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Forming a More Perfect Union (for Faster Payments)
Thus far, conversations about the basic idea of moving ahead with near-real-time payments in the United States have been positive. However, the thorny business of "walking the talk" hasn't begun. When the time comes to do so, I expect less comity.
The degree of fragmentation in the United States—within both the public and the private sector—is significant. Consider the public side first. To avoid listing each entity that has a stake in payments services, let me sum it up by saying that if we had a box of Alpha-Bits, we'd run out of letters long before we put together the acronyms of all the agencies and organizations. On the private side, fragmentation starts with merchants and banks but includes mobile and third-party providers as well. These groups are vital to the success of any effort to improve payments, but they don't move in lockstep. In the end, for a faster scheme to work, the public and private sides have to work through their respective issues—and then come together.
Whether we're considering the public or the private side of things, some of the trickiest questions look like this:
- What will faster payments cost and who will pay?
- Will certain interests lose from the success of faster payments in the United States while others win?
- Can we build a faster system quickly and flexibly enough before the next wave of technological advancement makes the current vision obsolete?
- What are the rules, and who will administer and manage them?
While you ponder those questions, consider this excerpt from the United Kingdom's Payment Systems Regulator consultation paper (November 2014):
The Payment Systems Regulator (PSR)…will become fully operational in April 2015. The PSR is a subsidiary of the Financial Conduct Authority (FCA), but it is an independent economic regulator, with its own objectives and governance.
- UK payment networks that operate for the benefit of all users including consumers
- a UK payments industry that promotes and develops new and existing payment networks
- UK payment networks that facilitate competition by permitting open access to participants or potential participants on reasonable commercial terms and
- UK payment systems that are stable, reliable and efficient.
In setting up the Payment Systems Regulator, the Government highlighted four aims for UK payment systems:
The Government's assessment was that there were problems in each of the first three of these areas, and that the best way to tackle these was to create a payment system regulator. The Government noted particular areas of concern, including ownership, innovation and access to payment systems…. [W]e believe that our regulatory package will address the underlying issues and concerns that led the Government to setting us up. However, should our proposals fail to do this, we will…consider further use of our competition and regulatory powers to take action as appropriate.
That's one way governance issues could be resolved here. Another way is revealed through a study of the evolution of the ATM networks. Consider that landscape circa 1980s and then contrast it to today. I can't do justice to that history in a single post but suffice it to say that the issues faster payments currently face look similar to those the ATM industry faced. Back then, the market figured things out. Such a course may be slower than a mandate, and there will be failures and angst. Will the United States need a PSR to direct us to faster payments, or will the market figure it out?
By Julius Weyman, vice president, Retail Payments Risk Forum at the Atlanta Fed
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