Strategies for Improving the U.S. Payment System An Update from the Federal Reserve New York Cash Exchange

Transcription

1 Strategies for Improving the U.S. Payment System An Update from the Federal Reserve New York Cash Exchange Pat Hilt Vice President, Wholesale Product Office Federal Reserve Bank of New York 2016 Federal Reserve Banks. Materials are not to be used without consent. 1

2 Refreshed Federal Safety and Security Speed Reserve Strategic Efficiency Direction To enhance the speed, security and efficiency of the U.S. payment system from end-to-end. Speed Security Efficiency 2

3 The road we ve traveled Payments Security Landscape Study ISO Business Case Assessment Faster Payments Assessment Implementation Strategy Paper Research on End-User Demand for Select Payment Attributes Consultation Paper Secondary Research on gaps and opportunities 3

4 Strategies Paper Key Elements Strategies for Improving the U.S. Payment System Desired Outcomes 1. Actively engage with stakeholders on initiatives designed to improve the U.S. payment system. SPEED 2. Identify effective approach(es) for implementing safe, ubiquitous, faster payments. SECURITY 3. Reduce fraud risk and advance the safety, security and resiliency of the payment system. EFFICIENCY 4. Achieve greater end-to-end efficiency for domestic and cross-border payments. INTERNATIONAL 5. Enhance Federal Reserve Bank payment, settlement and risk management services to address identified gaps. COLLABORATION 4

5 Strategy 2: Faster Payments Identify effective approaches for implementing safe, ubiquitous, faster payments 2016 Federal Reserve Banks. Materials are not to be used without consent. 5

6 What are Faster Payments? Person-to-Person Business-to-Person ad hoc high value Person-to-Business ad hoc remote Business-to-Business ad hoc low value Business-to-Person ad hoc low value 6

7 Pursuing Faster Payments Despite high levels of innovation in the U.S. payment system, a lack of coordination is creating fragmentation, inhibiting ubiquity and creating confusion Faster payments capabilities have the potential to draw more of the unbanked/underban ked population into the financial mainstream There is clear stakeholder momentum in the United States to pursue faster retail payments on a comprehensive, industry-wide basis Several countries have developed/are developing ubiquitous, faster payments capabilities and the United States is at risk of falling behind 7

8 Faster Payments Task Force Composition Industry Trade Organization, 10% Technology Solutions Provider, 22% Other, 16% Government, 3% Consumer Interest Organization, 3% Business End- User, 4% Small Financial Institutions, 13% Total Registrants: 325+ Payments Network Operator, 4% Large Financial Institutions, 7% Medium Financial Institutions, 18% 2016 Federal Reserve Banks. Materials are not to be used without consent. 8

9 High-Level Work Plan and Timeline COMPLETED PHASE 1 Develop process for assessing solutions May 2015 March 2016 COMPLETED PHASE 2 Assess end-to-end solution proposals April 2016 January 2017 IN-PROGRESS PHASE 3 Publish assessment results and recommended next steps Targeted for mid-2017 Plan the work Do the work Document the work 2016 Federal Reserve Banks. Materials are not to be used without consent. 9

10 Phase 1: Developing the Faster Payments Effectiveness Criteria Task Force Meetings Industry Meetings Surveys Webinars and Speaking Sessions Community Polls Subject Matter Experts Final Effectiveness Criteria Social Media 2017 Federal Reserve Banks. Materials are not to be used without Federal Reserve consent. 10

11 Faster Payments Effectiveness Criteria Developed as a description of stakeholder needs that can be used to assess faster payments solutions and as a guide for innovation in the payments industry. U.1 Accessibility U.2 Usability U.3 Predictability Ubiquity U.4 Contextual Data Capability U.5 Cross-Border Functionality U.6 Multiple Use Cases F.1 Fast Approval F.2 Fast Clearing Speed (Fast) F.3 Fast Availability of Good Funds to Payee F.4 Fast Settlement among Depository Institutions and Regulated Non-bank Account Providers F.5 Prompt visibility of payment status Efficiency E.1 Enables Competition E.2 Capability to enable value- added services E.3 Implementation Timeline E.4 Payment Format Standards E.5 Comprehensiveness E.6 Scalability and Adaptability E.7 Exceptions and Investigations Process Governance G.1 Effective governance G.2 Inclusive governance Safety and Security S.1 Risk Management S.2 Payer Authorization S.3 Payment Finality S.4 Settlement Approach S.5 Handling Disputed Payments S.6 Fraud Information Sharing S.7 Security Controls S.8 Resiliency S.9 End-user Data Protection S.10 End-user/Provider Authentication S.11 Participation Requirements Legal L.1 Legal Framework L.4 Data privacy L.2 Payment System Rules L.5 Intellectual property L.3 Consumer Protections 2017 Federal Reserve Banks. Materials are not to be used without Federal Reserve consent. 11

12 Capability Showcase Short industry videos of capabilities that could support end-to-end faster payment solutions Capabilities may support one or more of the Effectiveness Criteria Offers opportunity for capability providers to collaborate Educates task force on marketplace capabilities 2017 Federal Reserve Banks. Materials are not to be used without Federal Reserve consent. 12

13 Phase 2: Proposal Submission and Assessment Any Faster Payments Task Force participant was eligible to submit a proposal for an end-to-end payments solution Assessment undertaken by Qualified Independent Assessment Team (QIAT) Qualitative assessment against the Effectiveness Criteria Task forces provided commentary on the assessments and proposals 2017 Federal Reserve Banks. Materials are not to be used without Federal Reserve consent. 13

14 Phase 3: Final Report The vision for the Final Report is to influence stakeholders to continue moving toward faster payments capabilities for the United States Task Force Process Effectiveness Criteria Capability Showcase Proposal Submission, QIAT Assessment, and Task Force Input Challenges, Opportunities, Goals and Recommendations Part One Landscape and Benefits Task Force Background and Process Overview Published January 26, 2017 Part Two Proposals and Assessments Challenges and Opportunities Recommended Next Steps Targeted publication mid-year 2017 Final Report Development Final Report Content 2017 Federal Reserve Banks. Materials are not to be used without Federal Reserve consent. 14

15 The U.S. Path to Faster Payments Final Report Objectives: 1) To present the results of the task force for implementing a safe, ubiquitous, faster payments capability in the U.S. 2) To propose recommendations and approaches for advancing the payments system 3) To champion the industry and stakeholders to take steps toward implementation and adoption of a faster payments capability 4) To suggest ideas to maintain momentum and continue collaboration for faster payments Federal Reserve Banks. Materials are not to be used without Federal Reserve consent.

16 Strategy 4: Payments Efficiency Achieve greater end-to-end efficiency for domestic and cross-border payments 16

17 ISO Implementation Strategy Fedwire Funds Service The Federal Reserve Banks ( Fed ) are planning to adopt the ISO payment message standard for the Fedwire Funds Service. The scope of the ISO implementation will include: Both domestic and cross-border funds transfers All inputs and outputs from the Fedwire Funds Service (i.e., all message types, inquiries, reports, etc.) Enhancements based on Fedwire Funds Service participant feedback The Fed has hired SWIFT consulting to assist with detailed work. The ISO project will span multiples years and include 2 implementation phases. Prior to the ISO implementation, the Fed will implement changes to the legacy Fedwire Funds Service message format in November 2020 to align with mandatory SWIFT MT format changes to the originator and beneficiary fields. The Fed will also include some clean up changes in this release (e.g., remove obsolete fields), which will make the ISO implementation easier. 17

18 Recent Accomplishments Purchased license to use SWIFT s MyStandards web-based application to make ISO documentation available (in a restricted group) to Fedwire Funds participants and vendors. Completed ISO training & MyStandards training for internal project team Began detailed work with SWIFT in October 2016 to create project plan and a set of documentation that will replace the format specifications document for the Fedwire Funds Service. Mapping documents for all Fedwire Funds messages (completed) Usage guidelines to outline the required and optional fields, character lengths, codes, etc. Message flow diagrams to explain the flows of the ISO messages Implementation Rulebook to describe the implementation approach and explain how the documents work together to support the ISO implementation for the Fedwire Funds Service Facilitated industry engagement through a number of meetings: Led four in-person Format Advisory Group meetings Led one in-person Implementation Subgroup Meeting Sponsored several Enhancements Subgroup meetings Contributed to SWIFT s High-Value Payment Systems Plus (HVPS+) work group meetings 18

19 Finalized implementation approach (January) Distributed anniversary customer communication (March) Finalized mapping documents (March) Key 2017 Milestones Complete customer onboarding to My Standards Present update at Sibos conference (October) Conduct Industry education webinars & workshops Q1 Q2 Q3 Q4 Published FedFocus article (April) Attend HVPS+ Interoperability Work Group (June) Finalize scope of November 2020 legacy format changes to align with SWIFT MT changes; include clean up items Create ISO usage guidelines, message flow diagrams & implementation rulebook & validate with the Format Advisory Group Begin customer onboarding to MyStandards (June) Publish detailed project plan (internal) Announce & publish DRAFT ISO documents

20 ISO Implementation Approach Key Assumption: The ISO implementation will include enhancements and not just be like-for-like. All banks must be able to receive the ISO format with the enhancements. The only enhancement that will be mandatory on the send side is the country code in the postal address component of the Debtor and Creditor fields. Big bang implementation option (i.e., all banks cutover to send & receive ISO on same day) is off the table for the Fed because the risks outweigh the benefits. Based on feedback from the Fed s Wholesale Payments Advisory Group, the WPO reassessed the ISO implementation approach and formed a subgroup of the Format Advisory Group. The subgroup developed a refined approach, which was endorsed by the Format Advisory Group in January The Fed will reassess the implementation timeline given the new approach. 20

21 ISO Implementation Approach Two-phased approach that includes a mandated sunset date for the legacy format: Phase 1 (waves) The Fed will migrate banks in waves to send ISO like-for-like messages (i.e., the ISO version of the legacy Fedwire format) and receive ISO messages with fields to support future enhancements. During this phase, the Fedwire Funds Service will translate legacy formats to ISO and vice versa when necessary to accommodate Fedwire senders and receivers that are not using the same format. Although Fedwire participants will need to be capable of receiving ISO messages with fields to support future enhancements, they will not be able to send enhanced data until Phase 2. Phase 1 will not be completed until all FedwireFunds Service participants can send and receive messages in the ISO format. Fed will sunset legacy format at end of this phase. Phase 2 (big bang) The Fed will enable all Fedwire Funds Service participants to send ISO messages with enhancements on a specific date.

22 ISO Customer Impact Access to the Fedwire Funds Service FedLine Direct access solution Or Import/Export feature of the FedPayments Manager Funds over the FedLine Advantage access solution Impact to Fedwire Funds Service Participant and/or Service Provider Will need to make (ensure their service providers make) significant changes to their payment applications or processes so they can send and receive messages in the new ISO message formats or import and export files with these messages. By yearend 2017, will need to register for the MyStandards website to obtain the ISO format specification documents, which will outline the required changes to accommodate the ISO format for the Fedwire Funds Service. In June 2017, the Fed will provide information about how to register for the MyStandards website. Manually enter messages directly into the FedPayments Manager Funds over the FedLine Advantage access solution The Fed will make the necessary changes to the FedPayments Manager Funds application and provide training on enhanced features. Participants will need to become familiar with the look and feel of the updated application and with the enhanced features. Offline service The current process for submitting messages to the offline service will not materially change. However, there may be marginal changes around the type of information Wholesale Operations Site operators collect by telephone, as well as the order in which they collect the information, based on the new ISO message formats. 22

23 ISO Resources April FedFocus Article 01.html ISO Resource Center on Fed Payments Improvement website ISO Industry Outreach Events Dates for events are still being finalized In August, the Fed will send invitations to sign up for the following events: 3 webinars (September, October, November) 3 in-person workshops in October at the Federal Reserve Banks in New York, Chicago and San Francisco 23

24 Join the Community at FedPaymentsImprovement.org! Receive information on task forces and work groups, invitations to live/virtual events, surveys and other online feedback FedPayments Improvement 24

25 Questions? 25

26 Notices ISO is a registered service mark of the International Organization for Standardization. Fedwire, FedLine Direct, FedLine Advantage, and FedPayments are registered service marks of the Federal Reserve Banks. SWIFT is a registered trademark of S.W.I.F.T. SCRL. The Federal Reserve Banks do not sponsor, endorse, or recommend (or provide any warranties, express or implied, regarding) any third party or any third-party products or services referenced in this presentation. 26