Fed Task Forces Evaluating 19 Proposals as Industry Works Toward Faster Payments

With an eye on having tangible proposals out by mid-2017, two Federal Reserve task forces are about to evaluate 19 plans to make electronic payments faster.

Speed and security usually come to mind first when payments executives talk about improving the U.S. payment system, but other factors increasingly important to the future of payments include interoperability and links to new systems being developed outside the banking system.

All of those topics came up Wednesday at the Federal Reserve Bank of Chicago’s annual Payments Symposium. The dominant theme was the work of two task forces that will evaluate faster-payment proposals submitted under the auspices of the Fed’s Payment System Improvement project. The Fed began discussing improvements to the U.S. payment system in 2013 and last year formally launched the project, which the central bank says is being led by the private sector.

The Fed is holding off on identifying the 19 entities that submitted faster-payment proposals until the review process, which will involve about 500 people from banks, tech companies, vendors and other firms, is farther along, but a few have declared that they’ve submitted entries. They include The Clearing House, which is working with processor Fidelity National Information Services Inc. (FIS); and Dwolla Inc., a Des Moines Iowa-based tech firm working to leverage the automated clearing house network. And just last month, ACH governing body NACHA launched the first phase of its same-day settlement initiative.

One task force is charged with exploring faster payments and the other with security. The faster-payments group will issue a final report in two sections. The first, scheduled for release in January, will review perceived gaps in the U.S. payments system and the methodology members used to evaluate proposals. The second, coming out at mid-year, will assess the specific proposals. Consulting firm McKinsey & Co. evaluated initial proposals against more than 30 criteria task-force members agreed upon, with 19 proposals moving on to final reviews.

The final report “will outline what an end-to-end faster-payment system could look like in the United States and discuss the possible effectiveness of different proposals, while highlighting strategic issues deemed important to the successful development of faster payments and actions needed to advance implementation and adoption,” said the conference’s keynote speaker, Esther L. George, president and chief executive of the Federal Reserve Bank of Kansas City.

Unlike the experiences of some other countries, Fed officials have said they have no plans to impose major changes on the payments industry in the U.S.

Any improvements to the decentralized U.S. payment system may involve greater connections between disparate networks and other players as evolving payment systems offer more services to consumers. They include international small-value person-to-person payments.

“The current financial system isn’t set up for that,” said Stefan Thomas, chief technology officer at San Francisco-based Ripple Labs Inc., a provider of shared ledger database services that settle almost instantly. Thomas was a member of a conference panel about interoperability in payments.