Federal Reserve Task Force Proposes Faster Payments System By 2020
Last week, The Faster Payments Task Force – the Federal Reserve’s payments system improvement initiative – published a report outlining its path to the improved payments system intended to be established in the US by 2020.
According to the charter, the mission of The Faster Payments Task Force is to “identify and evaluate alternative approaches for implementing safe, ubiquitous, faster payments capabilities in the United States that advance the following desired outcome.”
The task force, which consists of over 300 diverse payments industry participants, began its mission in January of 2016 when it released the Faster Payments Effectiveness Criteria that companies would have to meet in order to have their solution proposals considered for the undertaking. To facilitate this, the task force worked alongside global financial consultant McKinsey and Company to establish an external qualified independent assessment team (QIAT), which assessed 22 proposals. 19 of the proposers opted to continue onto task force review and of those, 16 decided to release their proposals to the general public.
Included within these 16 are a number of firms currently working with distributed ledger technology (DLT), blockchain, and digital currencies, including Kalypton Group Limited, Ripple, Hub Culture, Eccho, Xalgorithms, nanopay, and WingCash. Blockchain and DLT are gainful for the financial sector due to their cryptographic features being “improved security practices.” According to the report:
“Blockchain and distributed ledger technologies (DLT) rely on cryptographic techniques to authenticate transactions and reduce the likelihood of fraud. DLT is also making possible the use of “smart contracts” to securely execute business transactions and associated payments.”
The report identifies areas that can be enhanced and provides clarification so the companies can improve on their proposals, as the task force is not ready to commit to any of the solutions at their current point in development.
“Nothing regarding these proposals nor the inclusion or exclusion of any link, should be read to imply any endorsement or recommendation by the Federal Reserve Banks, the Federal Reserve Board, or the Faster Payments Task Force.”
Nevertheless, the task force believes that faster payment systems that utilize blockchain and DLT can give consumers quicker access to funds, improve working capital in business, and assist with supply chain management efficiency, as it leverages “leading-edge” security and risk-management practices. However, the group does stress that ongoing collaboration and commitment in the payments industry is needed in order to meet the projected 2020 goal with success.