Two of my favorite payments topics, Facebook’s Libra concept and faster payments came together in a column in Forbes. This article suggests to the Fed that they slow down and contemplate the topic of Libra more deliberately and speed up a decision to build and support a faster payments solution in the U.S.
I think the Fed and Congress have put the brakes on Libra, if they haven’t killed it outright. Federal Reserve Board Chairman Powell’s comments, that “Libra raises serious concerns regarding privacy, money laundering, consumer protection, financial stability,” and the project “cannot go forward” as it currently stands, and Senator Sherrod Brown’s more fiery comment that allowing Facebook to move forward would be like “toddler who has gotten his hands on a book of matches”, makes it difficult to see a bright future for Libra.
The article does suggest that a better use of the Fed’s time would be to make a decision to provide a faster payment solution. Some excerpts from the article:
Powell should pull the trigger and instruct the Fed to deliver on faster payments.
The irony is, the lack of a ubiquitous real-time payments system in the United States is one of the factors driving the creation of alternative payment systems like Libra in the first place. While one of the main use cases for Libra is to ease cross-border remittances, our country’s slow payments infrastructure exacerbates the financial challenges of those living paycheck to paycheck. That’s a problem the Fed can solve now.
Most people reading this column are generally immune to worrying about when the check they deposit today will be available to spend. But with nearly half of workers earning $15/hour or less, and 39% of Americans challenged to come up with $400 in an emergency, the one- to three-day gap between payday and when the money is actually available creates stress, drives up fees, and leads to increased credit usage for day-to-day expenses.
As long as the only real-time U.S. payments networks and products are owned by the country’s largest banks, those banks get to decide when and how to deploy them. The cash flow of the nation is simply too important to outsource.
To offer a different perspective, I don’t think that a Fed decision on a faster payment solution will speed up funds availability to workers. Payroll law requires that payroll be available on pay day. If payment happens electronically to an account or a prepaid card, that is typically through ACH. Employers and processors schedule their payroll files such that funds are available on the day that the worker is owed their pay. If there are issues and the employee is at risk of not getting their pay on time, there is Same Day ACH, wires, debit push payments and other widely available solutions to get that accomplished. There are also a growing number of employers who allow employees to access their pay in advance of a typical payroll cycle.
The Fed’s involvement can also slow down faster payment’s adoption. We know that many banks, credit unions and businesses are waiting to determine their faster payments approach until the Fed makes their decision. If in fact the Fed does decide to move forward, it will take years to build and launch. And then ubiquity becomes more difficult to achieve as organizations decide which of the various faster payment solutions available they should support.
A faster decision by the Fed on faster payments would be welcomed so the industry can move forward, regardless of the decision. It’s not a panacea to solve the cash flow issues of the low and medium-income Americans.
Overview by Sarah Grotta, Director, Debit and Alternative Product Advisory Service at Mercator Advisory Group