Innovation has fueled the need for faster payments, and a Federal Reserve task force is entering the second part of a three-phase initiative to improve the speed of payments.
In a special address Wednesday morning, Sean Rodriguez, Faster Payments Strategy leader for the Federal Reserve System, outlined some of the progress the 320-member Faster Payments Task Force has made doing since starting work on the initiative last June.
“It’s really an exciting time in payments,” he said. “I’ve been at the federal reserve for over 30 years … and I’ve seen nothing that comes close to the fervor and enthusiasm that exists for taking this payments system to a whole other level.”
The faster payments initiative came about in 2013, as the country started to emerge from a five-year financial crisis and financial institutions started to think about the future of payments.
During that five year period, a great deal of innovation relative to the payments space, with startups like Uber and developments such as mobile wallets, had been taking place.
As financial institutions decided it was time to pay attention to the payments space, the Federal Reserve followed suit and started looking at how to make the payments system faster. They decided that the issue merited a task force.
“We said we at the Federal Reserve should lead a dialog about what we collectively — financial institutions, end users, payments systems stakeholders, — should do to improve our payments system,” Rodriguez said.
In 2015, the Faster Payments Task Force came up with five desired outcomes for an improved U.S. payment system:
“My opinion is if we have capabilities that meet and exceed these criteria across the board, it could be lightning in a bottle in terms of innovation to the payments system.”
Why faster payments?
Rodriguez laid out several reasons why a faster payments system is becoming a priority:
- Stakeholder demand for faster payment options: When the conversation about faster payments first started, Rodriguez said there was a lot of pushback about what the business case was since the U.S. had a $15 trillion economy that was already running pretty well. “What started to happen was some momentum toward: ‘Why are we not doing this?”
- Payment system fragmentation: Rodriguez pointed out that there are more than 10,000 financial institutions of all sized in the United States that need to come together for the option to work. Many organizations are providing real time capabilities, but they are closed-loop networks. “We need to move to an environment where they can interact with each other.”
- Leverage technology for efficiency and security gains: The technology is available, Rodriguez said. It’s a matter of getting the commercial interests lined up in the right direction to address those opportunities. “There’s nobody who says technology is standing in our way. In fact, there’s so much technology available now that this is not going to be the barrier we’re trying to overcome.”
- Modernize U.S. payment infrastructure to keep pace with global trends: Many financial institutions are operating on 40-year-old technology, he said. “People are realizing this is an opportunity to refresh our back-room operations, not only at financial institutions but with end users and corporations and businesses of all sizes.”
- Engagement of the unbanked and underbanked population: Giving people the ability to send and receive money within a matter of seconds will open up opportunities for the these groups, Rodriguez said.
Where it’s at
The task force has been working on strategies for a full year now and completed its planning phase, the first of three, in January. The second phase will begin in April and will consist of working with a services firm to assess various solution proposals for a faster payment capability.
The third and final phase will consist of documenting all the work that the task force has done and will take place from November until March 2017.
“We don’t believe that at the end of this process that we’re going to have ‘the’ answer,” Rodriguez said. “We believe we’ll all be more informed about what the capabilities are and can be, and that there will still be a number of issues that will still need attention and focus.”