Big Banks vs the Fed on Faster Payments

Big banks are preparing to go to war against the Federal Reserve, which is poised to announce that it will develop a new instant payments system to compete with the lenders’ own nascent version

“In 2015, the Federal Reserve called on the private sector to build a real-time payments system,” said Greg Baer, president and CEO of the Bank Policy Institute, which represents large banks. “The Clearing House, and only The Clearing House, responded by building the most advanced payments system in the world.”

Now, he said, “the Federal Reserve may pull a bait and switch and build its own system — certainly delaying and perhaps completely undermining the goal of a ubiquitous system where any U.S. consumer or business can pay any other.”

Smaller institutions, in contrast, have pushed hard for the Fed to be a provider of real-time payments. The Clearing House and the Fed are the two operators of the existing system that settles in batches, and community banks say the Fed has already proven it can provide payments services for all financial institutions — upward of 11,000 banks and credit unions — while the Clearing House hasn’t.

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