A U.S. Federal Reserve entry in the real-time payments space could not only delay banking innovation and industry adoption, it could harm hard-working Americans mired in the daily grind of poverty.
Just ask retired bank executive Steve Wichmann. The recently retired executive vice president of Heritage Trust Federal Credit Union in Summerville, S.C. has seen the impact of slow payments systems on entrepreneurs and working Americans who need funds in a timely manner to pay their bills and avoid overdraft or late fees.
“As a small-town banker, I heard constantly from business owners whose employees, families, and contractors depended on receiving payments quickly,” argues Wichmann.
With this need for timely payments, the Federal Reserve’s potential entry into payment systems will fuel uncertainty and could be the last thing Americans need: more delays in getting paid. “The Fed’s ongoing deliberation has effectively tied the hands of many small financial institutions as they wait to see what the Fed will do,” writes Wichmann.
In this gig economy, where people believe that they are paid quickly via Paypal or Venmo – the transfer of actual funds can take days and are not made the instant a payer presses “Pay” to the payee. Banks are missing on opportunities for small business owners to pay their employees in a quick, “I need the money yesterday” manner. In short, this contributes to income inequality, according to Wichmann.
Though not well-known, our slow systems disproportionately impact low-income consumers who are more likely to face bank fees. In fact, fees associated with bank overdrafts, check cashing and payday loans total $34 billion per year. Until our system is modernized, these Americans will continue to be negatively impacted by our outdated system.
This is why every delay that occurs as the Federal Reserve builds, tests and ultimately launches its own real-time payments system further delays a family or hardworking individual from emerging from poverty and hard times. And when you factor in the inevitable hurdles a U.S. government agency building a brand new payments platform will encounter, this just adds to the burden of the U.S. population that needs assistance now.
The clock is ticking.
Read Steven Wichmann’s entire op-ed at Morning Consult.