The Federal Reserve and faster payments: ‘Umbrella’ or ‘rails’?

Abstract

This paper analyses the responses to the US Federal Reserve’s public consultation on faster payments. It uses an inductive approach to identify emergent issues and stakeholder alignment around two issues: the role of the Federal Reserve in a new payments system and the design of a new payments system. There is little support for a publicly provided faster payments system and the ‘operator’ role of the Federal Reserve is likely to decline with the transition to electronic payments. The private sector views faster payments as a new channel rather than network infrastructure and is hesitant to invest in a new system without a business case. Americans will have to wait until 2018 for same-day payments via their bank accounts and much longer for near real-time payments, meaning the USA will, in this regard, fall further behind many developing and developed countries. Innovation will be limited to the consumer-facing interface and more closedloop networks will emerge in the short term. The coordination failure also leaves more room for firms seeking to disrupt the payment rails.