The Green Sheet Online Edition

October 14, 2013 • Issue 13:10:01

Fed outlines its vision for payments

The U.S. Federal Reserve believes the U.S. payments infrastructure can be faster and more efficient – with the Fed's help. The central bank of the United States said in a September 2013 report that "gaps" in the payments system limit payment services for some consumers and that opportunities around new technologies like mobile wallets can fill those gaps.

In Payment System Improvement – Public Consultation Paper, the Fed recognized that the success of the payments industry has been largely driven by private industry market forces, with little government direction necessary. However, new technologies and processes impacting payments today could use the guiding hand of government, according to the Fed.

The Fed identified eight weaknesses in the payments infrastructure:

1. Lack of payment mode options for receivers of physical checks;
2. Lack of near-real-time payment capabilities;
3. Limited consumer participation in innovative payment schemes such as mobile wallets;
4. Lack of consumer-directed features provided by legacy systems;
5. General slowness and inconvenience of cross-border payments;
6. Lack of payment instrument choice and visibility after consumers register for digital wallets;
7. Slow and complex payment and accounting systems used by mostly large businesses;
8. Payment security fears that inhibit consumer adoption of electronic payments.

Desired outcomes

The Fed also offered "desired outcomes" to be achieved by the industry in the next 10 years. First, it expects the industry to engage in a "collective and collaborative approach to improve" the system. Next, it seeks changes in the person-to-person money transfer process, such as the improvement in near-real-time payment capabilities and confirmation of good funds when transfers are initiated.

Furthermore, the Fed wants to see overall "societal" transaction costs to be reduced, as well as more choices for consumers and businesses when conducting cross-border payments. The Fed also expects its involvement in the industry will result in high public confidence in the security of financial services, despite an active cyber fraud landscape.

The Fed noted that legacy systems provide a "solid foundations for payment services," but innovative payment solutions have exposed their limitations. Until Dec. 13, 2013, the Fed is welcoming comments on these proposals at www.fedpaymentsimprovement.org.

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