When it comes to the future of faster payments in the U.S., it’s a marathon, not a sprint.
From the 2015 issuance of the Federal Reserve’s Strategies for Improving the U.S. Payments System
to a cumulative report to be released shortly, a multi-year effort charts the course for faster payments in the U.S.
Yet, with the work of the Federal Reserve’s Faster Payments Task Force wrapping up in the next few weeks, this exploratory phase is closing and implementation starting. To prepare, community banks need to realize three new details that ground them on what’s to come.
1. The Task Force’s findings are imminent… and clear.
Set to be released on or near July 21, Part 2 of The U.S Path to Faster Payments, Final Report: The Faster Payments Task Force Approach completes the assessment of solution proposals and offers recommendations and next steps for implementing safe, ubiquitous, faster payments in the United States.
“You’ll see the recommendations and the vision that we’re laying out in the Task Force report,” remarks Senior Vice President and Faster Payments Strategy Leader of the Federal Reserve System Sean Rodriguez. “It should be clear what the Task Force is asking of payments system stakeholders. There’s no ambiguity in what they’re recommending.”
2. The Fed’s not the only game in town.
While the report culminates the Task Force’s efforts, all along, the Federal Reserve has acted as a catalyst in driving dialogue, sparking new ideas, and encouraging innovation in the market. This broad-reaching focus on faster has spurred many new developments along the way, from banks and service providers collaborating to clear P2P (peer to peer) payments quicker to The Clearing House preparing to launch its real-time payments system.
“We expect to have the first banks live and on the [real-time payments] network in August and early September, with seven banks live by the end of the year,” says Tim Mills, vice president of The Clearing House. “Realistically, community banks will be looking at Q3 2018 and Q1 2019 as the prime window where there’s enough of a business case to participate, and it’s still early enough to drive maximum value.”
All of these changes have created robust opportunities for financial institutions.
“The real-time payments (“RTP”) network is the rails,” Mills points out. “In order for FIs to maximize the value, it’s all about the products and services built on top of that rail.”
3. It’s time to act (really).
As ICBA Bancard president and CEO Tina Giorgio pointed out in her blog
, “Real-time payments are fast approaching.” Now’s the time for community banks to decide on the steps that will shape the future of their business.
Making decisions in an emerging marketplace is difficult, and many times, banks choose to monitor and evaluate, waiting to select an approach until after certain solutions rise to the top. However, in the instance of faster payments, competition dictates a tighter timeframe.
“As quickly as this marketplace is developing, wait-and-see is probably not the best strategy,” Rodriguez cautions. “The market really has decided this is something we want to do in this country, and we have been moving fairly rapidly. Get tuned into the capabilities sooner [rather?] than later; that would be the ultimate best strategy.”
Service providers often power the products and services offered by community banks. Bankers should talk to their providers to learn more about the faster payment solutions already offered and how to tap into these products. In addition, many service providers, including Visa, Mastercard, FIS, Jack Henry, and others, have signed on to support emerging solutions, like the real-time system to be offered by The Clearing House. Starting a dialogue with providers will unveil the potential for leveraging solutions already in development and guide internal discussions around faster payments.
Rodriguez indicates that Part 2 of the Federal Reserve report also will support community banks in making strategic decisions around faster payments.
“We think this report will take an account of overall industry knowledge and where we are with awareness of these capabilities and get people engaged moving forward.”
All signs — from the conclusion of the Task Force’s work to the launch of real-time payments — indicate the time to act is now.
“By the end of this year, community banks should have a faster payments strategy in place so they can begin to execute in 2018,” Mills advises. “Any institution who finds itself beyond the first part of 2019 will be at a competitive disadvantage.”
As experts indicate, while the faster payments race is far from finished, community banks have to be ready to compete. Those who aren’t at the start now, lined up next to the favored race elites, won’t stand a chance of catching up.