By 2020, the US should have a payment system that is faster, ubiquitous, broadly inclusive, safe, highly secure and efficient. That is the primary goal of the Faster Payments Task Force, a coalition of financial institutions, non-bank payment providers, businesses, consumer groups, government agencies and other bodies brought together by the Federal Reserve.
In a recently published report, the task force stressed that achieving this ambition will depend on ubiquitous receipt – meaning all payment providers can receive faster payments and make funds available to customers in real time.
It also outlined other key challenges and the actions required to overcome them.
One of the biggest obstacles facing the development of a faster payments system in the US is interoperability. The marketplace already consists of several payment solutions, with more expected to follow. While this level of consumer choice is positive, the task force noted that there is “little or no value” – for businesses or consumers – in having to invest in various solutions to reach the widest possible audience of end users.
The ideal situation would be for faster payment transactions to move smoothly between solutions, but this sort of interoperability can be hindered by discrepancies in technical infrastructure and business processes. There are also differences in rules, policies and functionality that can make it difficult for transactions involving different solutions to deliver a coherent user experience.
Security is always a major consideration in payments, but it becomes an even bigger concern when various solutions and providers are involved. The Faster Payments Task Force pointed out that a security weakness in any single solution can compromise the system as a whole.
If the industry is to achieve the 2020 goals set out in the report, one principle that will be absolutely crucial is collaboration. The report noted that – unlike other countries that have taken a government-led approach or established a central faster payments system managed by a single operator – the US has adopted a market-driven strategy. The consequence of this is an expanding ecosystem of operators and stakeholders, which must work together to deliver comprehensive change across the sector.
The Fed task force outlined three key areas where action is needed to maintain momentum in the development of a US faster payments system: governance and regulation; infrastructure; and sustainability and evolution.
It called for the establishment of a formal governance framework, as well as consistent rules, standards and requirements to ensure payments can move across solutions without compromising security, reliability or transparency for consumers. Furthermore, evaluation of laws and regulations covering the payments industry could be required to ensure legislation is suited to real-time payments.
In terms of infrastructure, the report said there should be a design for faster payments solutions to interoperate via directory services, while the Federal Reserve should be tasked with developing a 24-hour, 365-days-a-year settlement service.
On the sustainability and evolution front, the US faster payments system should be “future-focused” and “able to address evolving security threats, meet changing end-user needs, and foster continuous innovation through new technologies”. The task force backed the development of fraud detection, reporting and information-sharing methods to strengthen security. It also called for ongoing research in areas such as cross-border payments and emerging technologies. In the case of the latter, there is a need to “deepen understanding of the risks they may pose as well as the benefits they may offer”.
Progress in these areas could lay the groundwork for a system that will “deliver broad benefits to American consumers, businesses and government agencies through enhanced security and fraud prevention, and seamless end-to-end payments”, the Faster Payments Task Force said. Other potential advantages include serving unmet needs for cross-border transactions and extending services to unbanked, underserved portions of the population.
Developments over the coming years will show just how realistic and achievable these goals are, and provide an insight into what the US payments industry of the future could look like.