a framework that’s adaptable and not rigid.”

Meeting deadlines

The group’s biggest challenge, though, may be self-imposed. A press release announcing the creation of the Formation Team included a deadline to achieve what it refers to as “ubiquitous faster payments capabilities in the U.S. by 2020.”

Theien called the 2020 deadline an “ambitious but achievable goal,” and noted that the group was highly motivated to meet it.

“By setting that goal, they’ve created a real sense of urgency to drive momentum and get this done,” she said. “So far, its really led to a very positive outcome in terms of Task Force recommendations and the roadmap for the future. Now we’re really getting to the point where the rubber hits the road and the industry can collaborate and make some concrete decisions.”

And with that metaphorical rubber hitting road, it’s seemingly time to set the navigation and buckle up.

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About the Tracker

The PYMNTS Faster Payments Tracker, powered by NACHA, is your go-to resource for staying up-to-date on a month-by-month basis. The Tracker highlights the contributions of different stakeholders, including institutions and technology coming together to make faster payments happen.