Faster Payments? The Fed Investigates Payment System Overhaul

When it comes to electronic payments, it’s almost as if they are instantaneous, whether the transaction is debit, credit, or ACH direct debit. And the same can be said for typical card-not-present environments—the payments seem to happen in real time.

But if you are involved in the process—let’s say a merchant for example—you know that’s an illusion. While real-time payments have been the center for discussion for sometime and are thought to be inevitable, they are still a long way from happening.

But there is progress being made. The Federal Reserve Bank, through its Financial Services unit, launched a process in 2012 designed to uncover “gaps and opportunities” in the U.S. payment system.

In the gaps and opportunities study, released in 2013, it showed several areas where improvements need to be made, including the persistence of check writing, the lack of capability in the U.S. payment system for real-time payments, the lack of market penetration for new payment innovations, a need for faster authentication and payment notification – especially in regards to ACH – and the difficulties with cross-border payment transactions.

Connie Theien, vice president at the Chicago Fed’s Financial Services office, said, “In parallel, we’ve been conducting a number of research and information gathering efforts, one of them focused on understanding end-user demand for fast payments and other payment attributes.”

What key findings were found from that secondary research? Merchants want fast availability of funds. But how fast? When presented with a choice of payment speeds of instant, one hour, 12 hours, 12-24 hours or 2-3 business days, 69 percent of consumer payers and 75 percent of business payees indicated a preference for instant or one-hour payment speed.

So when will the Fed begin pushing for faster payments? Probably not for months as security and fraud prevention need to be addressed before fast payments become a huge part of the U.S. payments system.