Big banks aren’t happy with the Federal Reserve’s plan to update its payments system that would allow for almost instant transactions.
Currently, the system doesn’t operate on weekends and can take days to process certain transactions. All that could change as soon as this week, when the Fed is expected to announce changes.
“The United States is far behind other countries in terms of having real-time payments,” Fed Chairman Jerome Powell said last week, adding that while the Fed hasn’t made a decision on whether to move forward, the central bank has a long history of providing payments services to banks.
“In many places, the Fed operates alongside private-sector operators,” he added, according to the Wall Street Journal. “So it wouldn’t be unusual or out of keeping with how we’ve done things in the past.”
But major US banks, including Citigroup, U.S. Bancorp and JPMorgan Chase & Co., which have collectively invested about $1 billion into their own instant-payments system, have voiced concerns about the Fed’s plans. One issue being that they believe an updated Fed system could result in a delay in the adoption of instant payments. There are also concerns that the Fed might also start offering volume discounts to users in effort to compete for customers, which would force banks to do the same.
“We have a real-time payments network. It’s operating,” said Steve Ledford, senior vice president for product and strategy at The Clearing House, the company that operates the bank’s network. “If the Federal Reserve decides to launch its own network, it’s just delaying the access to faster payments to everybody.”
On the flip side, small- and medium-size banks, as well as technology companies such as Google and retailers including Walmart and Target, are in full support of the Fed’s plans as they worry about being under the financial mercy of their bigger rivals.
‘There’s just a fear that the big banks really don’t have a need for the smaller banks and would rather just control all components of banking in the country,” said Kathy Strasser, chief operating officer of River Valley Bank.