US in need of payments overhaul, says the Fed

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The US Federal Reserve system is working with banks, corporates, merchants and consumers to drive forward a new plan to overhaul the country’s payment infrastructure and speed up payments.

Sean Rodriguez, senior vice president for industry relations at the Chicago Federal Reserve Bank and moderator of a Money2020 panel on The Need for Speed told Forbes that: “The bottom line in all the assessments, the recommendation they came forward with, is that we in the U.S. should build some new infrastructure to accomplish faster payment capabilities,”

Who is going to build it, how it will be governed and managed, are all to be determined,” he added.

The Fed’s decision is based on research that it commissioned from McKinsey, which found that introducing real-time payments would reduce cheques by a third, ACH by 11% and wire transfers by 7%, and could potentially create efficiency savings in accounts receivable and payable of between $10 billion and $40 billion. However, it did not comment on whether the anticipated changes to the types of payments being made would increase their value to stakeholders, and did not incorporate the estimated savings into its business case.

While many of the country’s largest banks have dragged their heels over payment modernisation, the Fed’s focus on faster payments appears to have spurred some into action. Last month, the Clearing House announced plans to invest in extensive real-time technology, while $16 billion has been pledged to overhaul branches internationally and a number of individual banks have entered into mobile and online partnerships. It seems that, one way or another, America’s banks are heading for real-time payments.