They say a rising tide lifts all boats; and for payments, that wave moves with increasing speed and intensity.
Every day there are new entries into the faster payments marketplace. As of Sept. 15, Same Day ACH Debits went live as the only ubiquitous faster payments option in the U.S. Big banks are rallying around real-time payments, with The Clearing House stating plans to have all of its members, the largest banks in the country, live on its new system by the end of 2018. In addition, emerging solutions appear on the horizon as innovative providers sink their teeth into the faster payments pie.
“The payments landscape is changing, and it’s accelerating,” says Michael Bilski, CEO, North American Banking Co., a nearly-$450-million-asset ﬁnancial institution headquartered in Roseville, Minn. “Community banks need to stay abreast of what’s going on; it’s the only way that you’re going to be able to compete. If you’re not paying attention, you’re going to miss the boat.”
With such an intense focus on faster, things continue to expedite. In July, the industry-comprised Faster Payments Task Force convened by the Fed, issued “The U.S. Path to Faster Payments, Final Report Part Two: A Call to Action,” encouraging the marketplace to make, “receipt of faster payments available to every U.S. consumer and business by 2020.”
Sailing towards 2020, the report maps out 10 key recommendations to get the industry to completion, homing in on governance and regulations; infrastructure; and sustainability and evolution. At the highest level, the report calls for clarity around two pivotal points:
- The path to a ubiquitous faster payments system; and
- The role the Fed will play in its operations.
The Path to Ubiquity
As part of the Task Force’s report, it called for a collaborative industry group to come up with a universal solution that ensures “all payment service providers are capable of receiving faster payments and of making those funds available to their end-user customers in real time.”
To achieve this goal by 2020, the Federal Re-serve assembled the Interim Collaboration Work Group (ICWG). Chaired by the Fed as a non-voting member, this group’s stated focus centers on:
- Recommending and establishing cross-solution rules and standards, and prioritizing changes in the regulatory framework;
- Supporting the development of infrastructure needed to achieve interoperability across solutions, such as directories; and/or
- Ensuring the sustainability and evolution of faster payments through advocacy and education on the faster payments system, research on cross-border payments and emerging technologies, and recommending and developing methods for fraud detection, reporting, and information sharing.
“The drive is to develop a governance frame-work that is representative and inclusive of all payments stakeholders, not just banks, but other FIs, users, and retailers,” explained Bilski, a member of the ICWG. “We’re willing to listen — that’s what we volunteered to do — and to make time to come up with a solution for all stakeholders.”
Achieving the right balance of governance to placate all participants is a daunting effort, but add to that a tight year-end deliverable date outlined by the Task Force and the pressure mounts. The ICWG is rising to the challenge, having held several calls and its ﬁrst in-person meeting in September. Bilski notes that the group’s initial work will be published for comment once it’s ready.
The Fed’s Role
Beyond infrastructure, there’s the issue of operational support, particularly for community banks who rely on the Federal Reserve as their operator for other payments systems. While the Fed has been tight-lipped about any role it may play, its September issuance of “Strategies for Improving the U.S. Payment System: Federal Reserve Next Steps in the Payments Improvement Journey” decreed that it will be, “assessing the need, if any, for Federal Reserve engagement as a service provider, beyond providing settlement services, in the faster payments ecosystem.”
“If there’s a possibility of us operating some kind of capability, we’ll have our normal course of public comment. Certainly, a comprehensive review and analysis needs to be done to determine what kind of role, if any, we would play,” says Sean Rodriguez, senior vice president and Faster Payments Strategy Leader, Federal Reserve System. “We’re going to have to work fast in this regard; the 2020 vision is out there. Every organization in this space is faced with the same thing, and we’re going to do our best to try and support the needs of all payments system participants.”
It is the needs of the end user that all FIs have in mind as they contemplate faster payments. Yet, what the customer wants today is not the same as what the customer may require tomorrow, so a successful faster payments future hinges on accurately predicting that evolution.
Only time will tell how faster payments infrastructure and implementation will shake out, but as the seas of change are upon the industry, one thing’s for certain: it’s time to board the boat.
10 Strategic Recommendations to Achieve Faster Payments Vision by 2020
GOVERNANCE & REGULATION RECOMMENDATIONS
- Establish a faster payments governance framework.
- Recommend and establish faster payments rules, standards, and baseline requirements that support broad adoption; safety, integrity and trust; and inter-operability.
- Assess the payments regulatory landscape and recommend changes to the regulatory framework.
- Establish an inclusive directory workgroup to identify and recommend a directory design for solutions to inter-operate in the faster payments system.
- Enhance Federal Reserve settlement mechanisms to support the faster payments system.
- Explore and assess the need for Federal Reserve operational role(s) in faster payments.
SUSTAINABILITY & EVOLUTION
- Recommend, develop and implement methods for fraud detection, reporting and information sharing in faster payments.
- Develop cross-solution education and advocacy programs aimed at awareness and adoption.
- Conduct research and analysis to address gaps in cross-border functionality and inter-operability.
- Continue research and analysis on emerging technologies.