Introducing the FedNow ServiceSM in a mid-August speech
, Fed governor Lael Brainard said the Fed is "engaging directly with the fintech and software companies who provide customer-facing services that will help banks build innovative instant payment products to serve their communities."
This engagement is important because, like a car chassis that can support multiple models of cars (hatchback or sedan?), instant payments services like the Clearing House's RTP (from "real-time payments") and the planned FedNow Service are platforms that make it possible to develop a huge variety of new products and services.
The shape of these new payments offerings will be vital for efforts to provide access to all consumers and businesses. In a February speech, "The Digitalization of Payments and Currency: Some Issues for Consideration," Governor Brainard remarked about the potential for improving access: "The entrance of BigTech and FinTech into payments…has the potential to enhance financial inclusion by expanding the number and diversity of ways people gain access to financial services and by creating more consumer-friendly offerings."
One way to create such offerings is to investigate what consumers do now and then envision how that might change for the better. With Fed economists Fumiko Hayashi and Joanna Stavins, I recently shared some data about the experiences of consumers who could benefit from offerings built on a faster payments chassis. In the Federal Reserve series Consumer & Community Context, we reported data from several sources: the Federal Reserve Survey of Household Economics and Decisionmaking, the Federal Reserve Bank of Atlanta's 2019 Survey of Consumer Payment Choice and 2019 Diary of Consumer Payment Choice, and the Federal Deposit Insurance Corporation (FDIC) National Survey of Unbanked and Underbanked Households. All the data relate to the capacity to send and receive payments almost instantly.
Some findings:
- Among consumers who overdrew their bank accounts, lower-income consumers were more likely to incur fees.
- Lower-income consumers were more likely to pay bills late and, when paying late, to be charged late fees by billers.
- Underbanked consumers whose income varied often or occasionally were more likely to report that they had trouble accessing funds due to delays in availability. Underbanked consumers are those who have used alternative financial services like payday loans or check-cashing services.
- Timing problems related to both receipts and payments could be making some consumers use high-cost alternative financial services.
Various factors may influence whether faster payments benefit everyone equally. That's why it's important to read the Federal Register notice, check out the Clearing House's RTP website, dive into the research, and imagine the possibilities inherent in the shape of payments products and services to come. Hatchback, sedan, or both?
You have a role in driving the outcome.
By Claire Greene, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed