With the launch of the real-time payments network by The Clearing House in November 2017, the country saw the introduction of a modern payments system that is consistent with the way that consumers and businesses operate in the digital age — that is, in real time. Today, the RTP network is in the market and connected to over 50% of U.S. accounts, and, with that, the U.S. now has the most advanced payments system in the world, set to deliver real-time payments capabilities to consumers and businesses through financial institutions of all sizes.
Recognizing how important the RTP network is to faster payments in the U.S., and to ensure that the RTP network meets the needs of all depository institutions, TCH most recently released the business principles that are being used to govern the first new payments system delivered in the United States in over four decades. Ironically, these business principles, while providing transparency to the operations of the RTP network, have created misconceptions that were highlighted in a
In their article, the authors suggest that the Federal Reserve should develop and operate its own real-time system, with the idea that a Fed-run network will provide needed competition to the RTP network. This notion is misdirected for a number of reasons. First, it assumes that the RTP network poses competitive risks, but the Department of Justice Business Review Letter recognized the system’s pro-competitive nature. Second, it ignores that the RTP system already faces competition from among others such as same-day ACH, card networks and fintechs. For these reasons alone, it is wrong that a public-sector payments system is needed as an alternative to the RTP system to create competition.
Another misconception in the contributed article is that a Federal Reserve-run RTGS would be safer than a privately run system and would serve as a safeguard in times of crisis. The authors cite 9/11 and the financial crisis as examples implying that private-sector systems were inadequate. But they ignore that all TCH systems operated without incident through every natural disaster, 9/11 and the financial crisis. TCH’s operational performance should be unsurprising. TCH has operated core payments system infrastructure in the United States for 166 years, today clearing and settling approximately $2 trillion in interbank payments daily.
Also, notably absent from the op-ed is any discussion of how even the potential of a Federal Reserve-run RTGS is already slowing the progress of faster payments in the United States. Just the Federal Reserve’s public consideration of launching its own RTGS system has prompted some institutions to delay enabling real-time capabilities as they wait to see whether the Fed will act. This delay puts in jeopardy one of the key effectiveness criteria of the Faster Payments Task Force: achieving ubiquity by the end of 2020. Even if the Fed were to decide to launch its own RTGS immediately, it would take years for the Fed to design and build a system (it took TCH five years), putting institutions that wait at risk as customers are expected to quickly demand the real-time capabilities that exist in the RTP network.
The op-ed also makes no mention of the likely increased costs that a Fed-run RTGS would impose on all participants absent full interoperability between the Fed-run system and the RTP network. Full interoperability, however, is unlikely. For a frame of reference, look across the Atlantic, where the two faster payments systems in the European Union — RT1 which is run by EBA Clearing, and Target TIPS, which is run by the European Central Bank — are not able to interoperate. This lack of integration is increasing costs to participants and reducing the potential for faster payments ubiquity in Europe, which would provide the most value to financial institutions and, most important, their customers. If a similar situation develops here in the U.S., depository institutions would have to connect to two or more faster payments systems, which could make both systems less effective because of the inability to achieve ubiquity, would be redundant, and thereby would increase costs for all direct and indirect users of the systems.
Finally, a Federal Reserve-run RTGS would introduce uncertainties for the RTP network’s fundamental principle of making access available to all depository institutions and others. This includes the RTP system’s flat pricing model, which charges the same amount regardless of the participant’s size, without any volume discounts or minimum volume requirements. TCH has committed to this fee structure to ensure a level playing field for all participants, whether they process one RTP transaction or one thousand. Ensuring a level playing field is an important principle and is designed explicitly to ensure that the RTP network serves all depository institutions, regardless of size, while providing for the necessary reach required for the network. How a Fed-run RTGS will impact the RTP network’s level playing field model is uncertain, but as any business needs to adapt to changing market conditions, TCH will too. It will have to consider all steps that may be necessary to address the marketplace impact of the Fed’s launch of its own system.
TCH is committed to supporting real-time payments for all depository institutions without discrimination and regardless of size. We have done and will continue to do everything that we can to fulfill this important mission.
