The Fed Says an Announcement About Operating a Real-Time Payment System Is a Ways Off

Will it or won’t it? Those eagerly awaiting word about whether the Federal Reserve will directly operate a real-time gross settlement system will have to wait a bit longer.

The Fed last October said it was considering whether to directly develop and operate a RTGS system as an outgrowth of its years-long payment system improvement project to promote faster, more efficient, and more secure U.S. payments. But a direct Fed role in faster payments is controversial, even though the Fed has operated one of the nation’s two automated clearing house network switches for years.

“As you might imagine, this is a very large decision for us,” Susan Foley, senior associate director of program direction for the Federal Reserve System, said Monday. “We haven’t entered a new payment business in 40 years, and that was the ACH network. It is being taken of the utmost importance by senior policy makers both at the Reserve banks and at the board [of Fed governors].”

The Fed received approximately 400 comments signed by 785 people after publishing its proposal in the government’s Federal Register, according to Foley. She spoke as a member of a panel of Fed executives at the Payments 2019 conference in Orlando, Fla., sponsored by ACH network governing body NACHA.

Foley promised a packed town hall session that attendees would be hearing something “very quickly,” which means about seven months. “I can only say generally, by the end of the year, but we obviously know that isn’t necessarily the answer you want to hear. But I can’t give you anything more specific than that,” Foley said.

The comments, which are a matter of public record, have shown many small banks and credit unions support a direct Fed role in real-time payments as an alternative to a system they fear would be controlled only by big banks. Some merchants, too, see a direct role as an opportunity for innovation, Foley said in summarizing the comments, and she also noted that one big bank supports a Fed-run alternative.

“The focus was on leveling the playing field, competitive equity, having choice in the market,” Foley said. “We also heard from a lot small banks that they consider it to be integral to their ability to serve their local communities.”

Opponents “were largely card networks, other operators, and large banks,” Foley said. They raised concerns about interoperability, the ability to exchange messages among different instant-payment systems, and other issues, she said.

Meanwhile, the Fed is dealing with another thorny issue, that of adding a widely expected third settlement window to complete NACHA’s same-day ACH program. It turns out that adding the window could present some complicated operational issues for the Fed’s FedWire and National Settlement Service, according to two other panelists. NACHA has delayed by six months its plan to add the third window while the Fed takes comments on how to sort things out.

“Payments is like a hairball, everything is tangled up,” one conference attendee told the panel.