US Proposes Future Payment System and Interagency Task Force | FedNow Real-Time Payments

3 min read

CBDC’s, short for central bank digital currencies, are heading into a strong interest phase in the US. The Treasury Department wants more money and time spent on research and bringing them into reality.

Future Payment System

In a new report, the Treasury Department says the US has an objective to create a future payments system that promotes American values, minimizes risks and fosters inclusion.

To achieve its goal, the agency recommends more research on a possible U.S. CBDC in case one is ever seen as beneficial to national interest.

“The Federal Reserve is encouraged to: continue its research and technical experimentation on CBDCs, including its work on analyzing the possible choices of technology and other design elements of a CBDC; continue evaluating policy considerations as described in its January 2022 discussion paper.

[It should also] find mechanisms to provide the public with periodic updates on these initiatives, given the strong public interest in this topic; and consider how research and development on digital assets and other related innovations that is conducted or supported by other Federal agencies could support a U.S. CBDC.”

The Treasury Department says it will support the Federal Reserve by forming an inter-agency CBDC task force.

The Department further recommends encouraging the use of instant payment systems to support a more competitive and inclusive US payments landscape.

“New instant payment systems have been recently developed or are scheduled to launch soon, capable of handling higher volumes of transactions at lower cost than some current payment systems.

Experience with instant payment systems around the world suggests that enhancements are possible to make the payment system more competitive, efficient and inclusive and might also reduce the costs of cross-border transactions.”

However, the report notes a few challenges associated with instant payment systems, such as the need for customers and businesses to adjust their financial habits and the tendency of instant payment systems to be exclusive.

FedNow

FedNow is the U.S. real-time payments platform being developed by the Federal Reserve Banks. This new interbank 24x7x365 RTGS service will feature integrated clearing functionality and is intended to enable financial institutions to deliver end-to-end faster payment services to their customers. FedNow will launch fully in 2023, with pilot program activities starting in 2021.

ACI is collaborating with the industry to bring the FedNow service to full production by participating in the FedNow pilot program to develop an enhanced gateway to support connectivity to the system and value-added services, such as Request for Payment.

Why is Fed developing FedNow?

With real-time payments already up and running, the Federal Reserve Bank’s announcement of its plans to launch another real-time payments system (FedNow) in the U.S. has generated positive reactions in the industry, with general consensus that this is a positive driver for faster adoption of real-time payments in the market.

Certainly, the addition of a Fed-based real-time payments system will present opportunities and challenges. Financial institutions will be able to leverage their master account for settlement of all payments. Liquidity services will be provided and broad customer experience and industry engagement will be incorporated into the new services launched with FedNow.

Who owns real-time payment schemes?

Different real-time schemes are owned or operated in different ways. RTP in the U.S. is owned and operated by The Clearing House and open to all interested participants. TCH is owned by 26 of the world’s largest commercial banks. Zelle is owned by the Early Warning Services network, which is owned by seven of the U.S.’ largest banks. FedNow is owned by The Federal Reserve Banks.

How many countries currently have active real-time payment schemes?

There are now more than 50 real-time payment schemes and systems live around the world, up from 40 in 2018. This includes both domestic and regional networks.

International payments are also moving towards real-time with the evolution to SWIFT gpi and Universal Confirmations.

Which U.S. banks offer real-time payments?

Several U.S. banks already offer services that use real-time payments. ACI is currently working with multiple financial institutions, including Bank of Montreal and Jack Henry & Associates (JHA) to enable their real-time payment services.

Where does ACI support real-time payments?

ACI currently supports 18 real-time domestic schemes around the world, including Zelle and TCH in the U.S., and will support FedNow during pilot and into full production.

Approximately 50 percent of the U.K.’s Faster Payments (UKFP) and 75 percent of Hungary’s GIRO transactions are processed through ACI Enterprise Payments Platform. The solution is also the core processing infrastructure for Malaysia’s Real-time Retail Payments Platform (RPP) and STET’s real-time payments platform for PSPs in Europe. Additionally, ACI has customers using ACI Enterprise Payments Platform to access Singapore FAST and the Australian NPP (New Payments Platform).

ACI also serves on the U.S. Faster Payments Council, ISO 20022 Real-Time Payments Group and the EPC Instant Payments Technology Group.

Can real-time payments be done in the cloud?

ACI’s real-time payment solutions are available through a licensed or SaaS model — or a hybrid approach — based on each customers’ needs. In a licensed approach, customers can manage our software on their premises, in their private cloud or in the public cloud. Customers can also choose ACI’s SaaS model, where we manage their solution in either our data centers or the public cloud.

Cloud solutions have now reached the levels of availability and reliability necessary to support real-time payment service levels. In fact, cloud solutions are a great option for U.S. banks looking to enable real-time payments now and ensure the flexibility to grow with increasing transaction volumes as adoption rises.

Featured Image: Shutterstock/Tonis Pan/Natalia Siiatovskaia

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