Fed releases plan for improving payment system speed and security
The Federal Reserve released a plan Monday for improving the speed and security of the more than $174 trillion in noncash payments made every year via credit cards, checks, third-party payment processors, virtual currencies and online transactions.
The proposal cites the increasing demand for real-time processing via high-speed networks and mobile devices, along with the growing number of threats to the security of sensitive data and their potential to erode public confidence in the electronic payment infrastructure, as the impetus behind the need for a strategy involving banks, financial companies and businesses of all sizes.
“This plan reflects the contributions and commitment of thousands of payment system participants who shared their expertise and perspectives during the past 18 months,” Esther George, president of the Federal Reserve Bank of Kansas City and a member of the Federal Reserve’s Financial Services Policy Committee, said in a statement. “Consequently, we believe the strategies and tactics in the plan have broad support and strong prospects for success.” George will serve as executive sponsor for the payment system improvement initiative, a joint effort of the Federal Reserve Banks and Board of Governors.
The strategy outlines five improvement goals for the payment system: speed, security, efficiency, timely international payments and greater collaboration throughout industry on making improvements to the system.
“A safer, more efficient and faster payment system contributes to public confidence and economic growth,” said Federal Reserve Board Gov. Jerome H. Powell in a statement. Powell will co-chair the initiative’s oversight committee.
“We know that markets move to real-time, and banking customers are no different,” said Ben Milne, chief executive officer of Dwolla Inc., a Des Moines-based mobile payment processor. “In a world measured by milliseconds, the value of a payment infrastructure that reduces bank transfer speeds from two to four days to under a second is incalculable. The Federal Reserve has laid out a clear vision of its expectations for an improved system so the question will be how strong and reactive can this approach be in such a quickly evolving environment.”
In 2012, the U.S. payment system processed approximately $122.4 billion in noncash payments worth more than $174 trillion. But the payment system infrastructure has not kept pace with the rapid introduction of new technologies, increase in user demand and the growing sophistication of cyber threats, the strategy states.
“The Federal Reserve believes that the U.S. payment system is at a critical juncture in its evolution,” the strategy document says. “High-speed data networks are becoming ubiquitous, computing devices are becoming more sophisticated and mobile, and information is increasingly processed in real time. These capabilities are changing the nature of commerce and end-user expectations for payment services. Meanwhile, payment security and the protection of sensitive data, which are foundational to public confidence in any payment system, are challenged by dynamic, persistent and rapidly escalating threats.”
The Fed said it plans to establish multiple task forces this year and is encouraging organizations to get involved through a new website, fedpaymentsimprovement.org. The Fed has scheduled a live webcast on the strategy for Jan. 29.
Read the full proposal, Strategies for Improving the U.S. Payment System, here.