Politico posted an article that claims to know that the Fed is going to be announcing their decision regarding a real-time payments platform soon and that they will indeed create a solution to compete with The Clearing House’s RTP solution:
Big banks are preparing to go to war against the Federal Reserve, which is poised to announce that it will develop a new instant payments system to compete with the lenders’ own nascent version.
I find that a little surprising.
I do think that the Fed will likely announce a decision in the coming months because the payments industry is holding its collective breath and, in some corners, it’s paralyzed until the Fed makes an announcement. But I do not believe that they will commit to becoming a real-time payments operator, build out a platform, integrate with financial institutions, maintain the system, and secure it. That will take millions of dollars and more than a year to accomplish.
Before making such a commitment, the Fed needs to prove that there is market need and the banking sector is not served by the existing solutions. I don’t think that the market has had enough time to prove that point. Plenty of financial institutions have launched Zelle, the real-time P2P solution, and nearly all banks receive debit push payments that operate through the global card networks for account transfers and disbursements.
The Clearing House’s solution still needs time, however. We cannot expect that smaller institutions who are dependent on their core processors for their technology would be up and running with real-time payments while their core processors are still developing and perfecting their integration tools to help the smaller institutions to offer RTP.
While I could be wrong, I believe the Fed will announce that they are not committing to a time table for offering an alternative real-time payment solution until the market has actually had time to develop the tools to do this smartly and with the right tools in place. The Fed can always leave enough wiggle room so they can jump in later if they feel it necessary.
Of course this pending decision from the Fed is becoming politicized as the article points out:
“I don’t see the need for it,” Sen. Pat Toomey (R-Pa.) told POLITICO. “The private system has committed and would be obligated to be available to all regulated financial institutions.”
“I’m not in favor of the government going into the car business … [or any kind] of other businesses where the private sector provides services,” he added.
But Sen. Chris Van Hollen (D-Md.) said a real-time payment system shouldn’t be “in the hands of a private monopoly.” “It’s important, No. 1, that we have real-time payments, and I think it’s a public trust,” he said in an interview. “It’s a mistake to allow that system to be under the control of the big banks.”
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group