Let the Flowers Bloom

No sooner did the Faster Payments Task Force release its final report in July than it was met with criticism that neither the Task Force nor the Federal Reserve was mandating the report’s 2020 deadline for real-time or near real-time payments. Instead, the 300-plus payments executives who had worked on the Task Force, under the aegis of the Fed, for two long years merely stated 2020 as a goal and left it up to the marketplace to decide how to reach it and with what technologies.

Now we’ll be the first to agree the process so far has been slow and cumbersome. Acting under Fed guidance, the Faster Payments Task Force and a separate group dedicated to payment security embraced what seemed an ungainly number of payments officials, issued periodic statements couched in peerless bureaucratese, and followed a highly formalized procedure that no doubt exasperated some of the more impatient constituents of the U.S payments system.

But we think, in the end, the Fed and the Task Force members got it right by issuing a challenge but avoiding a mandate. Yes, other countries have moved to some pretty slick real-time systems by dint of deadlines set by regulators with the power to enforce their diktats. And that has made the United States, with its legacy payments processes, seem out-of-step to the point of being non-competitive.

At the same time, some observers argue that 2020 deadline won’t be met unless some regulator is cracking the whip. After all, the nation’s automated clearing house system is now in the process of adopting same-day processing as a result of a rule from the network’s governing body. The rule requires all financial institutions in the network to receive same-day credits and, starting this month, same-day debits.

Well, maybe that 2020 date will be met, and maybe it won’t. But we will have more confidence in the outcome, we venture to say, if it is left up to the workings of the marketplace. Some critics argue a mandate is needed because payments players have little or no incentive to move to faster clearing otherwise. It seems to us running slower transactions in a global market that’s running in real-time should provide plenty of incentive for players who know what it costs to replace lost business. And even if this weren’t the case, what kind of market is it that forces the issue when market incentives are absent?

This has been a grand experiment so far. We’re eager to see how the 16 publicly available proposals, which have already been vetted by the Task Force and its consultants (see “The Sweet 16”), develop and work together.