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Federal Reserve Launches Consultation to Address Consumer Demand for Faster Payments

The US Federal Reserve Bank has begun the process of planning for the launch of a fast payment system in the US, after research found that US consumers were in favour of such a system, so much so that they would be willing to pay a premium for it.

Early in the year, the Federal Reserve Bank commissions the McKinsey Global Institute to conduct a study on whether or not there was demand for a faster payment service. The firm found that 70% of consumers wanted a payments service that was either capable of instant or one-hour payments and that they would be happy to pay for it. In response to McKinsey’s findings, the Fed carried out their own assessment of faster payments, their potential to accelerate the US payment system, and to consider the impact of each option they identified for such a system.

The options identified by the Fed as candidates for for faster payments within the US market was to improve their automated clearing house (ACH) system, improving the current system to allow for faster and more frequent batch clearing, upgrades to ATM and PIN infrastructure to make it as close as possible to being real-time, switching to direct clearing of payments over public IP networks, as well as looking into the feasibility of building entirely new infrastructure altogether.  

All of these options have entered into and will be considered with the Feds newly commissioned Payments System Improvement consultation.

“We are not saying the Fed has made a decision to build a faster payments system,” said Gordon Werkema, first vice-president and chief operating officer, Federal Reserve Bank of Chicago. “We have a process in place for consultation and workshops and then a roadmap. We outlined a process to define how it would go. That would then drive a calendar and time frame. We don’t know the answer until we sit down with the industry.”

The Fed realises that any changes to current payment infrastructure won’t be easy, with each option presenting its own set of unique challenges. Despite these challenges, and according to Federal Reserve Bank of Chicago senior vice-president Sean Rodriguez who said of the consultation that “Six to eight months ago people weren’t sold on the need for a faster payments system,”

“That has changed. We are now talking about what it should look like and how we can fit it in. We think there are gains to be had from faster ACH and we are working on that. We will work on collaboration through the councils. Look at our websites and forums – there will be a lot more to come. This will lead to significant improvements in payment system capabilities.”