Payments in the U.S.

The way we make payments has shifted dramatically in recent years with many new tools and technologies shaping today’s market. The market has shifted toward a heavier use of electronic payments, with card payments growing steadily over the year. As consumers and businesses shift to electronic payment methods, technological improvements are providing new opportunities for payment providers to implement faster and more user-friendly payment capabilities. For example:

  • Mobile device applications have opened up a variety of channels to interact with financial institutions and other payment providers, from managing personal finances to integrating payments seamlessly into transactions.
  • APIs (application programming interfaces) are being used more frequently to connect software and web applications from multiple providers. This can allow innovative products to be easily integrated into new payment services for consumers and businesses.
  • In the movement toward an “Internet of Things,” smart devices—from wristwatches to cars to refrigerators—will have the ability to initiate transactions and make payments.
  • Digital currencies have the potential to change the payments landscape, particularly if adopted by one or more major central banks.
  • Distributed ledger technology (e.g., blockchain) can potentially allow transactions to be verified and recorded across a distributed network of computers. This might change the roles of traditional players in payment clearing and settlement processes—for example, by eliminating the need for some types of centralized transaction bookkeeping.

Faster payments have potential synergies with these technological advances. For example, as mobile phones and other smart devices become widely used for a variety of banking and retail applications, faster payments may become more valuable to end users who wish to quickly complete transactions and manage account balances in real time using their smart devices.

To take advantage of these trends, the payment industry needs to work together to identify effective approaches and opportunities for implementing safe, ubiquitous, and faster payment capabilities in the United States. The task force has developed the Effectiveness Criteria to identify desired attributes of a future payment system, which extend beyond the speed of payments and encompass many dimensions. Although some criteria are already met by current payments solutions, other criteria aim to address gaps.

End-user Demand for Faster Funds Availability and Ubiquity

As commerce increasingly shifts to online and mobile channels, end users expect to complete transactions instantly, anytime, anywhere, and expect payments to take place in real time. According to research, both consumers and businesses showed a desire for improved cash flow management that could result from a faster payment system. Businesses stated a strong preference for faster availability of payment funds, which reflects the notion that many businesses struggle to manage temporary liquidity and to balance cash inflows and outflows. In addition to a desire for greater speed, end users expressed a demand for payment solutions that are widely used to send payments from any account to any other account.

Safety, Security, and Risk Management

As electronic payment methods have been broadly adopted in recent decades, there is not only a greater demand for speed, but also for secure handling of payment data. Increasingly sophisticated cyber attacks and data breaches have reinforced the need for continued investment in payment security from all participants in the payment system.

According to market research conducted by the Federal Reserve, end users indicated a strong desire for greater privacy protections. Although most consumers and businesses are willing to write checks disclosing their account number, eighty percent of respondents said that they would prefer to share an email address or phone number rather than their bank account information.[1]

Risk management is also a critical concern for parties involved in sending and receiving payments. With some current payment methods, there is a lag between the point when a payment is authorized and when the funds are debited and credited, with finality, to the payer and payee’s accounts. This leads to uncertainty in managing account balances and creates a risk that the payment could be reversed or canceled.

Regulatory Environment

Unlike many other countries that have implemented real-time payment systems, the United States does not have a single central authority to mandate payment standards and improvements across the industry as a whole. There are a variety of laws, rules, and regulations that govern different types of payment systems and providers and help guarantee protection to end users. Laws are passed by the U.S. Congress and state legislatures and regulations are established by federal and state agencies to implement these laws. Specific rules and agreements are also set by payment system operators, providers, and rule-making bodies.

Non-bank providers typically do not offer the same range of products and services as financial institutions and may not be subject to the same types of regulation; however, depending on the types of payment services they provide, non-banks are required to meet various laws, rules, and money transmission licensing requirements in each of the 50 states.

Regulators and industry players jointly benefit from collaboration and discussion to promote consistent understanding of market changes and the legal and regulatory structure.

Electronic Payment Messaging  Standards

For an electronic payment to take place, messages have to be sent between financial institutions and other providers involved in the transaction to identify the payer and payee’s account information, the payment amount, and other transaction details. Payment messages include standard identifiers and syntax so that the information can be read and processed correctly by all parties.

Payment messages today do not always facilitate sending sufficient types of data directly with the payment, such as biller reconciliation information, information to facilitate investigations of possible fraud or error, loyalty/rewards information, or other types of messages.

A variety of messaging standards are used around the world, but there is no broadly adopted messaging standard across the industry. Many countries have fixed character limits that do not permit detailed data to be transmitted with payments. In the United States, ACH payments provide the ability to send large amounts of data with certain types of payments; however, this capability is not available for all electronic payments.

Several countries that have adopted faster payment systems have also adopted ISO 20022 messaging standards with approximately 200 global initiatives currently completed or underway to adopt ISO 20022 across a variety of business uses. In addition to electronic payment messages, e-invoicing capabilities allow businesses to send and receive invoices corresponding to electronic payments.

Cross-Border Payments

Today, cross-border payments typically take much longer to process than domestic payments and carry much higher transaction fees. A payment often goes through a complex network of international and intermediary banks (each charging a fee) before it reaches the final recipient. This makes it difficult for businesses to transact across national borders and for consumers to send and receive remittance payments conveniently and cost-effectively.

New services to help bridge this gap, but they face many challenges in trying to operate on a global scale and typically focus on limited markets or use cases.


[1] For more detail, see Appendix 3 of Strategies for Improving the U.S. Payment System, pg. 29.

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