ABA Letter to FRB re: Interbank Settlement of Instant Payments

Ann E. Misback
Secretary, Board of Governors of the Federal Reserve System
Eccles Board Building
20th and C Street, N.W.
Washington, DC 20219

Dear Ms. Misback,

The American Bankers Association (ABA) appreciates the opportunity to comment on theAugust 11, 2020 Notice of the Board of Governors of the Federal Reserve System (FederalReserve) regarding the Service Details on Federal Reserve Actions to Support InterbankSettlement of Instant Payments (“Notice”). ABA supports the adoption of faster payments tomeet the needs of consumers and commercial entities throughout the United States. ABA’smembers have a long association with technologies that have increased the speed of payments,from wires to card networks and recently-launched real-time payment systems and futurepayment services such as FedNow that is the subject of the Notice. ABA continues to support theadvancement of payment technologies, including accelerating payments in use cases where rapidsettlement would benefit bank customers. We believe that a well-executed bank-centric model isessential to provide a valuable and safe payment system for all participants in a transaction.

The Federal Reserve has been active in working with the industry to improve the paymentsystem since 2013. The white papers and the creation of the Faster Payments Task Force by theFederal Reserve have helped to focus industry attention on the need for speedy, yet safe,payment products. One of the results of these efforts has been the creation of the Real TimePayments Network (RTP) by The Clearing House. RTP is a private sector solution that is alreadyprocessing live transactions. As ABA has stated in past comments, it is our strongrecommendation that RTP and FedNow leverage each other’s solutions to extend fasterpayments services across the nation with the benefits to be shared by all.

However, as the possibility of true payment interoperability at FedNow’s launch has dwindled, itbecomes even more important that FedNow and RTP coordinate policies, procedures, and bestpractices so that each network will strengthen the other as in the case of today’s ACH system.The ABA believes that FedNow can contribute to a better, faster, and safer payment system if implemented in a manner that is coordinated with private sector solutions such as RTP. The Notice has identified several areas where clarifications have been made since the last comment period ended in November 2019.2 ABA appreciates the additional information that has been provided, but in some area, more clarification still is needed. This letter addresses the issues that ABA’s members have declared to be the most important in order to optimize the payments products and services available to depository institutions and their customers. In general, ABA member encourage faster payments products that promote safety, interoperability, and speed-to-market.

Overview

This letter provides recommendations on several issues that are material to the development of FedNow and the faster payments ecosystem in general.

ABA’s comments can be summarized as follows. The Federal Reserve should:

• Interoperability. Make the pursuit of interoperability with similar private-sector solutions its highest priority for the benefit of the entire payments ecosystem even if it is not realistic at FedNow’s launch.
• Chartered depository institution Access to FedNow. Strengthen its commitment that only chartered, regulated, and examined depository institutions have direct access to FedNow.
• Nonbank Access to FedNow. Ensure that nonbanks with access to FedNow through partnerships with depository institutions be subject to stringent regulatory oversight given the immediacy and finality of these payments.
• Minimization of the Disparity Between FedNow and Private Sector Solutions by Paying Interest on Pooled Accounts and Leveraging Fedwire as a Liquidity Management Tool Instead of Creating Another Redundant System
  Clearly state that the Federal Reserve requires the payment of interest on funds held at the pooled Federal Reserve-New York account to enable faster payments services and establish a Liquidity Management Tool as soon as possible prior to the FedNow launch date.
• Request for Payment. Coordinate with industry operators to ensure that core feature operates in a manner similar to the existing private sector solution to facilitate a common user experience for depository institutions and customers.
• Role of Core Service Providers. Work actively with core service providers to ensure they have all of the needed product requirements far in advance to enable them to meet implementation deadlines. This will ensure all entities have access to FedNow at the same time regardless of the provider.
• Equitable Pricing. Set pricing so all depository institutions, regardless of size or transaction volume, are subject to the same per-item pricing schedule.
• Directories. Allow existing directories to facilitate FedNow transactions.
• Application Program Interfaces (APIs). Develop FedNow APIs with an eye towards security.
• ISO 20022 Message Formats. Establish ISO 20022 Real-Time Payment usage guidelines for FedNow in coordination with existing industry operators to facilitate a common user experience for depository institutions and customers.
• Fraud Prevention Services. Leverage the Federal Reserve’s position as network operator and work with the industry to offer enhanced transaction fraud prevention tools.
• Transaction Value Limit. Coordinate with existing industry operators close to the launch date to facilitate a common user experience for depository institutions and customers.
• Reports. Provide market level reports on transaction volumes and amounts available at FedNow’s launch.
• Network Access. Recognize that current FedLine services at depository institutions vary and that substantial upgrades will be required.

Download the comment letter to read the full text.