Credit unions are warning the Federal Reserve that moving to a real-time payment system would increase IT and personnel costs. But they also acknowledge that a failure to make the move could endanger them and other domestic financial institutions.
The regional Fed banks received nearly 200 comments in response to a white paper published last fall on modernizing the nation's electronic-payment system.
Typical of the 22 credit unions and credit union trade groups that responded to the white paper, MSU Federal Credit Union Payments Service Manager Jackie Heniser cautioned real-time transactions would increase fraud risk and the time and money her $19 million credit union would have to spend on error resolution.
"The faster it can go and be gone, the more fraud and errors due to lack of opportunities to double check and/detect errors before [there will be]," she wrote.
But Heniser, whose credit union is based in Murray, Ky., warned the biggest danger for credit unions may not be moving toward a real-time system.
"Other payment solution vendors will emerge, dominate and control our payment systems and our customers," she said. "Our customers will gravitate to these other vendors who will begin to offer other products and services and basically we will lose our customers and go out of business."
Back in 2012 the nation's largest banks killed a proposal to require banks to process automated clearinghouse transactions on the same day they're initiated, rather than the following day.
Nonfinancial companies that have a stake in the payment system are widely seen as more supportive of modernization efforts than some of the nation's largest banks are, so soliciting nonbanks' opinions could help Fed officials to overcome opposition to an overhaul.
The regional Fed banks plan to publish a paper in the second half of this year that will communicate its decisions about future initiatives to improve the payments system.
"We are carefully reviewing the feedback that we have received on the consultation paper to identify common themes and issues for future focus, as well as insights into potential solutions," said Cleveland Fed President Sandra Pianalto in a statement.
In last September's white paper, the Federal Reserve banks laid out a series of "desired outcomes" it would like to see within the next decade.
Among its preferred outcomes is the idea that by 2023, any U.S. bank account holder should be able to make a near-real-time payment to any other U.S. bank account holder. That kind of speedy payment system has already been built in countries such as Sweden and the United Kingdom.
Cutler Dawson, president and CEO of $55 billion-asset Navy Federal Credit Union, Vienna, Va., challenged the contention in the report that because faster payments are becoming more common globally, the U.S. needs to follow suit.
"In many countries where faster payments have been mandated, it was done for credit 'push' transactions only," Dawson noted. "This is a notable difference from mandating faster settlement of both debits and credits."
And for all the talk about speeding things up electronically, Woody Shuler, CFO at $654 million SRP Federal Credit Union in North Augusta, S.C., reminded the Fed that cash is still the most effective, ubiquitous real-time payment system.
Kevin Wack contributed to this story