Summary of January 29 Federal Reserve Webcast on Improving the U.S. Payment System

Guests: Jerome H. Powell, Governor, Federal Reserve

Esther L. George, President & CEO, Federal Reserve Bank of Kansas City

*The information below is paraphrased, and largely summarized.


  •  Earlier this week, the fed released strategies for improving and modernizing U.S. payment systems.
  • Much common ground has been discovered, and reached between industries’ stakeholders involved in talks.
  • We have uncovered opportunities to help end-users and various stakeholders utilize new forms of payment.
    • We are envisioning faster payments, real-time transfers, expedited transactions, and intuitive monetary usages
      • This secure payment system will ensure public confidence, and enable practices that, for example, efficiently process ecosystem services, and respond to the environment rapidly.
      • Our system will extract efficiency gains, help transact checks into payments seamlessly—flowing easily from origination to receipt—and generally decrease costs associated with the transfer of money.
      • The future payments will engage both short-term, and long-term distances.
        • Global commerce will expand as a result, increasing the ease of cross-border payment procurement.
          • We’re also unearthing ways to evolve relevant infrastructures’ abilities to facilitate interbank settlements.
        • To achieve these goals, we will collaborate with stakeholders who place integrity above the system.


      • The paper we released earlier this week resulted from extensive collaborations with a range of interested parties
        • In the months ahead, the Fed will seek input and involvement from a wide array of players.
      • Most importantly, the Fed plans to initiate two task forces.
        • One will be comprised of payment systems entities
          • This group will help research and cultivate faster payment capabilities, solutions to hitches in the forthcoming system, and enhancement of existent structures.
        • The other task force will focus on payment security
          • This group will advise the Fed on security issues.
            • It will also seek to represent stakeholders on a meaningful level, and consistently leverage research capabilities whenever possible.
        • Leadership teams will emerge.
        • The FED believes payments systems must speak the same language, and our future endeavors will educate small businesses on the benefits of electronic payments.
          • American contains roughly 128 million small businesses, so education will require time and resources.
          • In relation, we’ll make improvements to operations of wire transfers, automated clearing houses, and general check clearers, as well as providers.


Q: The paper stated the Fed will not consider expanding its role as a service provider, unless doing so brings about payment systems improvement. The private sector alone cannot optimize payment systems. Has there ever been an instance where the Fed did not assume a primary operator role, requiring the private sector to act as the main catalyst for change?

Powell: Wire transfers, automated clearing houses, and general check clearers/providers naturally work with the private sector

  • But our efforts to evolve payment systems will be challenging, and initial success is not assured.
  • However, we don’t feel the need to assume a primary operator role. We’re concerned with recovering costs, and generating public benefits,
  • We should state that no other operator can achieve same scope, equity, and benefits than us, but again, we don’t want to unnecessarily broaden our role, and thus get in the way of innovation. We can complete this project without increasing our role.

Q: What is the plan for improving the security of electronic payments?

George: Security is hard to grapple with, as innovation brings risk.

  • The task forces and general involvement of stakeholders will help us coordinate security measures.
    • Preventing data breaches and identity theft, for instance, is key.
  • We’ll eventually prioritize our focus, so we can make progress. This is an ongoing issue.

Powell: The paper we released mostly centers around faster payment strategies, but were also pushing for better payment securities.

Q: Couldn’t payment mechanisms sporting anonymity better protect transactions?

George: We’ll continue to take in comments, and try to make decisions that benefit all parties involved.

Q: Do NACHA, automated clearing houses, and general clearing houses think your new payment systems are a good idea?

Powell: Both NACHA and its clearing houses are actively working in this field, and we welcome their plans.

  • The details on clearing houses’ relationship with faster payment methods need more fleshing out.
  • NACHA offers same-day ACH activity, and were looking at that very closely right now.
  • As far as our own faster payment task force, were convening stakeholders for conversations; we hope NACHA and clearing houses are involved in those discussions.

Q: Some folks are disappointed that the Fed is moving slowly on faster payment initiatives. Can you address these complaints?

George: That’s fair, but to move forward need consensuses from all players involved, and must evaluate how those agreements will affect an economy as big as the U.S.’s.

Powell: The Fed has limited authority to mandate payment systems, but we can facilitate outcomes.

George: Input we’ve received shows lots of innovation is out there, but one party can’t solely bring forth holistic solutions.

Q: What type of financial standards have you set, so far?

George: We’ve interacted domestically and internationally, entailing NACHA, ASC X9, and other bodies to determine what standards to set moving forward.

Q: How are electronic checks and other legacy payment systems being accounted for?

George: Those types of payments continue to be used, but may not be a priority in future investments

  • We shouldn’t set a sunset date for those legacy systems, though.
  • They may evolve relative to future payment systems, and if they do so in a manner that surpasses ours, we will make adjustment accordingly.

Q: What are the futures of cryptocurrency, and virtual currency?

Powell: Our authority only handles those currencies’ processes in institutions, rather than outside them.

  • But we know virtual currencies offer speed and lower fees,
  • Yet, anonymity can be a two-edged sword. Money laundering and other issues can affect virtual currencies.
  • At this point, virtual currencies aren’t developed enough to reach future payments systems progress. The industry is too nascent, and it’s outside our scope.

George: Virtual Currencies will inform us of what capabilities exist in our scope, in relation, and so forth. We’re mindful of virtual currency’s evolution relative to our plans.

Q: How many members will be on these tasks forces, and who will comprise them?

George: We’re finalizing these decisions; one thing for certain is the task forces should diversely represent stakeholders in relevant industries.

Q: Is the Fed creating a two- tier payments environment (big banks vs. small banks) by relying on the private sector to develop payments systems?

George: We’re looking for applicability, ubiquity, and universality of systems. Many participants will help us understand issues as they evolve

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