- ICBA strongly urges the Federal Reserve to assist in achieving ubiquitous, nationwide access to safe and efficient faster payments for all financial institutions, and most importantly, their customers by serving three roles:
- operator of a real-time gross settlement service,
- operator of liquidity management tools,
- operator of a payments directory switch or hub linking financial institutions to other payments directories.
- ICBA supports the Federal Reserve System in its dual role as payment systems regulator and provider/operator of services and urges the Reserve Banks to support the development and evolution of payment systems with new operational roles.
- ICBA supports rules and standards organizations and the role they play in developing and maintaining payment systems’ access and functionalities. ICBA urges these organizations to have governance processes which enable and foster community bank participation and support transparent, timely and inclusive rulemaking.
Community bank payment systems access must not be limited through the imposition of anti-competitive and discriminatory pricing or policies, membership requirements, standards, operating rules, or technological barriers. Market power should not be used to force changes that would materially or adversely impact the competitive nature of our nation’s payments system.
Real-Time Gross Settlement (RTGS). The addition of RTGS rails for the settlement of faster payments would complement present-day clearing and settlement systems by providing immediate funds settlement transaction-by-transaction on a 24x7x365 basis. Such a platform would serve as a foundation for innovation, not just for payments today but as payments evolve well into the future. By developing and operating a RTGS service, the Federal Reserve: 1) provides financial institutions an infrastructure option for clearing and settling faster payments; 2) ensures access for all financial institutions; 3) provides a settlement option that is not affiliated or owned by larger competitors; 4) serves as a backbone to ensure settlement continuity in event of disruption in the private-sector; 5) provides a settlement option with transparent rules; and 6) maintains a competitively-balanced marketplace in terms of universal access, pricing and industry innovation.
Ubiquity among financial institutions should the primary measure of success for establishing a RTGS service. Industry-wide ubiquity is a distant possibility and may never be achieved without the Federal Reserve developing and operating an RTGS service and interoperating with the private sector solution. While Federal Reserve action may slow adoption of the private sector solution, it will hasten the development of end-user interfaces by providing the access and ubiquity needed to enable them. The Federal Reserve should employ the same standards and protocols as the private sector settlement service to ensure interoperability.
Linking Payments Directories
The Federal Reserve should leverage the work of the Directories Workgroup by serving as a central switch, linking directories of recipient aliases that end-user products can use to ensure that customer financial information is not exposed during the transaction. Without directories that link end-user services to clearing and settlement services, interoperability is not achieved, resulting in the proliferation of closed-loops services. Additionally, the Federal Reserve should operate and host a central payments directory switch or hub that links financial institutions as well as other private-sector payment systems and directories. Directories are necessary to connect seamless end-user interfaces and facilitate clearing and settlement. A central directory could also facilitate interoperability in clearing and settlement between the Federal Reserve’s RTGS and private sector settlement systems.
Liquidity Management Tool
The Federal Reserve should develop a liquidity management tool that would enable transfers between Federal Reserve accounts on a 24x7x365 basis to support services for real-time interbank settlement of faster payments. The Federal Reserve should make this liquidity tool available not only for the Federal Reserve’s RTGS service but also for any bank-centric private sector RTGS service.
Federal Reserve System
The Federal Reserve’s ongoing dual payments role as a regulator and a provider of services allows it to maintain efficient, accessible, reliable, and safe payment systems for all financial services stakeholders.
Given that private sector rules govern the ACH, payment card networks, check clearing houses and the next generation of payments, it is vital for community banks to participate in the rulemaking, operations, and governance of these organization. The rulemaking process should be transparent and ensure that community banks have the opportunity to comment and review comments. Rules should be refined to address new services, technologies, regulatory requirements, and marketplace dynamics.
Staff Contact: Cary Whaley and Rhonda Thomas-Whitley