trending Market Intelligence /marketintelligence/en/news-insights/trending/iX-j4u88EabeLixVGagURA2 content esgSubNav
In This List

Congress questions possible price differences in Fed's real-time payments system

Podcast

Street Talk Episode 87

Blog

A New Dawn for European Bank M&A Top 5 Trends

Blog

Insight Weekly: US banks' loan growth; record share buybacks; utility M&A outlook

Blog

Banking Essentials Newsletter 2021: December Edition


Congress questions possible price differences in Fed's real-time payments system

Pricing for the Federal Reserve's real-time payments system could shake up what banks pay for instant settlement.

In August, the Fed announced its intent to develop a round-the-clock real-time payment and settlement service, called FedNow. Speaking to the Senate Banking Committee and the House Financial Services Committee this week, Kansas City Fed President Esther George declined to provide details on how the central bank plans to price its proposed real-time payments network. Should the Fed, or another competing system, offer pricing discounts for larger settlement volume, operating on the network could be more expensive for community banks than for the country's largest banks.

"We are in the process of designing the system, and we have not identified the pricing that will be associated with it," George said to the Senate on Sept. 25. "Although once we do, we will make that public."

The Monetary Control Act of 1980 requires the Fed to recover its costs. Under this requirement, the Fed offered a discount to banks with higher volume when it launched its automated clearinghouse payment network, a standard in the U.S. for decades. Like ACH payments, FedNow would be subject to the same standard for recouping its costs.

On the other hand, The Clearing House charges the same price to banks, regardless of their volume on its real-time payments network. The Clearing House, a private company owned by many of the country's largest banks, operates the only existing real-time payments network in the U.S.

Some in Congress pointed to this potential pricing discrepancy as an area of concern in pricing the Fed's new network.

"For those who are concerned about which of these two [networks] is going to have discriminatory pricing, it's a little bit ironic it's the [private-sector network] that is committed not to doing so," Sen. Pat Toomey, R-Pa., said during the Senate hearing.

However, following the Fed's announcement, The Clearing House amended its policy to clarify that it would "consider a change to this approach if another provider's different approach to pricing threatens the viability of the network," according to the company's website.

But a variable pricing model might not be a big problem.

Mount Vernon, Iowa-based Bridge Community Bank Chairman and CEO Bob Steen said his bank does not operate its ACH payments in a flat-fee structure.

"Our ACH transaction is ... a quarter of a cent, and I can manage that," Steen said to the House on Sept. 26. The executive added that he does not hear much criticism or complaining about the pricing structure from his fellow community bankers, but he highlighted some internal costs that make wire transfers expensive.

"The cost that the Fed is charging me for a wire is the least of my concerns," Steen said. "[The Fed brings] the cost down as much as they can ... I'm good with the pricing structure I'm living with."

Speaking to the Senate, George described that pricing based on volume is common in the marketplace.

"It is often a way to take high fixed costs and make sure that you are able to maintain the adequacy of the system," George said. "That pricing today has allowed for market share to expand with private operators and has been viewed as being a fair pricing structure through numerous reviews."