Fed announces it will develop real-time payments system

The OBA has been at the forefront of a nationwide effort to encourage the Fed to decide whether it would develop its version of a real-time payments in the U.S.

We’ve made the position known since last year and, like our colleagues, we believe every bank in the country and their customers will benefit from a seamless, ubiquitous real-time payments system.

Today, the Fed announced it plans to build and operate such a system and, thus remain an active participant in the payments process. The Fed will have a hands-on role in implementing its new system that will give smaller community banks a choice about which system to utilize. We hope today’s decision to create the Fed’s own real-time payments network will speed that transition.

The decision is only the beginning of the effort to create an alternative to the only RTPS available today through The Clearing House. The Fed estimates that its process – called FedNow – will be completed sometime in 2023 or 2024, which is well behind a Fed Task Force projection to have such a system in place by next year.

The reality is for at least the next three to four years, The Clearing House is the only game in town. It’s limited to federally insured financial institutions, something that may well differentiate the TCH operation from anything the Fed creates, which may be open to FinTech firms like Amazon, Facebook and other non-bank competitors.

We join with our colleagues in encouraging all banks to consider whether it makes sense for an individual bank to connect to the existing real-time payments network offered by The Clearing House. Any system created by the Fed must be fully interoperable with the RTP network. Moreover, we believe it should be accessible only to federally insured financial institutions, and not to non-bank entities. In addition, we believe the Fed’s system must also be available through all core processing companies and without volume discounts that disadvantage smaller banks.

We also encourage the Fed to create the liquidity management tool it proposed last fall. In doing so, we believe this new tool will enable our member banks and other financial institutions to better manage fund balances used to settle faster payment transactions. In other words, the Fed’s new system must be truly meaningful to the nation’s 4,000-plus community banks. The Fed should launch the LMT quickly and independently of any other actions it may take.