Senators press Fed's Powell on real-time payments
WASHINGTON — A bipartisan group of senators on the Banking Committee is pressing the Federal Reserve to detail its possible development of a real-time payments platform, questioning how a government-run system would work in tandem with privately run systems.
Sens. Mark Warner, D-Va., Thom Tillis, R-N.C., David Perdue, R-Ga., Jon Tester, D-Mont., and Tom Carper, D-Del., wrote to Fed Chairman Jerome Powell that while they are open to the Fed pursuing a competing real-time payment system, they are unclear how it would benefit consumers.
“The ubiquitous adoption of real-time payments in the U.S. has the potential to create enormous economic efficiencies and to spur unprecedented innovation in financial services by allowing small businesses and consumers to conduct everyday financial transactions in seconds,” the senators said in the July 22 letter. “This innovation will be particularly meaningful for working families living paycheck-to-paycheck.”
The letter follows the Fed’s request for comment in October 2018 on how the agency could better support faster payments.
The Clearing House launched a real-time payments network in 2017, which is used by instant interbank payment systems like Zelle, PayPal and Venmo. But many community banks have been asking the Fed to create its own system, an option officials have been considering. Politico reported last week that the Fed is poised to issue a proposal soon.
The lawmakers in their letter expressed skepticism that the Fed should enter the real-time payments space, noting that in a 2015 report, the regulator pledged that it “would not consider expanding its service provider role” unless it was absolutely necessary to improve the technology already in place in the private sector.
The senators also noted that the Fed — according to its own policies — must meet three criteria before considering a new payment service, including coming to the conclusion that private providers cannot effectively offer a service and that the Fed will “achieve full recovery of costs over the long run.”
Warner, Tillis, Perdue, Tester and Carper asked Powell to explain why the Fed is considering its own real-time payments system, how it would support innovation, how long it would take until the Fed’s competing system would be operational and how much it would cost to develop.
Powell was also asked to clarify how a Fed real-time payments system would be “fully inter-operable” with real-time payments solutions in the private sector, and how that in turn would affect costs for community banks and credit unions, as well as what regulatory tools the Fed currently has to oversee existing payments systems.
In his semiannual testimony to Congress earlier this month, Powell said the Fed was reviewing comments from its 2018 request.