Executive Summary

Executive Summary

• The Federal Reserve Banks (Fed Banks) have recently issued their “Payment System Improvement – Public Consultation Paper” and seek input from payments stakeholders, including credit unions and financial institutions. Sandra Pianalto, President of the Cleveland Fed stated the purpose for the paper is “to share Federal Reserve perspectives on the key gaps and opportunities in the U.S. payment system and identify the desired outcomes that close these gaps and capture these opportunities.”

• These potential gaps and opportunities with payments include: faster payments, closed payment communities, and international, mobile, and traditional payment channels. The Fed Banks seek input on these issues and the role the Fed Banks should play in payments.

• CUNA is interested in your feedback on payment system gaps and opportunities. We will review this paper with the CUNA Payments Subcommittee, CUNA Councils, and others.

• Comments for the public consultation paper are due to the Fed Banks by December 13, 2013; please submit your comments to CUNA by November 18, 2013.

• If you have any comments or questions, please contact CUNA Assistant General Counsel for Regulatory Research Dennis Tsang at dtsang@cuna.com. For a PDF copy of this survey, please visit this link.

• For further details, please visit the Fed Banks’ Public Consultation Paper.


The Federal Reserve Banks’ (Fed Banks’) strategic direction in payments includes improving the speed and efficiency of the U.S. payment system from “end-to-end” over the next decade while maintaining a high level of safety and accessibility. “End-to-end” means from the point of origination to receipt, including with payment notification and reconciliation. To implement this vision, the Fed Banks are interested in working with payments stakeholders, including financial institutions, and end users such as consumers and businesses.

The paper acknowledges that today’s payment system accommodates the changing payment preferences of end users, as we see many new payment offerings such as person-to-person (P2P) and mobile payments.

However, the Fed Banks noted that many of these new payment offerings do not have a broad base of members, which makes it inconvenient or impossible for end users in the network to make or receive payments from users outside of the network.

Generally, legacy payment systems are more ubiquitous and allow end users to send payments to almost any receiver, without requiring the receiver to enroll in the system. This is because many legacy payments require a transaction account at a depository institution; a transaction account enables payments such as checks, funds transfers, ACH payments, and debit cards.

The goal of the Fed Banks is to foster an environment for payments innovation to meet the changing payment needs of end users and also to offer the advantages of near–ubiquity.

* 1. Does your credit union agree with, or have any comments on, the Federal Reserve Banks’ eight major payment system gaps and opportunities?

  Strongly Agree Agree Neutral Disagree Strongly Disagree
1. Check writing persists because checks have important attributes, including ubiquity and convenience, which are not well replicated by other types of payments, including electronic payments. Also, many receivers of checks prefer other forms of payment but exercise little control over the sender to request a different form of payment.
2. Unlike some other countries, the U.S. payment system does not have a ubiquitous near-real-time retail payment system. There have been some private-sector innovations that have facilitated an incremental move toward faster payments.
3. Most recent payment innovations are still limited-participation systems where both sender and receiver must join. Legacy payment systems tend to be more ubiquitous.
4. Some features that are desired increasingly by end users are generally lacking in many legacy payment systems, such as: a) A real-time validation process assuring the payee that the payer’s account exists and it has enough funds or available credit to cover the payment; b) Assurance that a payment will not be returned or reversed; c) Timely notification to the payer and payee that the payment has been made; d) Near-real-time posting / availability of funds to both the payer’s and payee’s accounts; and e) Masked account details, eliminating the need for end users to disclose bank account information to each other.
5. In general, cross-border payments from and to the U.S. can be slow, inconvenient, costly, and lack transparency regarding fees and timing. (Note: The CFPB international remittance transfer rule’s new disclosure and other requirements will be effective on October 28, 2013.)
6. Mobile devices have potential to transform wide ranging aspects of business and commerce, including the payment. Digital wallets can provide merchants with new data and applications on consumers. Some digital wallets can reduce the visibility and choice of the payment instrument at the point of sale.
7. Businesses (especially large ones) have payment and accounting systems that are complex and costly to change.
8. Consumer fears about payment security sometimes inhibit adoption of electronic payments.

* 2. Does your credit union agree with, or have any comments on, the Fed Banks' desired payment system outcomes within ten years?

  Strongly Agree Agree Neutral Disagree Strongly Disagree
1. Key improvements for the future state of the payment system have been collectively identified and embraced by payment participants, and material progress has been made in implementing them.
2. A ubiquitous electronic solution(s) for making retail payments exists that does not require the sender to know the bank account number of the recipient. Other desired attributes could include: confirmation of good funds at the initiation of the payment; timely notification the payment has been made to the sender and receiver, and faster funds availability in near real time to the payee.
3. Over the long run, greater electronification and process improvements have reduced the average “end-to-end” (societal) costs of payment transactions and resulted in innovative payment services that deliver improved value.
4. Consumers and businesses have better choice in making convenient, cost-effective, and timely cross-border payments from and to the U.S.
5. The Fed Banks have collaborated, as appropriate, with the industry to promote the security of the payment system from “end-to-end” amid a rapidly evolving technology and threat environment.

* 3. Should the Fed Banks play a greater role to promote the U.S. payments system?

* 4. Near-Real-Time Payments - Does your credit union believe we need to have ubiquitous near-real-time payments?

* 5. Near-Real-Time Payments - Should a public authority or industry group facilitate ubiquitous near-real-time payments?

* 6. Near-Real-Time Payments - Does your credit union have concerns with implementation and ongoing costs, fraud, core-processing, and other backend systems, if we have near-real-time payments?

* 7. Near-Real-Time Payments - If there is a ubiquitous near-real-time payments system, what features should this system have? How could this system be achieved (e.g., by enhancing legacy payment systems, such with checks (enabling fully electronic payment orders), with the ACH Network (same-day ACH), with debit cards, or other existing systems; or by setting up a new system)?

* 8. Centralized Directory - Would the concept of a new, centralized directory used for payments be useful for your credit union, if this directory contained account and routing numbers for businesses and consumers? Under this concept, a sender would not need to know the account or routing information of the receiver.

* 9. Electronification - Do you have any comments on encouraging the movement from paper to electronic payments, for checks, and for business-to-business payments?

* 10. International Payments - Do you have any comments on how cross-border payments from and to the U.S. can be improved (e.g., international ACH or wire transfers)?

* 11. Security / Fraud - Any comments on authentication, security, threats, standards, and other issues that could affect the safety of payments for your credit union?

* 12. Other Comments

* 13. (Optional) What is your credit union's asset size?

* 14. (Optional) Please provide information about yourself and your credit union.

Thank you for your input and time - CUNA Regulatory Advocacy Team