Blog

Obstacles still block speed, efficiency of payments

December 10, 2013 by Terry Dooley — SVP & CIO, ITS, Inc

Federal Reserve Bank of Cleveland President Sandra Pianalto recently said that the central bank, which handles more than $3 trillion daily to pay for goods, services and financial instruments, is working to improve the speed and security of the United States payments system.

According to Pianalto, the U.S. needs to create and launch real-time consumer and business payments as an alternative to today's expensive operations, which are still overly dependent on paper checks.

Pianalto addressed the issue of the speed, security, and efficiency of the payments system during the FRB of Chicago's annual payments conference in September.

She pointed out that the U.S. still has a long way to go with regard to real-time payments. She cautioned attendees about the obstacles standing in the way of widespread adoption of this payment solution, but still said, "Overall, I see more opportunities than challenges ... I am in favor of seizing those opportunities."

Below are some of the specific "gaps and opportunities" in the current payments system, as noted in the Fed document, "Payment System Improvement — Public Consultation Paper." The paper was a main topic during the conference, with highlights that included:

the high cost of "too much paper." Check payments still comprise nearly 20 percent of non-cash retail transactions. This equates to 60 million transactions each day;
legacy payment options, such as automated clearing house, credit cards, debit cards, wire transfers, and checks are inhibiting new payment solutions from achieving widespread market acceptance; and
Expensive and sluggish cross-border payments, complicated business payment systems, and consumer concerns over payment safety continue to plague the industry.

Pianalto did not comment on the current outlook for the U.S. economy or monetary policy in her remarks. She did say, however, that a payments system with "speed, ubiquity, and security" at its center would be ideal, and that the FRB hopes to see this over the next two decades.

"Our vision is that most payments will be executed in real time," explained Pianalto. Adding, "This would mean that any consumer or business would be able to make an immediate payment to anyone, electronically and conveniently."

Read more about transaction processing.