Observers Applaud Fed’s Payments Plan, But Lament Slow Pace of Progress

Now that the Federal Reserve has released its plan for faster payments in the United States, observers are applauding the effort while expressing some impatience with what they see as the central bank’s overly deliberate approach.

“The Fed is indeed headed in the right direction, but it is a slow boat,” says Bob Steen, chairman of Bridge Community Bank, Mechanicsville, Iowa. “I understand the politics, but we need to get something done.”

Some of the frustration stems from the Fed’s apparent reluctance to push financial institutions to help develop a speedier clearing and settlement system. When the Fed disclosed its long-awaited blueprint on Monday, officials were careful to explain the regulator would act more as a facilitator than as an actor in the effort.

It also issued a call for task forces to be staffed by industry executives to hash out the details of faster and more secure payments, a move some observers see as lacking clear objectives. “There is no commitment from the Fed to deliver on anything from this input,” notes Rene Pelegero, a payments-industry consultant who has studied the faster-payments issue, in an email message. “In other words, I could not clearly discern what are the deliverables from these task forces.”

Fed officials were not immediately available Tuesday for comment. However, they will be taking questions on the initiative Thursday in an Internet forum.

The effort to move to near real-time payments is seen by many as an essential component of modernizing America’s transaction networks. Some of these networks, such as the automated clearing house, are decades old and operate on clearing systems that take two or more days to deliver funds to payees’ accounts. At the same time, other countries, such as the United Kingdom, have already modernized their systems.

NACHA, the Herndon, Va.-based organization that oversees the ACH, has issued a proposal to move to same-day settlement. Industry players have until Feb. 6 to comment on the proposal. Meanwhile, The Clearing House Payments Co. LLC, a New York City-based processor and vendor of banking technology, has proposed building a real-time payments system. The Clearing House is owned by the nation’s biggest banks.

But while some see the Fed moving too slowly, they also concede the central bank must straddle a delicate divide between competing interests among banks, merchants, and other payments users—and sometimes within those camps. The Fed “is trying to lay out a direction, and some of the people who participate in this will have an agenda to slow this thing down,” warns Steen. “Hopefully, we’ll have more people wanting to move faster than not.”

Even executives with startup payments companies that have felt keenly frustrated by slow settlement times are prepared to concede the complexity of overhauling a massive payments system in which thousands of operators have an interest. “You have to be fair to these guys. What they have set out to accomplish is no easy task,” says Jordan Lampe, who carries the title of builder at Dwolla Inc., a 6-year-old payments processor in Des Moines, Iowa that has built a real-time platform called FiSync.

Indeed, without proper coordination, organizations could move at different rates, leaving a fragmented industry with some players capable of real-time payments and others not, Lampe warns. That would result in “more harm than good,” he says.

Still, some observers wonder whether the magnitude of the task might turn out to be greater than anyone imagined in 2012 when the central bank began investigating faster payments.

“Banks, businesses, consultants, merchants, consumers, all want a real-time payment solution and look to the Fed to lead,” says Pelegero. “But I think that the Fed might be in [the] proverbial dilemma of the dog that caught the bus—what do you do now?”