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Encouraging the financial industry to explore faster payments is all well and good. Effectively directing it to do so, however, is beyond the Fed's authority.
February 18 -
The Federal Reserve Board has raised several concerns about the interbank fee that is part of an industry group's plan to make funds available to consumers on the same day. It's another speed bump in the road to modernizing the U.S. payment system.
February 12 -
The central bank is floating the concept of using the Internet to facilitate the direct clearing of transactions between financial institutions, which would likely diminish its own role in the U.S. payment system.
February 11 -
In a new detailed report, the Federal Reserve laid out four options for upgrading the creaky U.S. payment system. The study raised questions about how far the Fed can, and should, go to bring about change.
January 26 -
The Fed appears to have looked at Bitcoin as a means for real-time payments in the banking system but shelved the concept for now.
January 26
AUSTIN, Texas In a frank discussion of the hurdles facing proponents of faster payments in the U.S., a community banker expressed fear that a more efficient system may take many, many years to develop.
"I would have thought we would have had this by now," said Stephen Ranzini, president and CEO of University Bank in Ann Arbor, Mich., who has designed bank-centric, Internet-based payment systems. "The way things are going, it might not happen in my lifetime," said Ranzini, 49.
Suresh Ramamurthi, chairman of CBW Bank in Weir, Kansas, has already forged agreements with the major U.S. debit networks to
"To get this to work was painful," he said.
The bankers' comments highlight the enormity of the task ahead for the Federal Reserve and U.S. industry groups as they attempt to catch up with other countries, such as the U.K., that already have real-time payment systems.
Marc Hochstein, editor in chief of American Banker and the moderator of the discussion Monday at the Retail Banking 2015 conference, asked if customers are clamoring for faster payments.
"There are customers who want to move their payments same day," said Janet Estep, president and CEO of Nacha, the organization that sets the rules for the automated clearing house network. "But there are also use cases that will come to light once the capability is there."
Ranzini noted that in the Federal Reserve's recent faster payments
Ramamurthi pointed out that when consumers particularly millennials who have grown up in a digital world are searching for information on the Internet or sending text messages, they don't want to wait for results or delivery.
Asked what the best option for a faster payment system would be from
But Ranzini asserted that the ACH system is not suited to the task.
"The Fed considered building something new on the ACH system and rejected that alternative because the ACH system is based on batch technologies," Ranzini said. "I've thought the Fed's third option is best build something new that interoperates with existing ACH and debit networks." Current debit and credit systems suffer from a "complete and abject lack of security," he said.
Estep suggested that pieces of the current ACH, debit, wire transfer and even digital currency technologies operating today could be leveraged to speed up payments.
"Consider if you want to throw away everything you have or if you want to build on it," she said.
Hochstein asked if the government would need to
"There's a lot of dialogue going on in the private sector about what we can do if momentum is going to move forward," said Estep. "It's a tremendous amount of work to say, 12,000-plus financial institutions have to move in lock step."
Ranzini noted that the Fed for many years took a back seat on faster payment debates.
"The problem is some key players will do just about anything to keep innovation from happening," due to the profitability of the payments business for the large institutions, Ranzini said. "The other problem is any innovation you have runs quickly against the Bank Secrecy Act and other customer rules and regulations.
"If the government isn't willing to lead the reform effort, I don't see how it's going to happen," he said.
The discussion ended on an optimistic note as a screen flashed the results of an impromptu poll taken among attendees, who voted with the conference's smartphone app.
Asked when the U.S. would have "real-time, ubiquitous, secure payments," 66% said it would take less than five years, 29% said five to 10 years, and 5% projected more than 10 years.
None of the 65 respondents picked the fourth option: "not in my lifetime."
American Banker's Retail Banking 2015 conference, attended by 430 industry professionals, is ongoing in Austin this week.
