In November 2017 TCH launched the RTP network, a real time gross settlement (RTGS) and clearing infrastructure for payments that is available to depository institutions of all sizes. Almost a year later, in October 2018, the Board of Governors of the Federal Reserve System sought comment on two potential Federal Reserve services that are intended to support faster payments, a 24x7 real time gross settlement service (Fed RTGS Service) and a liquidity management tool (Liquidity Service).
TCH believes there is an important role for the Federal Reserve to play to support faster payment by providing the Liquidity Service, which would provide banks a method to transfer liquidity between Federal Reserve accounts outside of standard business hours. The Liquidity Service would best be accomplished through as an expansion of Fedwire Funds Service operating hours.
In contrast, TCH does not believe there is a need for the Fed RTGS Service and, therefore, does not support it. The Fed RTGS Service is not necessary because TCH’s RTP network, available in the market since last year, is able to provide a ubiquitous, safe, efficient, and equitable faster payment system by 2020. Additionally, TCH is very concerned that the Fed RTGS Service will harm the faster payments environment – unless the service is fully interoperable and functionally aligned with the RTP network and implemented by 2020.
RTGS has the potential to harm the movement to faster payments for the following reasons:
- Market Fragmentation: TCH does not think two RTGS systems are likely to be interoperable. For example, in Europe the operators of two real time clearing and settlement systems, the European Central Bank’s TARGET Instant Payment Settlement and the private sector’s RT1, have acknowledged that their systems will not be interoperable. Two RTGS services that do not interoperate will fragment the RTGS market.
- Increased Cost: Should the Fed RTGS Service be non-interoperable with the RTP network, depository institutions would be required to connect both networks to achieve ubiquity, which would drastically increase costs, something that only the largest depository institutions would likely be able to absorb. Inefficiencies resulting from the duplicative cost and operational complexity of designing, building, implementing, and making interoperable (if possible) would outweigh the benefits of the Fed RTGS Service.
- Delay: The Faster Payments Task Force (FPTF) set a clear goal for the U.S. to implement a ubiquitous faster payment system by 2020. This will require that the Federal Reserve implement a RTGS service by 2020 and TCH questions whether this is possible. If the Federal Reserve’s involvement in the real-time payments market delays implementation of a ubiquitous faster payment system beyond the 2020 goal, the Federal Reserve will harm rather than support faster payments in the U.S.
Lastly, TCH’s RTP network has been designed to meet the Federal Reserve sponsored FPTF goals and TCH has worked with and across the entire payments community when designing the network:
- Highest Rating from FPTF: The RTP network was one of 16 proposed solutions submitted to the FPTF and received the highest rating of “very effective” in 31 categories and an “effective” rating in the remaining 5 categories. Hence, the network’s features and design are strongly aligned with the ideal faster payment service envisioned by the FPTF.
- Equitable Access: TCH has established and is committed to maintaining flat pricing, no volume discounts, and no minimum volume requirements for all RTP participants.
- TCH RTP Advisory Committee: The Advisory Committee is comprised of non-owner depository institutions and trade groups that represent community banks and credit unions and provides input and advice on RTP rule changes and RTP network business initiatives.
- Core System Providers: TCH has entered into arrangements with core processors, who in turn are making significant investments to enable their implementation of the RTP network into the demand deposit account systems they provide for depository institutions. TCH is also facilitating discussions with banker’s banks, corporate credit unions, and technology providers so that alternative options are available to depository institutions that need assistance connecting to the RTP network and handling real time payments.
- Resilience and Stability: The RTP network was built with resiliency needs in mind. TCH also has an established track record of reliability. TCH’s payment systems have operated without incident in moments of financial crisis and natural disaster, including 9/11, the 2008 financial crisis, and multiple hurricanes.
- Increased Competition and Innovation: End-user services that are developed based on the RTP network’s capabilities will increase competition and improve end-user payment experiences. TCH believes that it is essential for consumers and businesses to benefit from the innovation the RTP system enables and for depository institutions to remain competitive in payment services. Additionally, the network itself is pro-competition and has been reviewed by the Department of Justice, which found no antitrust concerns and that the RTP network may create significant procompetitive benefits.
Download the full comment letter here.