Justice Department gives big banks green light on real-time payments

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Following an antitrust review that lasted almost a year, the Department of Justice has greenlighted a real-time payments network being developed jointly by the nation’s largest banks.

The government’s approval may boost the prospects of a system that is being built by The Clearing House, the payments firm co-owned by JPMorgan Chase, Citigroup, Bank of America, Wells Fargo and a host of other banks with more than $50 billion of assets.

“We are pleased that the Department of Justice has concluded that our forthcoming real-time payments system will promote competition in payment service. Their determination is well-timed as we prepare to launch the system later this year,” Sean Oblack, a spokesman for The Clearing House, said in an email.

The Clearing House, which first announced plans to build a real-time system in 2014, is generally considered the front-runner in a race to modernize the nation’s aging payment infrastructure.

But the New York-based payment company is contending with simmering tensions between big banks and smaller depositories that resent the control the largest firms exert in the payments business, a dynamic that could hurt adoption of the new system.

Any next-generation payment system will be more useful if it connects every U.S. bank and credit union, and The Clearing House has been marketing its embryonic system to smaller financial institutions around the country.

In October 2016, The Clearing House sought the Justice Department’s blessing under a process that allows companies to ask whether a proposed joint venture or other business conduct is likely to draw an antitrust objection from the government.

The Justice Department responded late last month in a six-page letter. Acting Assistant Attorney General Andrew Finch wrote that none of The Clearing House’s proposed rules seem to limit rival banks’ ability to access the system in a way that appears to be anticompetitive.

Finch also concluded that the new system may yield procompetitive benefits. “Many other countries already have such a system, and the Federal Reserve has encouraged its development in the United States,” he wrote.

The Clearing House’s real-time system is not expected to replace existing payment options, including the automated clearinghouse network. The bank-owned payments company told the Justice Department that it will not steer banks toward the faster system.

Finch’s letter provides new details about The Clearing House’s plans for pricing its real-time system — a key issue for banks mulling whether to join the network.

Participating banks would pay two types of fees, The Clearing House told the Justice Department.

One set of fees would be paid to The Clearing House for each real-time payment that a bank sends, and would not include volume discounts. The money would be used to cover the costs of operating the system, as well as to support the development of new functions and features.

The second set of fees would be paid, under certain circumstances, by the bank whose customer ultimately receives the payment. Instead of being paid to The Clearing House, the funds would go to the bank whose customer made the real-time payment.

The idea behind this second fee is to encourage the adoption of e-billing. The money would only be paid in cases where the two banks take advantage of a function in the real-time system that will enable users to send requests for payments and electronic invoices.

The size of the fee would be set by a panel of two or three outside economists, though The Clearing House would have the authority to reject the economists’ recommendation and refer the matter back to them for further consideration.

While the Justice Department’s letter is good news for The Clearing House, it is not a get-out-of-jail-free card. The DOJ reserves the right to bring an enforcement action in the future if the actual operation of the real-time system proves to be anticompetitive.

The conclusion of the antitrust review comes two months after a Federal Reserve-led task force on faster payments wrapped up its work. The task force established a goal that by 2020, anyone with a
U.S. bank account should be able to receive payments that are highly secure and delivered in something close to real time.

At the same time, the task force also released its evaluation of 16 private-sector proposals for a speedier payment system. The Clearing House submitted one of three proposals that was judged either “effective” or “very effective” across all 36 criteria established by the task force.

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Payments Real-time payments Faster payments P-to-P payments B-to-B payments The Clearing House Association Federal Reserve