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Google And Amazon Favor Fed Role In Real Time Payments – Forbes

When the Federal Reserve issued a request for comment about whether it should provide a real-time payment systems (RTGS) to offer an alternative to the TCH real-time payments system (RTP), several tech firms were ready, just as some banks had feared. Banks, bank associations and state regulators in their comments had often suggested that access to RTGS be restricted to banks and credit unions.

Google has other ideas and cited India’s Immediate Payments Service. It launched in 2010 and in 2016 created a Unified Payments Interface that allowed third party developers to access it through APIs to support retail payments for an Indian consumer with an account at a participating bank.

Google Pay launched  in 2017 and supports P2P and Person to Merchant payments, the company said in its comment.

In less than a year, Google Pay has enrolled more than 30

Exterior view of a Googleplex buildingGetty

million monthly active users in India, enabled more than one billion transactions and had an annual run rate of over $40 billion in transaction value, it said.

Google thinks that in the U.S., the Fed is best positioned to define and implement a faster payments infrastructure. The Fed can ensure the lowest degree of settlement risk and provide a neutral space for all participants in the industry, added Google, neatly defining itself as part of the financial services industry, something the banks would contest. The Fed is uniquely positioned to maximize scale and drive network efficiency. And since it operates on cost recovery rather than profit, beyond 10% ROE, it can reduce the cost of intermediation.

The demand for faster payments will be driven by mobile devices for uses like ride-sharing, order ahead and food delivery services, Google added.

“In India the use of real-time payments has increased 18x in the past year and has led to innovations like instant credit at time of purchase.”

The company said moving to real-time will require some investments up front but it will reduce use of cash, strengthen the formal economy and speed up the cash conversion cycles and reduce businesses’ need for working capital.

“We have seen that industry adoption is fastest in countries where regulators play a key role.” Was that a jab at the Fed which Google shows is years behind India?

Amazon also wants in if the Fed develops a RTGS.

“We also strongly encourage the Federal Reserve to develop tools, such as technology-flexible application programming interfaces (APIs), for enabling secure and affordable access to RTGS services to ensure multiple stakeholders – including financial technology companies – are able to utilize the improved payments infrastructure to develop innovative products and services for businesses and consumers.”

Real-time payment services will replace the inefficient and outdated interbank payment settlement windows that have failed to keep pace with 21st century business and consumer needs, added Brian Huseman, vice president for public policy.

“Having multiple providers of RTGS services, including a trusted provider in the Federal Reserve, is an important long-term investment in our nation’s financial infrastructure and security.”

Ripple wants any RTGS to offer a path for digital payments.

Ripple transport at Sibos in TorontoPhoto by Tom Groenfeldt

“Ripple feels strongly that such systems be designed to leverage emerging technology to future-proof the investments being made.”

That would mean interoperability using open-source protocols and have the potential to use a variety of digital asset models to improve efficiency in liquidity management and settlement.

Ripple, which promotes its cross-border capabilities, said real-time interoperability between domestic and cross-border systems is a critical capability. The Fed participates in international standards bodies to promote this, eventually, but wants to focus on domestic payments first.

The company declined to take a view on whether or not the Fed should operate a RTGS but urged it to announce its decision in the near future  to help market participants plan.

“For domestic payments, a simple ‘credit push’ service that offered ubiquity (i.e. acceptance of the credit by all financial institutions and non-bank financial institutions), could be brought to market in 12-18 months as the minimum, mandatory service.

Additional services, e.g. ‘request to pay’ could follow.”

If the Fed does develop an RTGS system, it should be interoperable with the TCH RTP platform, said the Ripple comment which added that consumers will demand interoperability across borders.

“Such interoperability is possible today, as already demonstrated in cross-border using the open-source Interledger Protocol.”

Juniper Payments, which offers software services for about 4,000 banks and credit unions for all legacy payment types, said the Fed should develop its own RTGS.

While the private sector can provide valid alternatives, the Fed serves a critical- central role in the clearing and settlement of existing payment services, it said.

“Furthermore, the Fed has demonstrated a unique ability to move the industry toward reduced risk and increased efficiency through this central role. The remarkable speed with which the industry adopted check image exchange is the most recent example of the utility of the Fed in this central clearing, settlement and rules function.”

Juniper Payments said the Fed should make the services available through interface standards or APIs so it can serve institutions without a direct FedLine connection.

“We suggest the Fed should move toward an implementation of RTGS with all possible speed in order to meet emerging consumer demands and enable all financial institutions to participate in the faster payments economy.”

Eric Dunn, CEO of Quicken has experience as an operating executive, investor, and board member in the payments industry.

“I strongly endorse ‘the development of a service for real-time interbank settlement of faster payments…The absence of these capabilities is a major hindrance to innovation in financial technology and is a competitive disadvantage for the US economy as compared with other modern economies (UK, China) which have this capability.”

ACH has ubiquity but is not real-time, and card-based payments are real-time but too expensive for business invoice payments.

“A Fed-operated real-time interbank payment system could effectively address these gaps and open up major opportunities for commercial partners to innovate and improve the efficiency of payments-centric products and services.”