Thursday, April 18, 2024

Real time payments: Does Fed have a role?

As technological advancements have been introduced into the mainstream of commerce, more and more consumers are asking for development of a faster payments system, one that responds in “real time.”
It’s the new norm of consumer expectations and bankers across the country are engaging with each other to determine the best course of action.

Today there is only one provider of a real-time payments network in the United States – the RTP® Network. Recently The Clearing House Payments Company, L.L.C., published its Statement of Business Principles clarifying how it plans to operate. The statement says:

Recognizing the unique position of the RTP® network in the current U.S. payments market as the only provider of faster real-time clearing and interbank settlement, the Supervisory

Board of The Clearing House Payments Company L.L.C. (TCH) has determined and directed TCH to operate and maintain the RTP network in accordance with the following principles:
Every federally insured U.S. depository institution is eligible to directly participate in the RTP network in accordance with publicly available, nondiscriminatory eligibility requirements.
TCH runs the RTP network as a utility for the benefit of the industry and RTP fees shall continue to be flat for all participants regardless of size, and shall not include volume discounts or minimum volume requirements.
The RTP rules, message specifications, use cases, and other educational resources are and shall remain publicly available.
The RTP network is designed and shall be maintained to promote safety and efficiency, and to support the stability of the broader financial system and other relevant public interest considerations.
The rules, overall strategy, and major decisions related to the RTP network shall reflect appropriately the legitimate interests of its direct and indirect participants and other relevant stakeholders.
To ensure relevant stakeholder interests are considered in the governance of the RTP network, TCH shall:
(i) establish one or more advisory committees with representation from non-TCH owner stakeholders (e.g., corporate end users, community banks and credit unions, consumer advocates);
(ii) participate in the Faster Payments Council,
(iii) periodically solicit input on the RTP rules, and
(iv) actively engage with regulatory agencies charged with responsibility for consumer protections, and safety and soundness of the financial sector.
(v) All major decisions concerning the RTP network will be clearly disclosed to relevant stakeholders and, where there is a broad market impact, the public.
These principles apply so long as the RTP network is the only provider of faster real-time clearing and interbank settlement. (emphasis added)
“Recently I’ve talked to a number of smaller banks that have approached me with their concerns about being tied into a single system,” OBA President and CEO Roger Beverage said. “Their concern is focused on the current TCH’s ownership, which is essentially controlled by their largest competitors. Monopolies are great – if you own it. Otherwise, there’s always a concern about costs and the volatility of those costs if there’s only one option.
“Most of these smaller, traditional community banks would rather have the (Federal Reserve System) engaged in the process of creating a new system. Creating a new, ‘real-time’ settlement process can’t happen overnight. Nevertheless, there is a considerable amount of support for creating such a system, if for no other reason than to provide long-term competition to help keep costs in check.
“In addition, creating such a new system will also provide governmental oversight of the infrastructure for the bank payment and settlement process. These smaller banks believe that the Fed’s effort as something that’s essential in today’s rapidly-consolidating industry.”
Virtually all banks, both large and small, agree with these generalizations:
They demand a payment/settlement system or process that’s safe, efficient and equitable in all respects.
The system must maintain the integrity of both the Federal Reserve banks supervision process and all clearing and settlement services.
It must be interoperable, thus enabling origination of a transaction on any new rail and received on another faster payments/settlement system (such as TCH).
It must be accessible to banks of all sizes.
Finally, any new system must restrict access to whatever payment system/settlement process only to chartered banks and other chartered financial institutions.

A most difficult task lies ahead. Consumers will continue to expect and demand the overall financial transaction process to be better, safer, faster and less costly. Whether that responsibility is realized by creating a new system, buying the existing platform or doing nothing at all is in the hands of Federal Reserve System.