US moving towards faster payments
The demand for ‘faster’ or ‘instant’ payments has continued to grow around the world. In recent years a number of countries have responded by developing a new national faster payments system with a single operator (our article Realtime payments race ahead summarises recent developments in several countries).
The USA is however taking a somewhat different route. The country’s Faster Payments Task Force, established in 2015, has now issued its final report, which states that “the United States is taking a market-driven approach [which] relies upon multiple solution operators and other stakeholders voluntarily collaborating”. The report claims that this approach will deliver a payment system that is “faster, ubiquitous, broadly inclusive, safe, highly secure, and efficient” by 2020.
There is however one part of the solution which will require a single system, and this is the settlement process that transfers funds between the payer and payee service providers. There is no real-time service of this kind at present in the USA, and so the report asks that the Fedral Reserve develop a 24x7x365 real-time settlement service.
In terms of messaging standards, the report does not enforce the use of ISO 20022, but encourages its adoption at some stage, stating: “solutions that do not support ISO 20022 at launch should provide details and timelines for the introduction of additional solution functionality”.
So what is next? The report identifies a number of ‘next steps’, in three broad areas – governance and regulation, infrastructure, and sustainability and evolution:
Establishing a formal governance framework;
Establishing rules, standards, and a baseline set of requirements for the faster payments system that would enable payments to cross solutions securely and reliably, and ensure end users have predictability and transparency in certain key features pertaining to timing, fees, error resolution and liability; and
Evaluating laws and regulations affecting payments and payment service providers to ensure that they are suited to the unique characteristics of real-time payments.
Developing a design for faster payments solutions to interoperate via directory services;
As mentioned above, requesting the Federal Reserve develop a 24x7x365 settlement service; and
Requesting the Federal Reserve explore and assess other operational role(s) the Federal Reserve might need to play to support ubiquity, competition, and equitable access to faster payments.
On sustainability and evolution:
Developing methods for fraud detection, reporting, and information sharing to continuously advance the safety and security of the faster payments system;
Creating advocacy and education programs to support broad adoption;
Researching cross-border payments to identify and address gaps and barriers to enabling faster payments for this use case; and
Continuing research on emerging technologies to deepen understanding of the risks they may pose as well as the benefits they may offer, including the potential for serving underserved end users and use cases.