By Laura Alix
Positioning itself as a “catalyst for collaboration,” the Federal Reserve System recently laid out its vision for a payments utopia and outlined several strategies for getting there, including the creation of two industry task forces sometime early this year.
The payments system of the future would be fast, safe and efficient. U.S. consumers would have better options for sending payments across borders, and players in the payments system would collaborate to make sure consumers could send payments seamlessly across a myriad of providers, the Fed wrote in its recent paper, “Strategies for Improving the U.S. Payment System.”
Getting there, the Fed said, will mean engaging with stakeholders on initiatives to improve the payments system, identifying approaches to that goal, working to reduce fraud risk and advance safety in the system, achieving end-to-end efficiency for domestic and cross-border payments and enhancing Federal Reserve Bank payments, settlements and risk-management services.
One of the main initiatives underpinning its lofty goals is the creation of two payments-related task forces representing financial institutions, payments processors and other industry players. The Fed said in its paper that it intends to establish the task forces in the early part of 2015.
Speaking in a webcast discussing the Fed’s vision, Esther George, president of the Federal Reserve Bank of Kansas City and a member of the Federal Reserve’s Financial Services Policy Committee, said, “One task force will lay the groundwork for developing faster payment capabilities for the United States and to identify solutions for a broadly accessible, faster payment system, which could involve creating new systems or enhancing existing infrastructure. A second task force will focus on payment security, with diverse stakeholder representation and will advise the Federal Reserve on security issues and help us identify priorities that require action.”
The Fed’s declaration of intent was met with praise from players in the payment system. The National Automated Clearinghouse Association (NACHA) applauded the Fed’s vision and also sought to draw attention to its own Same Day ACH initiative, its own phased approach toward same-day settlement capability.
Payments tech giant Fiserv also cheered the Fed’s vision.
“We absolutely believe that the Fed is doing the right thing in getting a variety of representatives in the payments industry to have a conversation around these different strategies,” said Matt Wilcox, Fiserv’s senior vice president of marketing strategy and innovation. “I don’t think they’ve outlined a solution to a problem, but they’ve outlined that they can get these groups to come to it and have a conversation.”
To be sure, the vision the Fed lays out in this strategy paper is a grand one. It took two years of putting its head together with just to get to this point, and the Fed stressed in its communications that it was not looking to build its own payments infrastructure unless it could be absolutely sure the private sector would not meet that need.
“There’s a lot of innovation going out there in the private sector, and private sector companies are better set up to innovate and make quick decisions about developments in the market than any government agency is,” Federal Reserve Board Governor Jerome H. Powell said in the webcast. “We don’t want to unnecessarily broaden our role and thereby unintentionally get in the way of that kind of innovation.”
For its own part, the Fed has pledged to expand the operating hours and capabilities of its National Settlement Service, expand its international payment services and expand its own risk-management services.
For a payments technology provider like Fiserv, one of the big challenges is something Wilcox refers to as interoperability, meaning that users can send each other payments regardless of the network they use. A consumer who uses Fiserv’s Popmoney, for instance, isn’t limited to sending those funds only to others who use Popmoney.
“The reach isn’t what it needs to be,” Wilcox said. “From a barrier to entry perspective, it’s difficult when you have multiple networks and multiple entities involved.”
Describing Fiserv’s own vision as being “in lockstep with the Fed” but stressing that it would not wait on the Fed, either, Wilcox said Fiserv had already partnered with several card networks and other payments networks in an effort to increase that interoperability they want.
“Creating additional collaboration in the industry and having these types of conversations, which I think is what the Fed is going to do. I think that’s exactly what we need their help with,” he said. “We were excited to see what they’ve come out with and we’re excited to participate in the next steps.”
Laura Alix is a staff writer for The Warren Group. She may be reached at email@example.com.