The payments infrastructure in the United States is painfully out of date — and painfully slow. Newly updated payments systems in other countries are helping the Fed figure out a strategy.

Sean Rodriguez, senior vice president of payment industry relations at the Federal Reserve Bank of Chicago, told Bank Innovation that the challenges with the U.S. payments infrastructure may be unique, but that there is still much to be learned from what other countries have accomplished.

Several other countries have updated their payments systems over the past few years,  and the Fed is working proactively to try and accomplish the same thing here. Speaking on behalf of the entire Federal Reserve System, Rodriguez said, “Our economy is complex and will require our own approach, but we learned things from the U.K., Singapore, Australia, and Mexico. All of those use cases are very interesting to us, so we’re picking bits and pieces and hoping we can apply them here in the States.”

Other countries have taken a more forceful approach than the Federal Reserve. Regulators in the U.K. started an initiative to expedite payments in the country, saying that financial institutions and services would need to comply by a certain date. The Faster Payments Service (FPS) in the U.K. has been around since 2008, but Rodriguez does not think such a mandate would work in the U.S.

“The thing is, our payments system works pretty well now,” he said. “We’re proactively finding ways to improve the payments system to take advantage of technology.  I think there are advantages to having a mandate, but mandates ask to do things that may not make sense. The advantage of being proactive is to design a system that works for U.S. market and put in a reasonable time.”

Picking which model to develop will be difficult, though. Of all the different options, which is the best, and which will work best for the circumstances in the U.S.? For one thing, the U.S. has many more banks than most other nations, and the system needs to be ubiquitous and include them all. “As we start to get down to design and user requirements — whether we want one new system or multiple updated systems… Currently, the payment rails are modifiable. But do would we want to build new infrastructure? Things like the costs and time need to be determined.”

FRAUD ALERT

As the saying goes, where there are faster payments, there’s more fraud. Rodriguez said fraud is “first and foremost on our minds.”

“Out of all the folks I talk to in the payment space in U.S., fraud is their number one or two concern,” he added. “Payment fraud and risk are high priority, but there are benefits. Using new [faster] payments systems, we’ll also be able to identify fraud faster. If we decide to update the credit push system, it might be able to protect capability even better than the debit pull system we have now. It’s right on the front of our list of issues, even before deployment.”

While there may not be a dire need for faster payments in the U.S. — certainly the banks think there isn’t — Rodriguez cited a historical precedent for the government acting preemptively.

“The idea of building infrastructure to help enable faster payments is more strategic than a business case at this point,” he said. “Sixty years ago, Eisenhower signed the Federal Highway Act, which allowed the U.S. government to build highways. In the short term, there were a lot of townships and even small cities that would be disadvantaged, but all these years later, we understand the great value the updated system had over dirt roads.”