13 BANKING PERSPECTIVES QUARTER 4 2018 institutions to move money between Federal Reserve accounts during off hours, would facilitate liquidity management for payment systems such as the RTP network. The other, however, is more controversial. The Fed is considering the development of a real-time gross settlement (RTGS) service that would provide 24/7 clearing and settlement of payments in real time. In other words, the Fed is considering launching a real-time payment service that will provide payment capabilities that are similar to the RTP network. The Fed is seeking public comments on the proposal through December 14. THE FUTURE OF REAL-TIME PAYMENTS: UBIQUITY BY 2020? The timing of this announcement threatens to slow down industry momentum and put the 2020 deadline for ubiquity in jeopardy for several reasons: • TIMING: If the Fed decides to plan, develop, and launch its own new payment network, the undertaking will take years. • ADOPTION: Banks that are currently in the process of joining TCH’s RTP network may wait to see what the Fed does before finalizing applications that can take advantage of the expanded functionality on the RTP network, slowing down the very ubiquity the Fed desires. • FRAGMENTATION: Interoperability between the two systems cannot be presumed. Developing interoperability between two real-time systems, where clearing and settlement take place instantaneously, is a significantly more complex and operationally risky endeavor than, for example, developing interoperability in the ACH network, where final settlement is delayed. If the RTGS service is not interoperable with the RTP network, it could fragment real-time payments in the U.S. and, thus, prevent ubiquity. In Europe, for example, the real-time system operated by the European Central Bank does not interoperate with the real-time system offered by the private sector. Alternatively, to achieve ubiquity without interoperability, financial institutions would need to join more than one real-time network. The Fed’s announcement that it may develop its own system has the potential to significantly delay the U.S. payment industry’s movement to real-time payments. Even so, banks and other stakeholders can take heart: as faster payment systems proliferate worldwide, businesses are demanding the same capabilities here in the U.S., and the market will have to answer. Businesses will want the competitive edge that the RTP network provides them, and they will want more choices among payment types. The RTP network is the ideal payment mechanism for many use cases, especially when speed and/or additional payment information is a priority. For banks, the RTP network’s capabilities will become expected, and businesses will move to banks that offer them. The Fed’s potential introduction of a new standard may delay the goal of ubiquity, but it will not diminish businesses’ appetite and need for real-time payments. DATA AGGREGATION: KNOWLEDGE IS POWER Along with the changes in payments brought by the RTP network in 2018, this year has also seen a shift in the way the banking industry controls, uses, and protects customers’ financial data. The financial services industry is increasingly driven by data and all of the ways it can be used to help customers. Banks are not the only ones that use that data, of course; increasingly, FinTechs are leveraging data aggregators by collecting customer data (with their permission and on their behalf) to offer innovative new financial tools and services. Customers are willing to allow access to their private data because the services they receive are valuable, but as this model proliferates, concerns are growing about data use and protection. CONCERNS ABOUT PRIVACY Banks, regulators, and customers are all concerned about how financial data is UPFRONT With or without regulation to require it, the combination of APIs and tokenization – a technology that masks financial data for every transaction – will have a profound change on the privacy and security landscape.