Fed Banks Complete Research on Payment System Improvements

The following first appeared as the Central View column in the most recent issue of Central Banker, the St. Louis Fed’s publication providing an overview of Fed policies, initiatives and news affecting financial institutions in the Eighth District and across the United States. The author, David Sapenaro, is the St. Louis Fed’s first vice president and chief operating officer.

Changes in the U.S. payment system over the past few decades—even over the past few years—have been truly remarkable. With these changes comes opportunity, which is why the Federal Reserve has been collaborating with key stakeholders to evaluate how the payment system can be improved to keep pace with these and future innovations.

In the coming months, the Fed will release a payment system improvement roadmap. The report is the culmination of significant research and analysis conducted over the past two years. In the fall of 2012, the Fed’s Financial Services Policy Committee began reviewing the current state of the payment system and gathering feedback from stakeholders. In September 2013, the Fed released a public consultation paper that solicited comments from stakeholders on the gaps and opportunities present within the current payment system, as well as desired outcomes, strategies and tactics to shape the future of U.S. payments. The paper also described the Fed’s role in implementing the strategies and tactics.

Driving this evolution of change is the desire to increase payment speed while improving the safety and security of the system. One of our subsequent research efforts explored needs related to faster retail payments and included insights on end-user demand for specific payment attributes and a consultant-led assessment of alternatives for speeding up U.S. payments.

Additional initiatives involved identifying gaps and opportunities related to payment system security and analyzing the business case to adopt the ISO 20022 international payment standard for the U.S. payment marketplace. The business case analysis was conducted in collaboration with three other industry organizations:

• The Clearing House Payments Co.
• NACHA—The Electronic Payments Association
• The Accredited Standards Committee X9

The responses we received on the public consultation paper indicated strong support for the desired outcomes but differing views on how these outcomes should be accomplished. Accordingly, the Fed spent the past several months discussing and debating potential strategies we would pursue in support of the desired outcomes and vetting potential strategies with various payment stakeholders. The Fed plans to use these research conclusions and the stakeholder feedback to prepare the roadmap for payment system improvements.

As we continue working to release the roadmap, I’m reminded that there is still a long way to go. While the plan is the result of significant effort over the past few years, its release will signify that the work is just beginning. Implementing the strategies outlined in the plan will require significant commitment and continued collaboration with all users and stakeholders over the next several years. While change is required, it’s important to keep focused on the perspective of the end users, namely consumers and businesses, and fully embrace responding to their continually evolving needs.

Additional Resources

• Payment System Improvement—Public Consultation Paper
• Dialogue with the Fed: Understanding and Improving the U.S. Payment System
• On the Economy: Credit Card Delinquency Rates Falling Faster for Younger Households