In the ongoing will-they-or-won’t-they saga surrounding the Federal Reserve’s development of a real time payments platform, Chairman Jerome Powell sent a letter to senators this week explaining the Fed’s most recent opinion on the topic. Politico was able to get a copy of the letter which suggests the Fed is very seriously weighing its options to become a real time payments operator. Chairman Powell had this to say in the letter:
“…we are seriously considering proceeding with two actions….. to support widespread adoption of safe and efficient faster payment services in the United States. These actions would include the potential development of a new interbank 24X7X365 RTGS service to directly support the provision of faster payment services by banks (or their agents), and the potential expansion of hours for the Fedwire® Funds Service and the National Settlement Service to support a wide range of payment activities, including liquidity management for faster payments.”
While “seriously considering” is not definitive, the letter goes on to detail the chairman’s position that the Fed is in a unique position to offer these services given its existing relationship with banks for other payment services such as ACH.
He also believes that The Clearing House (without naming them directly) solution will continue to be the only real time payment provider and therefore the Fed would provide needed competition and added market stability. It is clear that the Fed doesn’t believe that other faster payment solutions such as debit push payments or Early Warning’s Zelle are “real” faster payment solutions since settlement for those products is not real time.
Chairman Powell says that a decision on faster payments is coming “soon,” without any specificity. IF the Fed determines it will move forward, here are its proposed next steps:
“…should we proceed with the Federal Reserve RTGS initiative, next steps would include issuance of a formal Federal Register Notice (FRN) requesting comments on various aspects of the potential new service. With this input, the particular parameters of the new service would be developed, likely in an interative fashion involving multiple rounds of discussions with a wide range of banks, fintech firms, payment systems operators and service providers to all of these entities.”
That makes it seem like any solution from the Fed would be years away. Even if the Fed decided to develop a real time payments solution off of the new and improved Fedwire solution, that particular implementation isn’t expected to conclude through all phases until fourth quarter 2023. See the timetable here.
I suspect then that a real time payments solution would follow sometime after the wire solution. That is a very long time to wait while The Clearing House and other real time payment messaging (if not settlement) systems continue to expand their early-to-market advantage.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group
