Payments Views


Now What? Immediate Funds Transfer in the U.S.

The Federal Reserve’s recent announcement that it would not build a new payment rail for processing faster payments created some disappointment for many who are unsatisfied with our country’s current payments system capabilities.

In a welcome move, The Clearinghouse (TCH) has announced its intention to fill this void and build new real-time “rails”. There are, however still many unanswered questions about the path forward. How will the new capability work? And what are the implications for other system providers and end users?

TCH is a private consortium owned by the nation’s largest banks and inherently has a large reach to financial institutions and account holders. Still, the U.S. is a country known for having thousands of financial institutions (13,000+ in fact) and, statistically speaking, almost none of them are member owners of TCH. How can this situation be transformed into a ubiquitous network?

The Federal Reserve and TCH tend to collaborate on payment rails. Each has its own ACH and wire system and they interconnect to provide system interoperability. This set-up has a number of advantages, chiefly competition, redundancy and reach to all financial institutions.

So if this is not the path forward for immediate funds transfer (IFT), then what is? More than likely we are going to see a new type of network where TCH provides the core operating system and other providers – and their financial institution customers – link to it. This group certainly includes Fiserv, FIS and FundTech but could, conceivably, include providers like Dwolla and PayPal who are already offering IFT to their customers.

How can all these systems be stitched together? Who writes the rules? Where does this leave Same Day ACH? Those are just the first set of questions. There are plenty of others:

  • Will there be inter-bank interchange? If so, in which direction will it flow? From sending bank? To sending bank?
  • Will there be data-carrying capabilities sufficient to support B2B and bill payment use cases?
  • Will messages be in ISO 20022 format?
  • Will there be a directory capability, to allow someone to send to a phone number or other code of some sort? If so, how will the directories work in a multi-provider environment?
  • And critically, will the new system interconnect with similar systems in other countries, allowing for “faster, better, cheaper” cross-border transfers?

If these questions also keep you up at night, join us at Glenbrook’s upcoming Faster Payments workshop on April 16 in New York. We don’t claim to know the future but we do have a pretty good idea how it might work and what the implications are of different scenarios. It’ll certainly be fun (in a payment geek sort of a way) and I hope that you can join Carol Coye Benson and me in the Big Apple. See you there!

This post was written by Glenbrook’s Elizabeth McQuerry.

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7 years ago

I think there are definite advantages in allowing an outside agency manage US faster payments. The name VocaLink is not widely known in the UK despite it being integral to most of our wages. They emerged following a similar search for providers and have been doing an excellent job processing fast payments and are now expanding into mobile payments with realtime payment settlement. Hopefully the US can get this sorted soon.