Tuesday , July 23, 2024

Big Retailers Anticipate FedNow Will Bring Competition to Payments

A retail trade association as well as Target Corp. have endorsed the Federal Reserve’s planned FedNow real-time gross settlement service.

In a letter posted last week on the official FedNow comment site, the Washington, D.C.-based Retail Industry Leaders Association said “over the past decades RILA has seen competition and innovation in the payments ecosystem stifled by a small group of legacy players. This is one of the key reasons RILA supports the Federal Reserve’s involvement.”

“Legacy players” presumably means big banks as well as bank card networks Visa Inc. and Mastercard Inc., with which many retailers have had legal and political fights, though the letter signed by RILA senior vice president of government affairs Austen Jensen doesn’t mention any company by name. A RILA spokesperson, however, tells Digital Transactions News by email that “your interpretation is correct.”

RILA’s 200-plus members include such large chains as Walmart, Home Depot, Best Buy, Gap, Walgreens, Dollar General, and Lowe’s. Target, also a RILA member, is the only large retailer so far that has a formal letter posted on the FedNow comment page. The comment period through the government’s Federal Register closed Nov. 7. Some 88 comment letters are posted on the site, and the Fed says it also has received form letters that haven’t been posted.

The Clearing House Payments Co., a processor whose parent company is owned by about two dozen large banks, debuted its Real Time Payments service in late 2017. But RILA said its members “have expressed several serious concerns about having only a single provider of faster payments. These issues center around cost, efficiency, security, resiliency, and redundancy.”

In its own letter, Minneapolis-based Target said it “strongly supports” the Fed’s August decision to develop and operate FedNow, which the central bank doesn’t expect to be live until 2023 or 2024. “We believe the Federal Reserve is the only service provider that can achieve nationwide reach within a reasonable timeframe by connecting financial institutions through existing master accounts using the FedLine service,” says the letter, referring to the Fed’s current offerings for payment-services access and information delivery.

Target’s letter, signed by senior vice president and treasurer Corey Haaland, says slightly fewer than half of the 1 billion Target transactions the company handles per year (Target has proprietary credit cards and a debit card) “come directly from consumers’ demand-deposit accounts. We receive negative feedback from guests about the length of time it takes to complete these transactions, whether it is a purchase, exchange, or return. Consumers have experience using peer-to-peer payment options and don’t understand why the same speed and efficiency currently do not exist for consumer-to-business transactions.”

Target said it “does not believe that FedNow will have a material adverse impact” on private-sector real-time services, notably The Clearing House’s RTP. “The RTP will have been in market for more than seven years before the launch of FedNow, which is an ample head start to offset any structural advantage that FedNow may enjoy,” Haaland wrote.

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