The Clearing House’s “tremendous effort” to bring realtime payments (RTP) to the entire U.S. banking industry would be stymied if the Federal Reserve decides to facilitate its own system for realtime interbank faster payments settlement, according to Steve Ledford, SVP Products and Strategy at The Clearing House.

“Of course, we would support the Federal Reserve, and work with them to ensure the success of such a system,” Ledford told Bank Innovation. But the “fear,” Ledford said, is that some banks and credit unions might refrain from getting on the current realtime payments rail that the TCH is trying to get all the country’s banks onto by 2020.

“Also,” Ledford adds, “if the Fed decides to enter the market, to create a realtime system from the ground up takes time.” In other words, that realtime system by the Federal Reserve will not be immediately available, setting back the plan to have the entire banking industry realtime ready by 2020.

The Clearing House views the Federal Reserve project as competition for its own initiative, so its attitude is easily understandable.

Last week, the TCH submitted its comment to the Federal Serve on the matter. Ledford shared the 10-page comment with Bank Innovation, which among other things, states:

• TCH believes there is an important role for the Federal Reserve to play to support faster payments in the U.S by providing the Liquidity Service, preferably as an expansion of Fedwire Funds Service operating hours
• TCH does not believe there is a need for the Fed RTGS Service and, thus, does not support it; and
• Is very concerned that if the Federal Reserve determines to provide the Fed RTGS Service, it will harm rather than support the U.S. faster payments marketplace unless the service is fully interoperable and functionally aligned with the RTP network and implemented by 2020.

Also See: Bankers Believe Realtime Will Give Their FIs Competitive Advantage

In October, Federal Reserve put out a request for comment on “ potential actions to facilitate real-time interbank settlement of faster payments.”

There is no certainty that the Federal Reserve will implement its own system. Bank Innovation has reached out to the Federal Reserve and will update this story if a comment is provided. But according to its statement in October, “the Board is not committing to any specific action and is seeking input on which, if any, actions the Federal Reserve should take.”

TCH first proposed the idea to institute realtime payments back in 2015. The Fed Faster Payments Task Force was chartered to push this initiative forward. This was the first time in over 40 years that a new payment rail was being created. As of now, 50% of the total deposit base in the country is expected to be connected by 2019. 

For an FI to be realtime-ready, an agile and secure infrastructure is needed, since RTP is 24/7, and is significantly more data-rich than the existing forms, and involves a lot more data than ever before, Vinay Prabhakar previously explained to Bank Innovation.

Figuring out how FIs can use this data to create a competitive business proposition, he explained. “The question that banks are looking at is how can I differentiate my service from the rest so that people will pay for my service as opposed to anyone else’s? That’s what is causing the banks to take time. It comes down to building a unique and valuable customer experience,” he said.

“We are already seeing a lot of innovation around APIs among the banks that are on RTP,” Ledford says. But exactly what that innovation is, he could not comment.