May 27, 2014

Fed Looks To Improve Mobile Payments

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The federal reserve bank is looking to improve the United States’ payment system. Using town hall meetings held around the country to get input, the Fed seeks to make payments in the United States more competitive like the rest of the world. First though, there are many issues to be addressed.

Improving the U.S. Payment system involves making electronic payments faster and more secure. Also, the system should have the ability to connect closed-loop payment networks to millions of accounts. Outside of the United States mobile devices, chip based credit and debit cards and faster operation systems are upstaging the archaic systems in the United States.

In September 2013 the Fed released a document suggesting many ideas and questions related to how the country should go about improving the payment system over the next 10 years. This document was the contextual background for the town hall meetings which included mainly bankers but also tech company representatives, consulting firms and other industry firms.

The premise of the document is a strategy for developing safety and security, speed and efficiency. While many agree upon the basic issues there are some issues that make it difficult for the different interest groups involved to come to an agreement. Without a consensus on how to reach a more modernized system it will be difficult at best to move forward.

An example of an issue where interest groups differ is ACH payments. Banks won’t agree on a plan, by the automated clearing house governing body NACHA, that involves speeding up the ACH payment progress, likely because it is significantly less profitable than wire transfers. With the inability to reach consensus on basic issues it will be challenging to approach other matters.

Another issue is how to handle consumer data. Consumers are still grappling with high risk credit card processing both in the physical realm and online. Data is constantly at risk and any changes creating a new system will have to ensure consumer data security. Creating a large database with consumer credentials will pose a huge risk and a regulatory body will need to monitor it.

What most interest groups agree upon though is that the government should relax regulations as financial institutions, processors and vendors attempt to solve the issue. For there to be any progress all parties will have to come to the table and begin to grapple with what is best for payment processing.

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