Blog

Obstacles still hinder speed and efficiency of payments system

December 5, 2013 by Terry Dooley — SVP & CIO, ITS, Inc

Federal Reserve Bank of Cleveland President Sandra Pianalto recently said the central bank, which handles more than "$3 trillion a day to pay for goods, services and financial instruments," is working to improve the speed and security of the U.S. 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.

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

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

• The high cost of "too much paper." Check payments still comprise nearly 20 percent of all 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 standing in the way of new payment solutions achieving widespread market acceptance.
• 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, however, state that a payments system with "speed, ubiquity, and security" at its center would be "ideal," and that the FRB hopes to see that 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."

About Terry Dooley

---

None

Connect with Terry: