The public option for real-time payments is taking too long

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Now that the Federal Reserve has decided to offer a real-time payments system, the wait for them to actually launch it begins.

The Fed itself has said it will be years before the system is ready. I am hopeful—as are other interested parties, I’m sure—to get some answers to pressing questions around timing, access and especially interoperability.

What shape the Fed system takes, and what banks do between now and 2023 or possibly even 2024, is vital. The ability to simultaneously move funds and vast amounts of data in a secure and regulated environment 24/7/365 will change consumer and business expectations forever.

As president of First State Bank of St. Charles, a $400 million bank located in a metro area, I have kept a watchful eye on the evolution of the payments system and technological advancements in the industry. Our goal is to move as swiftly as possible on industry innovations to remain competitive with the nation’s largest institutions, yet continue to provide our clients the personal service for which our community bank is known.

Andrew Harrer/Bloomberg News

As an industry, we have proven banks can think creatively and innovatively by building the structure for a new real-time rail years before the Fed. Yet numerous questions continue to surface in my mind and the minds of other community bank leaders throughout the country: Do we partner with The Clearing House’s Real Time Payments network, which is owned by the nation’s largest banks, to offer this new service to our customers, or, do we wait on the sidelines until the Federal Reserve or another private entity can deliver a comparable viable product?

For us, the answer is to take action now. Our core service provider is currently working with The Clearing House to allow us, and banks like ours, to plug into RTP. That option will soon be available, and we intend to participate. Our vision and strategic decisions will always be customer-centric, without prejudice, while ensuring the safety and soundness of our institution. Moving forward now makes sense for us and our customers rather than waiting.

I feel it is critical for banks to continue to act as the payments hub for our customers. In my comment letter to the Fed last year, I indicated I would be in favor of the central bank developing a real-time payments capability as long as they could move swiftly on their decision to build a rail and their timely development of it.

More importantly, though, the Fed’s system must be interoperable with RTP. If we don’t have interoperability on Day One, the payment system will become fragmented. Multiple systems that are not interoperable will make achieving ubiquity impossible, because many banks in this country do not have the capacity to establish multiple rails. The Fed needs to make interoperability an integral part of their development process now instead of trying to retrofit a solution after they begin processing live transactions. The lack of interoperability will ultimately limit consumer choice.

As a bank president looking to offer our customers the very best, most innovative products and services, I will be watching FedNow carefully and keeping an open mind.

When policymakers take a closer look at real-time payments, here are the key questions they should be asking: Will the Fed system be interoperable with RTP to ensure the systems work together seamlessly and ubiquitously? Will it be built to operate solely within the secure confines of the banking system? Will the fee structure offer the same pricing to all banks regardless of their size? These are critical, foundational issues that will help frame the decision-making around payments for thousands of banks.

There is no way to know exactly what the market will look like in 2023 or 2024, but in the meantime, I am focused on leveraging a solution that can help our customers right away.