The nation's small banks have long feared that when the U.S. eventually adopts fast payments, the biggest banks will be in charge.
But some small institutions are working hard to avoid that fate — competing head to head with the big banks in a competitive process, overseen by the Federal Reserve Board, to modernize the nation's payment system.
The Fed said this week that 19 different proposals are currently under consideration, after three submitters decided recently to withdraw their plans. The remaining proposals — roughly 3,100 pages in all — will now be reviewed by two Fed task forces, whose nearly 500 members include people from the private sector, government and consumer groups.
Fed officials are not revealing the identity of the submitters, arguing that unwanted publicity might discourage participation in the process. But the chief executives of two small banks — one in Michigan and the other in Minnesota — confirmed Thursday that they authored proposals.
Of the two, the plan from University Bank in Ann Arbor, Mich., is the more ambitious.
Stephen Lange Ranzini, the bank's chief executive, envisions a system in which secure payments, ranging from quite large to a fraction of a penny, could be made by email or text message.
As one potential application of the technology, Ranzini hopes to eliminate spam email by allowing recipients to set a price that senders would have to pay to gain access to their inbox. Spamming would no longer make economic sense if sending an email carries a price tag.
"It's like a form of postage," Ranzini said. "It would create huge value and huge productivity savings, not only for the banking industry, but for industry in general."
The proposal would rely on certain cryptography patents that University Bank owns, and is being developed in conjunction with Edward Scheidt, a former director of the CIA's cryptographic center.
But University Bank has just $216 million in assets, and Ranzini recognizes that he will need buy-in from at least one large banking institution to get the idea off the ground. "We're not building this ourselves," he said.
The second proposal, from North American Banking Co. in Roseville, Minn., is much simpler and less revolutionary. It involves a smartphone app that has already been built which enables consumers to make person-to-person payments.
The app uses the Automated Clearing House network, which allows for payments that can be received as soon as the same day, but are not close to real time.
The app would work via a bank account and prepaid cards, but could be branded separately by thousands of banks and credit unions across the country.
"I tried to make it easy and cheap. It doesn't have a lot of bells and whistles," said Michael Bilski, the CEO of the $388 million-asset North American Banking.
The Independent Community Bankers of America, a trade group for small banks, has signed on to North American's proposal.
Cary Whaley, the group's vice president of payments and technology policy, said that the plan should be inexpensive for small banks to adopt.
"If you're only able to transact payments with the folks who bank at big banks, you're not reaching everybody," he said.
To be sure, when it comes to building a faster payments system, the nation's big banks have a head start and the advantages that come with scale. Bank of America, JPMorgan Chase, Capital One Financial, U.S. Bancorp and Wells Fargo all currently enable fast person-to-person payments over a shared network. Moreover, The Clearing House, which is owned by the nation's largest banks, has been building a real-time payment system. Earlier this year the group said that it submitted its plan as part of the Fed's faster payment process.
The Fed's multi-year process is scheduled to culminate around May or June of next year, with the public release of a report that includes detailed evaluations of all the proposals. The Fed's task forces do not plan to crown a winner, but the proposals that score best are expected to have an advantage in the market.
Sean Rodriguez, the Fed's strategy leader for faster payments, complimented the 19 submitters for the effort they have put into the process so far.
"It's a gutsy move, and it's a lot of hard work on their part to do this," he said.