Should the Federal Reserve act as both a regulator and a competitor with the financial institutions it is mandated to oversee?
Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, asks this question in a cogent blog post. When discussing the Fed’s proposal to build its own real-time gross settlement system, De Rugy says the agency is overstepping its bounds. Rather “than reform the agency to eliminate sources of conflict, the Fed is proposing to expand its market activities by launching a real-time payments system to compete against the private sector,” she writes.
de Rugy goes own to note that a Fed offering is a misguided idea that would likely stifle innovation:
The belief that the Fed's operation of a real-time payment system will enhance competition ignores the past. Instead, it's likely that the Fed entering the market will discourage others from doing so, which could slow down or stop innovation. Few businesses want to go toe-to-toe with a competitor like the Fed that has the full financial and legal backing of the U.S. government or can write regulations creating demand for its own product.
Further, this space doesn't really need the Fed. While de Rugy acknowledges that the concept of real-time payments is just is in its “infancy” in the United States, many players have entered the faster payments space to deliver innovation and secure alternative payment offerings. These payments options include TCH and its RTP network, Visa, MasterCard, PayPal, Square and others that offer payment services built on varying networks.
Besides, the RTP network already connects half of the U.S. depository accounts. “TCH's real-time payments fee structure is already more generous to small banks than the Fed-operated Automated Clearing House Network,” writes de Rugy, adding, “And the governing board for [TCH’s] RTP network includes community banks and other representatives, which is reason to doubt that TCH would abuse allegedly monopolistic powers.”