What The “Summer From Hell” Says About Our Payments System

July 27, 2017 at 9:39 am Leave a comment

Down- Staters are experiencing what Governor Cuomo has dubbed “The Summer from Hell” as long overdue repairs are made to a dilapidated overpriced and overused transit system built for the world that existed a century ago.

I wonder if we are headed for the same type of crisis in our payments system. Its rules and regulations were written. and its infrastructure was built, to cater to an internet-free world in which all phones were dumb. In my worst case scenario we end up with a two tier system in which the “Haves” bank at the institutions that can afford to invest in a  real-time payment network (think NACHA on steroids) and the “Have-Nots” are stuck waiting for the late train.

The 300 member Faster Payments Task Force, which was established by the Federal Reserve in 2015 to grapple with these issues, released its recommendations last Friday.  It envisions a world in which banks, credit unions and other financial institutions are voluntarily interwoven into a twenty-first century  payments system that can accommodate  multitudinous  payment platforms, products and consumers,  ranging from the “unbanked” college freshman with her reloadable prepaid card, to the “One percenter” who expects  to shift money in an out of several accounts with the touch of his smart phone.  Settlement would take place around the clock.

In my experience there are two reasons governments convene task forces: (1)so they can say they are  dealing with a really serious problem which they  have no idea how to solve or (2) They know exactly what they want to do but  want someone else to take the blame. My guess is that  a lot of the latter  is taking place here.  I expect the Fed to push many of these recommendations.

But there is a fly in the ointment. As the report notes, a number of countries have addressed these challenges through mandates or the development of a national faster payments system with a single operator. In contrast, the United States is taking a market-driven approach to payment system innovation that avoids government mandates.

I’m not sure the country can get the system it needs without mandates to protect the little guys but we will have to wait and see.

Entry filed under: General. Tags: .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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