Faster Payments Overview

“Faster Payment: a payment in which the transmission of the payment message and the availability of final funds to the payee occur in real time or near-real time on as near to a 24-hour and seven-day (24/7) basis as possible.”

Source: “Fast payments – Enhancing the speed and availability of retail payments (Off-site, PDF),” Bank for International Settlements, November 2016

Our society increasingly operates in real time, on a 24x7x365 basis, as technology changes the way people interact, conduct commerce and access information. Faster payments can yield real economic benefits to individuals and businesses by allowing them to send and receive payments at any time of the day, on any day of the year, so that recipients have access to final funds in mere seconds. Faster payments can benefit providers of payment services through safety improvements from reduced credit risk through real-time settlement and providing opportunities for innovation to satisfy customer demand.

While different types of faster payments are emerging in the payment system, they do not enable payers and payees to send and receive payments in a seamless way on a nationwide basis. With no ubiquitous, convenient, cost-effective way for U.S. consumers and businesses to make real-time payments from one account to another, the Federal Reserve put into motion a strategy in pursuit of a solution.

In Strategies for Improving the U.S. Payment System (PDF), we commit to providing leadership in the form of stakeholder coordination, public policy perspective and analytical support to assess approaches to implementing faster payments capabilities that meet end-user needs for faster authorization, clearing, availability of funds and/or settlement. Specifically, as part of this faster payments strategy, we set out to:

  • Establish and lead a Faster Payments Task Force
  • Work collaboratively with the task force, and with the input of other payment system stakeholders, to assess alternative approaches for faster payments capabilities
  • Examine policy issues associated with a possible multi-provider environment, such as the framework for establishing rules
  • Identify effective approach(es) for implementing faster payments in the United States, based on stakeholder input and analysis
  • Support, as appropriate, collective stakeholder efforts to implement faster payments capabilities

The Journey to Faster Payments

In 2013, the Fed released the Payment System Improvement – Public Consultation Paper (PDF) sharing key gaps and opportunities in the current U.S. payment system and identifying the desired outcomes that close these gaps and capture these opportunities. Specific to faster payments, three quarters of its respondents felt the following attributes were important in a real-time payment system:

  • Participation is ubiquitous (payment products are broadly accessible by everyone and available to be used in a variety of different circumstances)
  • Sender does not need to know the bank account number of the recipient
  • Confirmation of good funds is made at the initiation of the payment
  • Sender and receiver receive timely notification that the payment has been made
  • Funds are debited from the payer and made available in near-real time to the payee

Following the publication of Strategies for Improving the U.S. Payment System in 2015, the Faster Payments Task Force was convened. For two years, the task force engaged a diverse array of stakeholders in an effort to identify and assess alternative approaches for implementing safe, ubiquitous, faster payments capabilities in the United States. It concluded its efforts with a final report and suggestion that Fed leadership and participation in collaborative industry initiatives could help to advance a broadly held collective vision of ubiquitous, safe, faster payments.

We considered that suggestion when we refreshed our efforts in Strategies for Improving the U.S. Payment System: Federal Reserve Next Steps in the Payments Improvement Journey (PDF).

In this follow-up paper, we committed to three new tactics to support the industry’s implementation of faster payments, focusing on facilitating collaborative efforts to develop a safe, ubiquitous faster payments ecosystem and examining the role that Federal Reserve services could play:

  1. Support an interim collaboration work group and other collaborative industry efforts to develop a faster payments ecosystem that achieves the Federal Reserve and industry shared desired outcome and the Faster Payments Task Force vision. We will facilitate and support, as appropriate, collaborative industry efforts in the near-term that will help to maintain the momentum that has been generated by the Faster Payments Task Force.
  2. Pursue Federal Reserve settlement services that address the future needs of a ubiquitous real-time retail payments environment. We will actively engage with the industry to thoroughly understand gaps and requirements for real-time retail payments settlement, as well as to assess alternative models for enhancing Federal Reserve settlement to support real-time retail payments over the long term.
  3. Explore and assess the need, if any, for Federal Reserve engagement as a service provider, beyond providing settlement services, in the faster payments ecosystem to support industry achievement of the desired outcome. We will assess whether it is appropriate to provide services to support the industry in addressing gaps in capabilities or barriers to achieving the desired outcome.

In addition to these three tactics, the Federal Reserve will consider other enhancements to its existing services and will continue to monitor, study and solicit input from stakeholders to understand the implications of new payment technologies and models that can facilitate a safe and efficient U.S. payment system.