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Fed To Create Payments System To Speed Money Transfers (#GotBitcoin?)

Move will provide a public option to another real-time network built by big banks. Fed To Create Payments System To Speed Money Transfers (#GotBitcoin?)

The Federal Reserve plans to develop a faster payments system for banks to exchange money, providing a public option to another real-time network built by big banks.

The new system would allow bill payments, paychecks and other common consumer or business transfers to be available instantly and round-the-clock, a change from the government’s current system that is closed on weekends and can at times take days to settle a transaction.

“Everyone deserves the same ability to make and receive payments immediately and securely, and every bank deserves the same opportunity to offer that service to its community,” Fed Gov. Lael Brainard said in a speech at the Federal Reserve Bank of Kansas City Monday.

The Fed voted 4-1 to build the new network with Vice Chairman for Supervision Randal Quarles dissenting.

Big banks had waged a lobbying effort to stop the Fed from developing the new system. The banks, including Citigroup Inc., U.S. Bancorp and JPMorgan Chase & Co., have invested a total of about $1 billion in their own instant-payments system, launched in 2017 and operated by Clearing House Payments Co. They argued a competing Fed system would delay the spread of faster payments, with some smaller banks likely to wait until the central bank launches its system. The Fed said it anticipates that the new service will be available in 2023 or 2024, and will support payments of up to $25,000.

Many community banks, as well as retailers such as Walmart Inc., have encouraged the Fed to move forward with a faster government network.

The Fed said it in part decided to move ahead with the project because it predicted the Clearing House system would remain the only faster-payments provider if it didn’t enter the fray.

Providing a second option in the market would lower costs, improve efficiency and reduce the vulnerability of the financial system, creating “resiliency through redundancy,” the Fed said.

The Fed also said it was considering expanding the operating hours of its existing payments systems, including the settlement service for wire transfers, by offering limited availability during holiday and weekends or allowing them to run round-the-clock.

Thousands of community banks still don’t have access to a real-time settlement system for small consumer and business transfers at a time when PayPal Holdings Inc. ’s Venmo and other technologies allow users to send money instantly.

The banking industry is also facing competition from other payments technologies that are outside the traditional financial system, such as Facebook Inc. ’s cryptocurrency project Libra.

“One thing is clear: consumers and businesses across the country want and expect real-time payments, and the banks they trust should be able to provide this service securely—whatever their size,” Ms. Brainard said.

Updated: 1-16-2020

Rise In Check Fraud Could Motivate Treasurers To Switch To Other Payment Tools

Bank checks are still the most popular method for business-to-business payments in the U.S., the Association for Finance Professionals says.

A recent rise in check fraud could motivate corporate treasurers to ditch paper checks and replace them with faster, safer and cheaper electronic payments.

Attempted check fraud increased to $15.1 billion in 2018—up from $8.5 billion in 2016—and accounted for 60% of attempted fraud against deposit accounts at U.S. banks, according to a survey released Wednesday by the American Bankers Association.

Successful check fraud made up 47%, or $1.3 billion, of banks’ fraud losses—a rise from $789 million in 2016—closely followed by debit card fraud losses at 44%, or $1.2 billion.

“It has been the fastest-growing fraud at our bank,” said David Frady, an executive vice president at Gulfport, Miss.-based Hancock Whitney Bank, a regional bank operating in the southeastern U.S.

The rise has made it easier for the bank to advertise alternative payment methods and fraud mitigation tactics to its corporate customers. “This helps our clients understand why the electronic route can reduce risk and improve efficiency,” Mr. Frady said in an interview.

Checks are more vulnerable to fraud because they contain a lot of critical information, can be forged or stolen.

Checks are still the most popular payment method for transactions between U.S. businesses, a survey of treasury and finance professionals by the Association for Finance Professionals found in September. But check usage has declined, from 81% of business-to-business payments in 2004 to 42% last year, the AFP found.

A lack of financial resources for new information technology systems needed to process electronic payments, as well as difficulties convincing business partners to accept electronic payments, are among the reasons many companies stick with check payments, the AFP said.

Hansel Auto Group, which operates a network of car dealerships in California, has for years tried to reduce the company’s reliance on paper checks, said Robin Helms, the company’s finance chief. Today, about one-third of monthly disbursements are settled by check. But some suppliers insist on being paid by check, he said. “There are a lot of stubborn businesses that want to operate with checks,” Mr. Helms said.

That is also reflected in the AFP survey, which found that companies that have less than $1 billion in annual revenue and a limited number of business-to-business-payments are more likely to keep using checks. Large companies, on the contrary, tend to pay electronically.

Reducing the number of check payments enabled Hansel Auto Group to reduce costs, Mr. Helms said, adding that the average cost of a check payment is between $8 to $10, including materials and labor. Hansel Auto Group is trying to move its vendors to credit card payment or ACH—a payment through an automated clearing house—as part of its efforts, which cost about 68 cents per disbursement, he said.

“Organizations are shifting,” said Karla Friede, chief executive of Nvoicepay Inc., a company providing automated accounts payable services. Concern about fraud risk is one of the reasons for companies to ditch checks, she said. Alternative payments also cost less and can be executed faster.

Another challenge for treasurers is the integration of new payment tools into existing infrastructure. “One of the reasons for why we are still seeing check payments is data reconciliation,” said Hubert J.P. Jolly, head of channels and commercial banking for global transaction services at Bank of America Corp.

The bank offers a range of services to its clients, including a tool that uses robotics and artificial intelligence to reconcile payments.

The transition away from checks will take time, according to Mr. Helms, the Hansel Auto CFO. “I see a lot of smaller companies out there that are not willing to become more technologically savvy,” he said.

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