Since the first recorded uses of money in the form of stamped gold and silver coins by the Lydians in 650–600 BC, the exchange of hard currency has dominated as the world’s preferred method of real-time payment. There are, of course, drawbacks to physical money, including the cost to produce cash, store it, and prevent it from being counterfeited or stolen. The cost of cash in the United States is estimated to be $200 billion annually. …
The Daily Dish
Eakinomics: Real-Time Payments
If you are like me, you don’t think too much about how your payments are processed. You write a check, swipe a credit card, or use your PayPal account on a website and assume your transaction is complete. The reality is that there is a complex infrastructure for processing payments that has steadily evolved from hand-processed physical checks to electronic methods. But as Thomas Wade points out in his new insight, for all the advances to date, the only really “instant” payment method is good, old-fashioned cash.
There are, however, cutting edge advances in electronic payment processing — so-called “real-time payments” (RTPs). As Wade notes, “The United States is considerably behind other developed nations regarding real-time payments, including the United Kingdom and Mexico where the government has provided real-time payment processing for retail consumers. Until recently the U.S. approach has been to allow for private industry to create solutions meeting consumers’ needs. With the support of the Federal Reserve (the Fed), in 2017 The Clearing House (TCH) rolled out its real-time payment service. The TCH service now supports over half of all U.S. accounts and is expected to have total coverage by 2020. Although the most important actor in this space, it is not the only private provider of real-time (or nearly real-time) payment services, which include offerings from PayPal, Venmo, Zelle, and Mastercard.” …
More than ten years after the pseudonymous Satoshi Nakamoto published the source code for Bitcoin, and after hundreds of other cryptocurrencies have been introduced, Facebook is the latest entrant in the cryptocurrency market. Yesterday, Facebook launched a new digital currency called Libra that will attempt to combine a decentralized blockchain-the hallmark of successful cryptocurrencies-with the reach of the Facebook community.
As I said upon the yesterday’s launch: “If successful, Libra could have benefits for consumers and small businesses in reducing the transaction costs of electronic payments, but the success of Libra is not guaranteed. …
Beyond its monetary policy and bank supervisory functions, many would be surprised to learn the Federal Reserve has a third role: operating, oddly enough, revenue-generating payments services that compete with private-sector systems.
Whatever justification led Congress to authorize the Fed to establish a national check clearing system in 1913 no longer makes sense today, with the private sector, including financial utilities, card networks and fintechs, already delivering significant results in modernizing the country’s payments infrastructure. …
Until recently, banking transactions in America failed miserably to keep up with our 24/7 real-time economy. Apps, websites, and mobile payment companies allowed us send money to friends, accept credit cards at garage sales, employ a driver to deliver food from a restaurant that doesn’t offer delivery, and book an apartment on the other side of the world within seconds.
But it would take hours or even days until the money became available to the recipient.
The private marketplace responded.
In 2017, a group of 24 leading banks and credit unions came together with the approval of the Federal Reserve to create the Clearing House’s real-time payments system, a network allowing recipients to receive payments into their bank accounts nearly instantly. …
The Federal Reserve is considering entering real time payments in the United States. If this happens, the modernization apace in this market will stall out. There is no reason for the Federal Reserve to intervene here, except for it to expand once again into an area beyond its mission. For background, most payments conducted by check and electronic transfer take time, sometimes days, to clear to make funds fully available. This creates inefficiencies and inconvenience for customers and businesses that expect better in an age when technology makes everything faster.
The private sector has responded to this need, providing the country with updated capabilities through the Real Time Payments Network, a system launched two years ago. Developed by the Clearing House, it provides for the immediate settlement of transactions. It is delivering convenience and performance to consumers across the economy. But then here comes the Federal Reserve, which has announced that it wants to provide its own real time payments system and envisions working with a “broad array of stakeholders” in the financial industry to introduce a structure that gives the Federal Reserve a new central role in the real time payments market. …