NYCE 2014 FRFS strategic directionnyce.tmany.org/2014/wp-content/uploads/2014/02/...May 28, 2014 · management standards than non‐bank payment providers • Some non‐banks would

© 2014 Federal Reserve System. Materials are not to be used without consent.

Advancing the Federal Reserve Financial Services Strategic Direction

Ken Isaacson Senior Vice-President, Wholesales Product

Office

NY Cash ExchangeMay 28, 2014


Discussion Agenda

• Federal Reserve Overview and Strategic Focus• Payment System Improvement - Consultation

Paper Responses• Research on End-User Demand for Select

Payment Attributes Results• Additional Research Activities• Staying Connected• Questions

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Provide financial services to depository

institutions and U.S. government

Provide financial services to depository

institutions and U.S. government

Establish and execute U.S.

monetary policy

Establish and execute U.S.

monetary policy

Supervise and regulate financial

institutions

Supervise and regulate financial

institutions

Federal Reserve Banks Overview

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Mission•To foster integrity, efficiency and accessibility of the U.S. payment system

Vision•Payments are safe and efficient

•End users can select payment options with attributes (e.g., speed, convenience, cost, security) that meet their needs

•Incentives promote efficient selection and use of these options

Role•Act as a major service provider to the interbank market

•Collaborate with industry and emphasize innovations in electronic payment systems

…to maintain a stable financial system and contain systemic risk


• Maintain and enhance FRB network security• Enhance understanding of end‐to‐end security• Collaborate and promote industry best practices

Safety and

Security

• Develop solutions to enhance payment speed• Understand market demand for faster payments• Continue migration of paper to electronic

Speed

• Develop solutions to promote efficiency• Understand needs and barriers• Promote standards adoption to improve efficiency

Efficiency

End-to-End Strategic Focus

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Payment System Improvement –Public Consultation Paper

• The paper sought the input of payment system stakeholders and end users on:– Payment system gaps, opportunities and desired outcomes– Potential strategies and tactics to shape the future of the U.S.

payment system– The Federal Reserve Banks’ role in implementing these

strategies and tactics

In late 2013, Federal Reserve Banks solicited comments on a Payment System Improvement – Public Consultation Paper.

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Payment System Improvement – Public Consultation Paper Industry Response

• ~200 written responses•Review responses at: FedPaymentsImprovement.org/user‐submissions/


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Payment System Improvement – Public Consultation Paper Industry Feedback Summary – Common Themes

• Approximately three quarters of respondents agreed with the gaps, opportunities and desired outcomes outlined in the consultation paper

• Feedback suggested that the Fed consider additional areas for focus

• Many think a 10‐year plan for improving the U.S. payment system is not aggressive enough

Agreement with Gaps, Opportunitiesand Desired Outcomes

75% Agreed


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• There was broad support for the Fed’s efforts to improve the U.S. payment system

• Many suggested that the Fed become more active in developing and implementing payment standards

• Many suggested that the Fed continue to engage with the industry

• Merchants expressed desire for a payment system governance structure that allows them to have more influence

• Depository institutions argued that they are held to higher regulatory and risk management standards than non‐bank payment providers

• Some non‐banks would like direct access to the payment system, but many banks urged that the payment system remain bank‐centric

Approaches to Achieving Payment System Improvements


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• More than three quarters of respondents agreed that the following would be important:‐ Ubiquitous participation‐ Confirmation of good funds‐ Speedy payment settlement and delivery ofinformation

• Many suggested that we should only pursue near real‐time payments if there is a clear business case.

Faster Payments

• Opinions were divided on how to achieve near real‐time delivery of payments • Many suggested that near real‐time confirmation of good funds and notification are more important than near real‐time posting to end‐user accounts and interbank settlement

• Many urged that any future faster payment options be limited to credit payments to help prevent fraud


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• Many suggested that the industry work together to develop new fraud prevention tools

• Many also advocated for thedevelopment and adoption of security standards

• Many believe consumers need bettereducation and incentives to make fraud‐reducing payment choices

Security


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• No consensus on directories emerged Directories

• There were differences of opinion on whether the industry should take any action to enhance check processing

CheckEnhancements

• Views are split on the priority of improving international payments

InternationalPayments


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End-User Demand for Select Payment Attributes

• Usage and awareness of various payment instruments• Importance/meaning of speed to end users; differences by use case• Importance of other key features (e.g., ubiquity, account masking)• Appeal of faster payments and willingness to pay fees

Objective: To further explore end‐user demand for select payment attributes


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Research on End-User Demand for Select Payment AttributesKey Takeaways

SecurityFaster is Preferred

Payment Attributes of Interest•Ubiquity•Payment speed•Payment notification•Ability to send payments without account information

Faster Debiting is Important to Consumers

Fast Availability of Funds is Important to Businesses


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Consumers and businesses indicated that they would rather share an email address or a phone number to make/receive payments

Account Masking

CONSUMERS

85%BUSINESSES

81%

When making a payment, not having to

give bank account information to the payee is important


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Security

Most consumers and businesses agreed that they “won’t use a payment method unless it is used and accepted by most people and businesses”

67% OF BUSINESSES

61% OF CONSUMERS

Ubiquity

61% OF CONSUMERS

67% OF BUSINESSES


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Security

Most consumers and businesses stated that it is important to receive timely notification that a payment has been made

and when the payment was received by the payee

Payment Notification

75% OF CONSUMERS

84% OF BUSINESSES

Payment Made70% OF CONSUMERS

82% OF BUSINESSES

Payment Received


When presented with a choice , assuming same speed of debit and credit,between payment speeds of either:

Instant • One hour • 12 hours • 12‐24 hours • 2‐3 business days

Consumer payers and business payees preferred

instant or one‐hourpayment speed

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Speed of Payment Debited from Sender’s Account and Made Available to Receiver

OF BUSINESSPAYEES

OF CONSUMERPAYERS

75%69%


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Security

More businesses than consumers expressed willingness to pay a fee

for payments that have faster availability to the payee

Willingness to Pay

33% OF CONSUMERS

75% OF BUSINESSES

33% OF CONSUMERS

75% OF BUSINESSES


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Additional Research Activities

Real‐Time Alternatives Assessment

Payments Security Landscape Study


• Define the features and functionality required in a faster payment system

• Identify feasible alternatives for achieving the desired features and functionality

Objective: Assess alternatives to improve the speed of U.S. payments, including the exploration of a near real‐time retail payment system

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Real-time Alternatives Assessment


• Secondary research review to provide insights into potential security gaps or opportunities

• Case studies to analyze payment networks in relation to control structure components such as network governance, payments data storage, incentives and standards

• Review of current industry activities focused on enhancing payment security

Objective: To assess the current landscape of payment system security and identify gaps and opportunities to improve it

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Payments Security Landscape Study


• Continue payment industry collaboration to encourage and document interactive dialogue on the U.S. payment system gaps and opportunities, desired outcomes and possible solutions that improve speed, efficiency and security

• Use Consultation Paper industry input and additional research insight to inform FRFS future plans and actions and identify additional areas where collaboration with the industry or independent industry action would be useful in the implementation of U.S. payment system improvements

• Define and prioritize U.S. payment system improvement initiatives that advance the speed, efficiency and security of payments and communicate these plans in a paper expected to be published in the second half of 2014

Next Steps

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Collaborate

Develop Future‐Focused Strategies

Prepare and Share a Paper


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Staying Connected

Visit FedPaymentsImprovement.org

Visit us at Fed and industry forums• E.g., NACHA Payments 2014, NAFCU, Sibos 2014, the Chicago Payments Symposium, Money2020 and the AFP annual conference

Subscribe to receive strategic direction updates from the Fed• FedPaymentsImprovement.org/subscribe


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Questions

Documents

NYCE 2014 FRFS strategic directionnyce.tmany.org/2014/wp-content/uploads/2014/02/...May 28, 2014 · management standards than non‐bank payment providers • Some non‐banks would