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Beware the drawbacks of a Fed-operated real-time payments system

A Federal Reserve-operated real-time payments system would have hidden costs and could even delay the adoption of real-time payments in the United States. In an op-ed for American Banker, The Clearing House CEO and President Jim Aramanda says the U.S. financial system doesn’t need another new real-time payments tool -- it has one in the form of the RTP network, which already reaches more than 50% of U.S. depository institutions.
In fact, a new payments system would present at least three challenges or downright problems.
In an op-ed entitled “Fed entry into real time payments would do more harm than good,” Aramanda lays out a case as to why “it is wrong that a public-sector payments system is needed as an alternative to the RTP network to create competition.”
The current discussion of an RTGS run by the Federal Reserve is already slowing down the progress of faster payment in the US. In fact the mere discussion of creating a new system chilled the market, increased confusion when it comes to real-time payments, and resulted in a number of financial institutions delaying their adoption of faster payment capabilities in order to wait and see what the Fed will ultimately enact.
“This delay puts in jeopardy one of the key effectiveness criteria of the Faster Payments Task Force: achieving ubiquity by the end of 2020. Even if the Fed were to decide to launch its own RTGS immediately, it would take years for the Fed to design and build a system,” warns Aramanda. He should know: It took TCH five years to build its own system.
Along with the unknown costs of a government built and run system, hidden costs could include a lack of full interoperability. Aramanda points to a pair of new real-time payments systems in Europe that cannot operate with one another. If this happened in the States, “depository institutions would have to connect to two or more faster payments systems, which could make both systems less effective because of the inability to achieve ubiquity,” he writes.
This result “would increase costs for all direct and indirect users of the systems.” Further, “How a Fed-run RTGS will impact the RTP network’s level playing field model is uncertain, but as any business needs to adapt to changing market conditions, TCH will too,” writes Aramanda.
Read Aramanda’s entire American Banker op-ed here.
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