KBW: Fed Working On Mobile Payments, Other Advances

October 9, 2018         By: Steven Anderson

It may surprise you to find out that the Federal Reserve has been working on the development of a “…ubiquitous, real-time payments settlement infrastructure” since 2013. Such a tool would mean faster payments, but not everyone’ s interested. Now, new word has emerged from Keefe, Bruyette and Woods—who sent said word our way—about the latest moves in the Fed’s quest for speeding up payments.

The latest word is that the Fed is looking for input on new actions that will work toward producing the new settlement system. The input will help produce two things: one, a new real-time interbank settlement system that will work non-stop, 24 x 7  x 365, and two, a new liquidity management tool that will allow for funds to move during “non-standard business hours.”

This is especially useful for things like PayPal, which notes that any transfers made on weekends or after a certain hour on weekdays will take longer to actually happen. It would also have a major impact on the card payments industry as well, allowing transfers to be made more rapidly and at all hours.

One major problem point is who actually pays for the upgrade? Projected costs run into the billions of dollars, and with major banks already working with The Clearing House—around 20 have already chipped in—on a real-time payments system, the incentive to chip in for a competing system is minimal.

Worse, there’s inertia; the current system is doing reasonably well, so why bother with the changes? There’s even a risk involved with such high-speed settlements, as those few who have developed more rapid settlement independently have used it as a competitive advantage.

Still, any new development on this front could be years away. There are some potential downsides to this plan, just as there are upsides. With consumer inertia in effect—plenty of places will likely figure “if it ain’t broke” is well in play—and the few who have already brought in faster payments unwilling to contribute or switch, this concept could be dead in the water.

Only time will tell how it all plays out, but right now, the Fed’s system may well stay on the drawing board for some time to come, a victim of minimal interest and massive potential risks.