At the moment, the United States is lagging behind other countries when it comes to the processing speed of its payments; there are already countries in Europe and Asia that are able to make instant payments. Despite the 24/7 culture that is so prevalent in the U.S., 24/7 payments are not yet an American reality.
That should soon change – as early as within the next few years. Recognising the need to catch up with other parts of the world and to prepare itself for faster payments domestically, the U.S. has set up a Faster Payments Task Force. Its remit is ‘to identify and evaluate alternative approaches for implementing safe, ubiquitous, faster payments capabilities in the U.S.’
The Task Force, set up by the Federal Reserve, will assess the various approaches of implementing real time payments in the U.S. It has established a Steering Committee made up of 19 payment professionals representing financial institutions, consumer groups, merchants, government and FinTech representatives. Collectively, they aim to identify the best approaches for implementing faster payments by December 2016. The U.S. knows it has to play a fast catch-up game.
There is a huge challenge for the U.S. in that it is a huge country with a large network of nearly 18,000 financial institutions. Countries with smaller bank networks, such as Australia and Canada, can move more quickly and easily.
There is also the issue of cost. A recent study by McKinsey put the cost of a faster payment system at $3 billion to $7 billion. This figure does not even include the costs to banks and other bodies involved – such as corporates – to upgrade their systems to faster payments. This is a sizeable sum, until you put it into the perspective of the trillions of dollars flowing through transactions in the U.S. each day.
The Task Force has published its ‘Strategies for Improving the U.S. Payment Systems’, incorporating five desired outcomes. These are:
- Creating a safe and faster electronic solution for payments
- Ensuring U.S. payment system security remains very strong
- Reducing the cost of payment transactions to enable innovative payment services
- Providing better choices for U.S. consumers to send and receive cross-border payments
- Identifying and implementing payment system improvements
As part of this process, the Task Force will also establish what security and operational changes will be needed for the new infrastructure, what the estimated cost and timeframe will be and a description of the core infrastructure.
One thing the Task Force must consider through all of this is not just domestic transactions, but global ones too. It would be wise to develop faster domestic payment systems that are interoperable with systems on the global stage. Whatever the approach, it should be scalable and consider not only what the aspirations for faster payments are now, but also look ahead to the future.
Accuity helps banks and businesses to instantly find and validate payment codes, improve the certainty of settlement, shorten processing cycles and reduce settlement risk for better rates of straight through processing. The suite of payments solutions from Accuity provides accurate and verified settlement data helping clients to resolve disputes and handle payment exceptions effectively to avoid expensive payment repair and rejection fees.
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