Fireside Chat, Panel
The Speed of Money: What Faster Payments Mean for Banks, Consumers and the Economy
Milken InstituteJackson Mueller, Daniel Gonzalez, Jordan Lampe, Jane Larimer, Shivani Siroya, Dan Gonzalez
- Same-day ACH settlement windows are anticipated to become active as of September this year, offering two additional credit payment settlement windows at noon or 5 p.m. for transactions missing the overnight cycle, with projections indicating approximately 1.4 billion payments may move to same-day ACH over the next 10 years.
- The U.S. payment system is expected to evolve into a plurality of real-time or mixed same-day and real-time systems rather than a single dominant provider, with robust capabilities predicted to be functional three to five years from now following a final Faster Payments Task Force report due about this time next year.
- Approximately 80% of U.S. households are expected to continue relying on the ACH network for direct deposit, online bill pay, and recurring mortgage payments, while large corporations and the U.S. government will maintain the network for trading partner payments and payroll, currently processing $40 trillion in annual value.
- Steady adoption of real-time payments is forecasted rather than an immediate "hockey stick" shift, driven by latent demand for new use cases and a consumer preference for choice among payment tools rather than a mandated system.
- The Federal Reserve's leadership is considered largely responsible for industry success without a regulatory mandate, while the industry expects a strategic investment in faster payments to outweigh implementation costs and shift focus to rollout planning.
- Future implementation faces challenges including the complexity and fragmentation of the U.S. market, which will prevent a single-day rollout similar to ATM interoperability, and the necessity of technical interoperability between providers using formats like ISO 20022, the ease of which remains unclear.
- A regulatory framework for payments is expected to remain unchanged, though the specific application of current laws to real-time systems is to be determined as proposals assess the need for new rules, with a final data mapping and date dictionary required to address high-speed processing open text field challenges.
- Financial institutions must invest in robust risk systems for outbound transactions and exception processing for receipts to manage faster money movement, ensuring the system reaches all endpoints to avoid added costs while drawing security lessons from the U.K.'s fraud experiences.
- Global competitiveness is a driver as the U.K. evolves post-2008 and Australia, Singapore, and Mexico have recently implemented real-time capabilities, contrasting with the U.S. reliance on robust legacy systems that prevent the leapfrog adoption seen in emerging markets like Indonesia.
- Blockchain and distributed ledger technologies may be part of the solution pool, though not yet specified in task force criteria, while the speaker at Fox Business anticipates holding a senior fellow title until their superior dictates otherwise.