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The Federal Reserve is widely expected to announce Monday whether it will enter the business of real-time payments as an operator competing with existing private-sector players.
A so-called public option from the national banking regulator could please retailers and small financial institutions concerned about whether the nascent real-time payments market is sufficiently competitive. But large banks, many of which have backed an entry from The Clearing House Payments Co. that has been in operation since 2017, argue a Fed alternative could create further delays as the central bank works to launch its alternative service.
The Fed will not release details about its Monday presentation, set for 1:30 p.m. Eastern Time. It has advertised the presentation simply as a talk on payments by Lael Brainard, a Fed governor. But observers expect Brainard’s talk will lay out the Fed’s decision and rationale on whether it will stand up a real-time payments alternative.
The Fed announced in October it would explore such an alternative, and has since taken industry comment on the idea. This summer Congress sent questions to Fed chairman Jerome Powell asking about a possible Fed service and the rationale for it. Powell responded late last month with a letter stating the Fed is “seriously considering” actions that would include establishing a real-time gross-settlement service. Yet, as recently as May, the Fed indicated it wasn’t close to a decision on the matter.
For its part, TCH has been at pains to stress its service is not aimed merely at serving the interests of big banks. In May, for example, it announced it had signed Hudson, Mass.-based Avidia Bank, with $1.6 billion in assets, for its real-time (RTP) service. Some 25 financial institutions own New York City-based TCH, including such banking titans as Bank of America Corp., Citigroup Inc., and JPMorgan Chase & Co.
“Anyone who’s been … tracking the exchange of commentary between Congress and the Fed, anticipates an announcement as early as today that the Fed will enter the Faster Payments marketplace as an operator—just as it does with wire transfers and [the automated clearing house],” says Steve Mott, a long-time payments consultant, in an email message.
“There has been buzz about this for some time,” notes Julie Conroy, research director at Aite Group, a Boston-based financial-services consultancy. “We know a number of smaller banks were pushing the Fed for this. They had concerns about being left out in the cold. [A Fed entry would] not be a surprise by any means. It’s certain to be fairly controversial though.”
TCH says it prefers not to comment on any possible Fed alternative until after Monday’s announcement. “Our focus, as it has been since we launched the [real-time payments] network in November 2017, remains on ensuring that the RTP network has reach to all depository institutions,” a spokesman tells Digital Transactions News by email. “To that end, TCH has been working with banks, credit unions, and their technology providers to enable connections to the RTP network.”
