Just weeks after Elizabeth Warren (D-Mass.) introduced legislation to expand the Federal Reserve’s authority into real-time payments, the Fed on August 5 announced its intent to create a real-time payments system by 2024. This move will be as damaging to the economy as it will to U.S. innovation.
The Federal Reserve already has too many duties. It runs America’s monetary policy and controls the nation’s money supply to maximize economic growth and minimize unemployment. It also has broad regulatory responsibilities over banks and other financial institutions.
The Federal Reserve also participates in the U.S. payments system. Every night, checks written for the holders of all U.S. bank checking accounts come together in a clearinghouse. They are then matched against amounts held in their respective checking accounts, cross-canceled, and paid the next morning. For this reason, banks often ask for checks to be deposited overnight, so they have time to cash them.
This lengthy process is not how banking works in most of the rest of the world. Most developed nations operate on immediate, real-time payments systems, where funds are immediately paid and available. While it is undoubtedly time for the U.S. to get on the same page, the Federal Reserve is by no means the best candidate to create such a system.
The private sector in the U.S. is already building real-time payment systems. The Clearing House (TCH) already serves 50-percent of all checking accounts in the U.S. That number is expected to grow to 90 percent by the end of 2019, with universal service by 2020. Other peer-to-peer private sector competitors for real-time payment include PayPal, Mastercard Send, Visa Direct, and Zelle.
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11.28.2024