Fed intervention on real time payments delays consumer benefits
Count yourself lucky if you’ve never had to worry about accessing the funds from your Friday paycheck until Monday morning. If you’re a single parent, working two jobs, it’s critical that you get instant access to your hard-earned money.
In 2015, the Federal Reserve realized this problem needed to be addressed, and to their credit, they encouraged the private sector to develop a solution to the deposit/access time gap. Four years later, through American innovation, a real time payments (RTP) system came to fruition and currently reaches over 51 percent of the demand deposit accounts in the country. This allows immediate payment and withdrawal for consumers. This helps everyone from a low-income worker who needs their paycheck right away to someone who simply wants to pay back a friend who picked up their bar tab on Venmo.
Despite the enormous success of the private RTP system over a short time frame, these consumer benefits are now in jeopardy thanks to the Fed’s recent announcement that they would be creating their own system of real time payments. The practical effect of this move is a fundamental undermining of the private RTP system. The full economic benefits of RTP will not occur unless the majority of firms adopt it, and those remaining firms will remain hesitant to adopt until the Fed implements their own public option. The Fed has effectively put the brakes on RTP expansion and that’s bad for American consumers and U.S. markets.
The Fed, by moving forward with their own plan, halts the transition to a fully-functional RTP system and assures that those most in need of their own funds will continue to struggle.
It’s short-sided and could cost Americans who are already struggling to live paycheck to paycheck approximately $100 billion over the next five to seven years in unnecessary overdraft and penalty fees. But beyond exacerbating the burden placed on consumers, the Fed has also created a blatant conflict of interest. If they introduce their own version of an RTP system, they will be both a competitor and the regulator of the private sector RTP system. This contradictory role will do nothing but slow down the ability of our economy to evolve and adapt, while giving the Fed tremendous power over the private sector solution they had previously requested.
Other nations like India, Australia, and Singapore have already surpassed the United States in implementing similar technologies. The United Kingdom, for example, has already had this tech developed for over a decade. By waiting for the Fed to implement their own version of this system, the United States will only fall further behind in our technological competitiveness. This is not who we are.
Government policy on technology should be approached the American way: through empowering the innovation and ingenuity of American ideas, and allowing them to gain steam from the bottom up, not from the Fed down. As the Fed moves forward, I hope they consider the legal gray area they are wading into, as well as the harmful impact their decision will have on low-income consumers.
Budd represents North Carolina’s 13th District and is a member of the House Financial Services Committee.