An article in the American Banker highlighted the competing views on whether or not The Federal Reserve should become a real-time payments operator, competing with The Clearing House (TCH) and any other provider that may want to enter the faster payments fray.
In one corner we have the view expressed primarily by community banks and consumer advocacy groups that having one industry supplier, in this case TCH, does not provide for a competitive market. There is also a level of distrust that community banks have of the large banks that are owners of TCH to keep their customers’ data private:
Cary Whaley, a vice president at the Independent Community Bankers of America, said in an interview that his organization favors a system similar to the one long used for automated clearing house transactions.
Banks have the option of routing ACH payments over competing networks, either one operated by The Clearing House or another by the Fed.
He added that a Fed-operated service would ensure that all 11,000-plus banks and credit unions in the U.S. have access to real-time payments.
And in the other corner we have the bigger bank view that adding another player, particularly at this stage of faster payments’ development in the U.S,. will slow adoption and create significant integration issues, impeding the path to ubiquity:
Steve Ledford, a senior vice president at The Clearing House, argued in an interview that a real-time service from the Fed is unnecessary because the RTP system will reach 50% of all U.S. transaction accounts by the end of this year. He added that The Clearing House has a credible plan to reach all U.S. financial institutions over time.
In addition, Ledford argued that if the Fed decides to build its own settlement service, adoption of real-time payments will happen more slowly, given how long it will take for the work to be completed.
“We all feel there’s a need to get there quickly,” he said.
In arguing that the Fed should take a smaller role, Ledford also pointed to technical challenges associated with making two real-time systems interoperable. Interoperability would enable a payment to be initiated on one of the two systems and completed on the other one.
Community banks, large banks, and any industry participant can weigh in on this topic through a request for comment proposal from the Fed. More on that here.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group