A  Better Way, Please

Last week I tried to connect my accounts at two different banks. Between account type mismatches (my bad), long account numbers, ACH micro-deposits, and balky websites, well, I’ll confess I put a check in the mail as a “quicker” way of overcoming the electronic barriers. Snail mail. Really?

That situation, and many more where speed matters, is exactly why the world is turning to faster payment systems that allow the accountholder to push money from an account she controls to a recipient in near real-time. To eliminate entry, and sharing, of bank routing and recipient account numbers, today’s faster payments systems are often enhanced by a directory that maps the recipient’s name to a mobile number or email address. The director connects those to the underlying bank account.

This is great stuff, especially for the United States where so many push payment methods exist based on closed loop or incumbent payment rails. The U.S. now has providers like Venmo using balance transfers and card rails (Visa Direct, Mastercard Send) to make realtime P2P transfers workable. NACHA has sped up the automated clearinghouse (ACH) system to run batches a few times a day to accomplish its Same Day ACH service.

We have Zelle, the P2P service stood up by Early Warning Services,  that combines a directory with immediate funds transfer availability for the recipient and interbank settlement running over, yet again, an incumbent payment system, in this case the ACH.

Every one of these approaches has merit and traction.

New Rails, New Rules

That said, the new realtime systems are growing here too. Built with modern software and messaging protocols, they promise to change how both end-user settlement and inter-bank settlement is accomplished.

The first on the scene was the Real Time Payment (RTP) network from The Clearing House (TCH). Launched in 2017, the largest financial institutions and bank processors are integrating their core systems—the software that manages accountholder balances and transaction activity—to the RTP Network.

And this summer, the Federal Reserve announced it will build and operate its own faster payments system called FedNow. Like TCH, the Fed has operated multiple payment systems and been the preferred operator for the nation’s smaller financial institutions.

New Complexities

Competitive pressures, market guidance, and regulation are what move the U.S. economy. The Federal Reserve provided plenty of guidance to encourage development and deployment of faster payment systems. THC’s RTP Network was among the first to respond.

These new rails are a result of a multi-year effort by the Federal Reserve to shepherd the highly competitive U.S. payments industry toward the development of these faster payment systems. The RTP Network and FedNow are proof of its success and that of the Faster Payments Task Force, the group convened by the Fed to define the characteristics of the new approaches. 

But there’s still a lot of work to do. Questions of governance, implementation, and more abound. Interoperability concerns are especially high. These are, after all, competitive systems.

The New Organizing Principle - The US Faster Payments Council

To keep the evolution of the U.S. faster payments moving forward, the US Faster Payments Council was formed. Many Task Force members have joined as members of the Council.

The Council serves as an industry-led organization that supports collaboration across multiple areas including security, end user education, and interoperability.

In other words, the Council will be herding some very big cats.

The U.S. Faster Payments Barometer

To support its education and collaboration efforts, the US Faster Payments Council is conducting a survey of industry views on faster payments advancements. A multi-year survey, to monitor the momentum and evolution of Faster Payments here in the U.S. market.

The survey is designed to identify key criteria for market adoption, broadly gauge momentum for various use case applications, and seek to address challenges to be solved in order to have a well-established Faster Payments ecosystem.

Take the Survey

Talking Faster Payments

In this Payments on Fire® episode, Faster Payments Council Executive Director Kim Ford discusses the Council’s work, the U.S. Faster Payments Barometer survey, and where we are today with Glenbrook’s Beth Horowitz Steel and Elizabeth McQuerry. Take a listen and take the survey. You’ll contribute to the Council’s education, planning, and prioritization work.