By Richard Young
As the Federal Reserve progresses with plans to launch real-time payments (RTP) system FedNow, its main competitor in the space, The Clearing House (TCH), is working to improve its own RTP service – and says it welcomes the competition.
Ahead of FedNow’s scheduled 2023-24 launch, the Federal Reserve has been conducting research among potential users to develop its offering. Meanwhile TCH, a consortium of the main US banks which launched its RTP platform in 2017, is increasing members and seeking to innovate in an effort to consolidate its position.
Questions remain over whether the two platforms will be able to coexist and what benefits they will present to users who demand faster, more efficient payment options.
“We have over 100 banks and credit unions of all sizes signed up to join the network during the next few months and the technical capability to reach thousands more. The RTP network currently reaches 54 percent of US demand deposit accounts (DDAs),” says Steve Ledford, senior vice president of product strategy and development at TCH.
“We have streamlined the onboarding process and will continue to look for ways to make onboarding new financial institutions (FIs) easier and more efficient.”
The Federal Reserve has claimed that a request for comment (RFC) from the market indicated the need for a second option in the real-time payments space.
“The FedNow Service will facilitate end-to-end instant payment services for consumers and businesses, increase competition, and ensure equitable access to banks of all sizes nationwide,” said the central bank’s board governor Lael Brainard in a statement in August.
When FedNow was announced last year, questions were raised over how it would operate alongside existing systems. Seeking to allay these concerns, Brainard said FedNow would be interoperable with the private sector instant payment service and would utilise the ISO 20022 messaging standard.
According to Ledford, recent events make the need for real-time payments all the more urgent. “We are seeing accelerated adoption, and importantly, innovative new payments offerings,” he says.
“And now, during the coronavirus pandemic, we are seeing a growing need for real-time payments both with consumers and businesses. For instance, many saw supply chains disrupted during the pandemic and were forced to look for newer suppliers. In some cases, suppliers wanted payment in advance, and the RTP network allowed businesses to pay suppliers immediately.
“Likewise, consumers also found themselves looking for real-time payment capabilities, as many faced reduced working hours and furloughs that caused financial strains.”
In the statement, Brainard also cited the pandemic as a reason for the wider implementation of real-time payments.
“The rapid expenditure of Covid emergency relief payments highlighted the critical importance of having a resilient instant payments infrastructure with nationwide reach, especially for households and small businesses with cash flow constraints,” she said, also highlighting the importance of instant access to funds.
According to Ledford, a competitive market should accommodate both TCH and FedNow.
“Competition is always welcome in the marketplace. Consumers can currently choose from a number of faster payment services that ride on top of payment networks. To be successful in this space providers must be quick to market, nimble in response to changing needs, and innovative.”
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