Developing an interoperable faster payments system

posted by Kevin Christensen on Wednesday, February 13, 2019 in SHAZAM Blog

From phone banking to online banking to banking apps, funds are being moved from one entity to another to pay for goods and services. While the faster payments process may appear convenient to the end user, the current system is fragmented. It restricts access and limits competition, while creating a burden for community financial institutions.

In today’s payments landscape, there are many solutions for transferring funds. Technology solutions are being developed and banks are launching their own proprietary tools, but these solutions don’t necessarily “talk” to each other. Building a system based on interoperability will greatly benefit community financial institutions and their accountholders — and it’s the lynchpin to the kind of faster payments ecosystem the Federal Reserve envisions.

Recently, the Federal Reserve sought comments on the potential actions it could take to support a faster payments system. When responding to this request, SHAZAM spoke of the need for a system that can help provide interoperability for all solutions, especially those used by community financial institutions.

Currently, there are multiple person-to-person payment solutions in the marketplace and none are interoperable with one another. As a result, P2P solutions are often denied from being able to route transactions to the accounts of large financial institutions. Because of this situation, small and midsized community financial institutions are sometimes required to use the large bank solutions — their competitors — to meet the needs of their accountholders. Obviously, this relationship presents tremendous risk to community financial institutions as they have now, effectively, provided their accountholders information to a consortium of the country’s largest financial institutions. It’s not acceptable for any institution to have to rely on a competitor’s applications and technologies to meet the needs of its own accountholders.

Some would argue that allowing, or even promoting, this relationship is advantageous, as it helps achieve ubiquity. However, if ubiquity is obtained when community financial institutions are forced to use the large bank consortiums, then the public’s payment needs are not properly being served. Ubiquity is only properly obtained when service providers are interoperable, fueling payment competition and ultimately serving in the public’s best interest.

When considering faster payments, SHAZAM envisions a system that allows payments to act much like text messaging does now. People send and receive text messages seamlessly, regardless of the carriers they use. If the Federal Reserve doesn’t assist in providing a system in which all faster payment solutions integrate, community institutions will lose choice and innovation will be hampered.

The efforts of the Federal Reserve have brought the industry together to collaborate on payments system improvements. This work has built a solid foundation for the future of payments and plays an important role in promoting a safe, efficient and broadly accessible U.S. payments system. By working together with the Federal Reserve as an operator, a system that offers nondiscriminatory access — and ultimately results in ubiquitous interoperability — is possible.


  1. faster payments
  2. federal reserve
  3. interoperability

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