The Federal Reserve Bank’s deadline to comment on the proposal regarding the Fed’s direct involvement in providing real-time payment services was last Friday, December 14th. Written comments submitted are available for anyone to read. They can be found through this link. It’s an interesting collection of views from community banks, credit unions, regional payment associations and NACHA, Amazon and lastly, BB&T who has an ownership stake in faster payments providers Early Warning Systems and The Clearing House.
The clear majority of the responses posted are looking for the Fed to take the plunge and build real-time payment services, although a few of the opinions commented that the Fed can’t or shouldn’t play a direct role, expressing some of the same arguments articulated in a column in Forbes. A contributor from The Heritage Foundation’s Roe Institute for Economic Policy Studies writes:
…. one of the “potential actions” the Fed Board is considering is to develop its very own real-time settlement system. This approach makes many private sector actors anxious because no private company wants to compete with the feds.
In general, the private sector is better than the government at providing more goods and services to more people. In the private sector, competitive forces and the need to satisfy customers create constant pressure to innovate and improve. Government entities are wholly insulated from these pressures.
The government should not provide a good or service unless there is some sort of clear market failure, where the private sector has failed to provide it. This type of failure clearly does not exist in the payments industry.
Regardless, there is little room for the private sector when a government entity, least of all the Federal Reserve, competes directly for customers. If the Fed does enter this market with its own real-time settlement system, it will surely keep many private actors out of the industry.
So now the payments industry will wait while the Fed scrutinizes the feedback they have received and considers their response. An answer to the most anticipated question in payments is expected next year.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group