TCH Forges on with Its Real-Time Payments Network as the Fed Crafts a Rival Service

The private-sector operator of the only national real-time payments network wasn’t too enthused when the Federal Reserve announced earlier this month that it would launch a rival service in 2023 or 2024, but the Fed’s move sparked at least a temporary windfall for The Clearing House Payments Co.

“One of the things that the announcement has done is, it’s created a great deal of interest in (TCH’s) network, and our actual number of inquiries that we’ve been getting has tripled,” Steve Ledford, Real Time Payments Network product executive at The Clearing House, said Tuesday.

Ledford made that comment at the 2019 Mobile Payments Conference in Chicago, where he was member of a panel on the controversial topic of real-time payments. Also on the panel was Kassandra Quimby, a vice president at the Federal Reserve Bank of Chicago who manages faster-payments strategy for the Federal Reserve System.

At first, New York City-based The Clearing House thought news of the Fed’s planned FedNow service would slow the spread of real-time payments as banks and credit unions delayed decisions while they waited for specifics, but the company has largely put that concern aside, according to Ledford. FedNow won’t be live until 2023 or 2024.

“The way I look at it is, it’s done,” he said. “The Fed’s going to be a network, we’ll concern ourselves with that in 2024.”

In the meantime, TCH, which is owned by 25 of the nation’s biggest banks, is concentrating on improving its RTP service, which went live in late 2017. One area of development is biller-generated requests for payment, which enable a payee to pay a bill immediately. “We’re just expanding the use, and uses of, the network,” said Ledford. 

Quimby disputed a conference attendee’s assertion that the Fed during the early stages of its years-long faster-payments initiative said it would not become a direct competitor to private-sector firms. “I don’t think the Fed said we would never enter the space,” she said.

Another panelist, Peter Gordon, head of growth at PayFi, a Fort Lauderdale, Fla.-based provider of a money-movement platform for banks, noted the Fed already offers automated clearing house, wire, and other services that compete with private-sector providers. “It’s good to have competition,” Gordon said. PayFi is working with The Clearing House to bring community banks into the RTP network.

For now, the Fed is digesting industry input about its initial FedNow proposal. A 90-day comment period closes in early November. The Fed plans a $25,000 transaction limit and to use the ISO 20022 messaging standard for moving other data with a payment. “The Federal Reserve is spending a lot of time in the next few months…working with the industry to understand kind of what service design we ought to build out, and what those specific requirements would be,” said Quimby.

All 10,000 or so financial institutions in the country won’t be plugged into FedNow when the service goes live. “We wouldn’t envision we would get to ubiquity immediately,” she said.

While desirable in the eyes of many banks, the coming of FedNow will mean more technological integration and back-office work for financial institutions and their processors. Panelist Rene Schuurman, global head of product development, channels, at Citibank, noted Citi operates in 96 markets and participates in instant-payment services in 23. “We would love to get rid of certain options,” he said, later adding: “It doesn’t help just to have a shiny app on the phone.”