In December banks, credit unions, fintech businesses, retailers, and technology providers submitted comments to the Federal Reserve regarding their proposal to become a real-time payments operator. Big banks are supporting the already launched RTP solution created and supported by The Clearing House (TCH) which is owned by said big banks. Smaller banks and credit unions plus retailers want a Fed alternative to TCH, assuming that the Fed will provide a market alternative and serve to keep the playing field level and pricing in check. An opinion column in the American Banker suggests a Fed option is not a cure-all to achieving a ubiquitous, cost-effective solution:
In the absence of solid private-sector alternatives, the Fed would be a logical second real-time-payments processor. However, there are private-sector payment networks and processors with the wherewithal, and perhaps, the interest to compete in the U.S. instant-interbank-payments market.
Mastercard is the U.K.’s monopoly interbank real-time payments processor. It has direct or indirect processing relationships with U.S. banks large and small. And while not retail, interbank-payment processing, decidedly, is a network business. Assuming it’s not restricted by its relationship with TCH, Mastercard would bring much to the domestic interbank-payments market, plus have a plausible path — or paths — to interoperability with national interbank-payment systems planetwide.
Ubiquitous Visa, and FIS and Fiserv, using their debit rails, also provide faster payments. Interoperating with other networks, they all could provide systemwide instant interbank payments.
There would be a downside to the Fed entering the real-time interbank payments market. With its scale and role as the financial system’s chief regulator, the Fed would deter additional private-sector parties from undertaking to serve the market.
The tech titans Google, Amazon and Apple and the payments phenoms PayPal and Stripe urged the Fed to provide real-time interbank payments. Yet they would howl in protest if Washington proposed providing internet search and retail-payments processing to ensure equitable access. In their realm, they understand having the state competing with private firms isn’t in their or the public’s interest.
And, small banks are keen for the central bank to provide an instant interbank-payments alternative to TCH. The Independent Community Bankers of America declared ubiquity “may never be achieved without the Federal Reserve developing and operating a RTGS service and interoperating with the private-sector solution” — in other words, TCH.
Having the Fed offer real-time interbank payments, would be better than relying on one private-sector provider. If the Fed develops a real-time interbank payments system to ensure system competition, it should ultimately sell it to a private-sector operator(s).
A dynamic instant interbank-payments market with TCH — and ideally a handful of other private-sector players competing — would deliver maximum societal benefit.
One could also argue that too many faster and real-time payment players are not in the best interest of the payments market. It will be more difficult to achieve ubiquity if there are a multitude of solutions. Adoption will also be slowed as financial institutions and businesses take a wait and see approach to decide which provider best serves their needs.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group