The payment system in America is not perfect, and the credit union industry is well aware of the various gaps and challenges that the current mix of electronic payments and old-school check-writing can create. Many credit unions and other financial institutions have already begun reforms that would lead to near-real-time retail payments and payment through mobile devices.
In light of these reforms, the Federal Reserve put out a white paper in September raising the prospect of government direction in reforming the payment system, with the primary goal of creating a near-real-time system. In addition to this goal, the Fed details others, including reducing the cost of payment transactions by moving toward electronification and making cross-border payments cheaper and more convenient.
We at NAFCU agree that the payment system has gaps and that there are many opportunities for innovation and reform. We appreciate the Fed’s reaching out to the industry to determine features that would help both financial services providers and their customers. But we believe it’s best for industry to lead the way in reform rather than for the Fed to attempt its own reforms and risk unintended consequences in doing so.
The contemporary features the Fed lays out in its paper do have the potential to enhance our industry’s ability to help members and their communities, especially by providing real-time validation of payments and mechanisms to ensure an end user has sufficient funds for a payment to go through. However, cutting off the ongoing, industry-wide dialogue on improving the country’s payment system could prevent industry actors from identifying as-yet undiscovered problems with these features before we implement them.
We also believe that focusing on the speed of payment is not ideal for all payments, such as those end users who are scheduling bill payments in advance. Focusing on speed would also require significant investment in anti-fraud protections.
Credit unions have a strong history of innovation and member-focused reforms, and as an industry we are continually improving when it comes to technological advancements in mobile banking and data security. Credit unions are an ideal industry to follow when it comes to consumer-focused reform, given their focus on member service over profit, unlike Wall Street and big banks. They can be trusted to lead the way in a prudent and forward-thinking manner in finding new ways to improve consumers’ experience with making payments quickly, safely and conveniently.
Unfortunately, a one-size-fits-all approach, as we have seen with the tsunami of regulation since the financial crisis, can be a dangerous approach to use. While we understand that the Fed’s intentions are good and its goals for modernizing the payment system are a helpful contribution to the dialogue, we strongly feel that government direction in this matter would be misguided. Industry trial and error – as well as consumer input – is more likely to show the best way forward, rather than assuming all transactions should be sped up. Moving forward without fully considering potential unintended consequences could very well hurt consumers more than help them, despite the flaws that the current payment system has.
NAFCU looks forward to continuing the dialogue about how to improve the payment system in America and how to correct those gaps the Fed noted in its paper. But on behalf of our member credit unions and their communities, we would urge any government direction to wait.