In their article for the Pew Charitable Trusts, titled “Faster Payments System Could Give Consumers and Businesses Better Access to Their Money,” authors Thaddeus King and Rachel Siegel report the results of their research. In particular, the March 9, 2018, article outlines the inherent problems and challenges associated with the “ambitious goal” set by the Federal Reserve’s Faster Payments Task Force to create a “real-time system through which funds could be received by any financial institution by 2020.”
As observed by the Pew authors, in May 2015, the Fed’s task force brought together “more than 300 stakeholders from financial institutions, payment providers, consumer groups, regulators, businesses, and consultants.” The task force developed seven “effectiveness criteria” to provide guidance on the most important aspects of an improved payments system: “ubiquity, efficiency, safety, security, speed, legal, and governance.” Most recently, the group’s work culminated in two reports, including proposals from various financial firms, regarding the task force’s efforts to establish real-time fund transfers.
Problems, challenges. Based on Pew’s research, the authors note that while a “faster, universally accepted payments system would eliminate the wait that many consumers and businesses face before they can access their money,” the system would unlikely be available to those who do not have smartphones or bank accounts. Further, a faster payment system will not end overdraft fees charged by banks on consumers’ accounts.
According to Pew’s research:
- 23 percent of U.S. adults did not have a smartphone at the start of 2018;
- 54 percent of U.S. seniors—age 65 and over—did not have a smartphone at the start of 2018;
- among smartphone users, only 32 percent had previously made a purchase with it;
- among smartphone users, only 14 percent indicated having sent or received money using a mobile app;
- overall, 70 percent of respondents cited “loss of funds and identity theft” as concerns that might prevent them from using a mobile payments system;
- nearly 37 million U.S. consumers do not have bank accounts from which to send or receive money; and
- overdraft fees are collected from about 9 percent of all accounts, and 75 percent of “overdrafters” had difficulty paying monthly bills.
Potential solutions. The authors indicate that some companies have proposed models that would allow customers to “make payments at kiosks in brick-and-mortar stores, or with a basic cellphone or an internet-connected device.” Consumers without bank accounts—the “unbanked”—would especially benefit from cash deposits or transfers at kiosks or retail stores.
Also, a faster payment system would provide immediate access to funds and could offer some relief for those who overdraw “simply because their deposits are not available quickly enough,” the Pew article notes. At the same time, additional problems that need addressing include: (i) consumers’ poor understanding of overdraft policies and practices; and (ii) consumers’ need to access affordable small-dollar credit. According to the authors, better disclosure of account holders’ legal rights, limits on penalty overdraft fees, and regulatory guidance to allow banks and credit unions to offer safe, small-dollar installment loans would help resolve these problems.
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