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The Fed's Plan to Improve the US Payment System


Posted on Jun 26, 2014

Commentary by Leilani Doyle

It was a sultry Friday afternoon in Dallas, Texas as the Federal Reserve Bank finished up their weeklong road show of Town Hall meetings discussing payment system improvement.  As a certified payment geek, I couldn’t imagine anywhere I’d rather be, especially since it afforded me the opportunity to have a delicious down home lunch of amazing fried chicken with a good friend and fellow payment enthusiast.

For those of you not fortunate enough to attend one of these meetings, here are the highlights. 

First the Fed, like any other central bank looking to make a fundamental change that impacts the worlds largest economy, commissioned several studies and industry surveys to determine what the desired outcomes should be.  The resulting research reports looked thick enough to satisfy even the toughest skeptic. (I hope they eventually publish the report so that payment geeks can use it to search for hidden nuggets of information.) 

After reviewing the results the Fed determined that the Desired Outcomes and potential strategies for payment system improvement are:

  • Ubiquitous and faster electronic solutions
  • Enhanced payments safety and security
  • Improvements in Cross-Border payments
  • Improved efficiency
  • Strategic industry engagement

Each one of the Desired Outcomes was individually discussed and the audience had the opportunity to ask clarifying questions.  The Ubiquitous Faster Payment topic had the most tangible information in terms of specific business use cases for Faster Payments and potential options to get to Faster Payments by modifying existing payment rails.  Discussions also covered how settlement options for the new Faster Payments systems would work.  The Fed concluded that faster, even immediate payments do not necessarily require immediate settlement.   Each party simply needs to have notification that the payment was initiated and received, while the banks settle funds on a non-immediate basis.

In any case, it seems that the Fed is moving forward with the Faster Payments initiative and plans to publish their approach in the September timeframe.  This approach will include new technology, business rules and operating framework. I think that some form of regulation or mandate will also need to be implemented in order to achieve true ubiquity, but the regulation word was barely mentioned during the meeting. 

More information on the Fed’s Payment System Improvement project can be found at http://fedpaymentsimprovement.org/.