For those who follow the U.S faster payments market, there has been a lot of activity and controversy stirred up this week that deserves attention. First, there were some signals that the Fed might be ready to announce that they are planning to become a direct operator of a faster payments solution. (PaymentsJournal article on that can be found here).
Then the conversation really kicked into high-gear by the introduction of a bill in Congress that would require the Federal Reserve to develop a real-time payments platform. A copy of this draft bill (only 11 pages at this stage) is available here.
The senators who are sponsoring the bill have commented that it is necessary that the Fed develop a payment utility so that consumers can cash checks more quickly and thus avoid millions in overdraft fees. They also have expressed that payments generally should be a government utility and not managed by the private sector and more pointedly, by large financial institutions.
Today, the American Banker publish this opinion on the state of affairs in the development of a ubiquitous real-time payments solution. It’s a good overview of how the interplay between large banks, smaller financial institutions, The Clearing House and the Fed have progressed over the last six or so years on this topic:
This divide within the industry is nothing new. Big banks have long played a major role in the nation’s payment systems. And small banks have resisted the big banks’ dominance out of fear that they will be disadvantaged unless the Fed offers a counterbalance.
Shortly before the launch of the RTP Network, The Clearing House asked the Department of Justice to conduct an antitrust review. The Clearing House was marketing its faster payment system to smaller financial institutions, and a thumbs-up from antitrust officials might have offered a helpful selling point.
During the antitrust review, The Clearing House told the DOJ that it would charge the same price to all depository institutions, regardless of their size. Nearly a year later, the Justice Department cited that assurance when it gave The Clearing House its blessing, saying that it had no intention to take an antitrust action against the RTP Network.
But then in April 2019, The Clearing House added a large caveat to its earlier pledge: Its commitment to charge the same prices to banks of all sizes will only apply as long as it is the sole U.S. operator of a real-time payment system.
While I don’t believe the Senate bill will progress very far through the legislative process, it has shined a light on some of the outstanding issues that need resolution.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group