NACHA is not taking a position on whether the Federal Reserve should build a proposed real-time settlement system, but in comments this week the automated clearing house governing body said it is concerned the Fed’s current proposal is “too narrowly focused” and favors instant payments at the expense of other payment types.
The Fed in early October issued a request for comments on a project it dubs Real Time Gross Settlement that would operate 24 hours a day, 365 days a year. The Fed potentially would play the role of operator, thereby putting the central bank into direct competition with private-sector entities. The Fed is taking comments until Dec. 14.
Herndon, Va.-based NACHA has been working over the past several years to speed up payments through same-day settlements. The ACH network connects nearly every financial institution in the U.S. and relies heavily on batch settlements as it processes billions of payments annually.
In a letter dated Dec. 3, NACHA says the Fed’s proposal “is grounded on a fundamental, underlying bias that ‘non faster-payment systems’ are lacking because they are not available on a 24x7x365 basis.”
“NACHA is concerned to see that the request contemplates that the Fed would introduce new interbank settlement services that would be available only to newly developed instant-payment systems that settle one payment at a time,” NACHA chief operating officer and general counsel Jane Larimer says in the letter. “While NACHA supports the exploration of more efficient interbank settlement that is available for longer hours on the current date than that which is currently provided, the request represents a significant departure from the Fed’s history of making its interbank settlement services open and available to all payment systems that want to use it, and the Fed’s explicit commitment to make specific improvements to Fed services that the ACH network utilizes.”
NACHA says it’s not suggesting the Fed abandon a real-time settlement system, and it “does not have a specific opinion on whether the Fed should build such a system.” But the letter says the Fed could help existing payment systems better serve the public through expanded settlement-service operating hours, support for a directory serving all electronic payment types, support for liquidity-management services, and more tools for the private-sector ACH operator to settle transactions when other Fed services are closed.
New York City-based The Clearing House Payments Co., a bank-owned entity that recently introduced a real-time payment system, operates one of the nation’s two ACH switches; the Fed operates the other. TCH has already expressed reservations about the Fed taking a direct operational role in a real-time settlement system.
NACHA’s is just one of 45 comments posted on a Fed Web site to date, and more than 160 others have been submitted on form letters that aren’t posted. Other commentators express clear support for a Fed real-time payment system.
“While there is a faster-payment system being developed in the private sector, it is not available and may never be available to all banks,” Chris Murphy, chairman and chief executive of 1st Source Bank in South Bend, Ind., said in a letter. “It has been very slow to develop and many of us are subject to our system and the core [processing] providers’ timing and pricing. Also, the interests of the largest banks are now and may be even more so in the future at odds with the continued success of community bank[s] across the United States.”
The Kansas Bankers Association said that while there are many unanswered questions, “we believe public demand for faster payment is real … in this world of being only one click away from obtaining so many other types of products and services, we do believe that if the [Federal] Reserve Banks build it, they will come.”
A spokesperson says the Federal Reserve Board hasn’t announced any timetable for a decision after the comment period closes. “The Board of Governors will determine next steps, which may include issuing a request for comment on specific services or, alternatively, no additional action,” she tells Digital Transactions News by email.