A leading payments industry news source for more than 17 years. Glenbrook curates the news and keeps you abreast of the important daily headlines in payments.

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January 20, 2023

On the web

Who Pays For Your Rewards? Redistribution in the Credit Card Market

Federal Reserve

We study credit card rewards as an ideal laboratory to quantify redistribution between consumers in retail financial markets. Comparing cards with and without rewards, we find that, regardless of income, sophisticated individuals profit from reward credit cards at the expense of naive consumers. To probe the underlying mechanisms, we exploit bank-initiated account limit increases at the card level and show that reward cards induce more spending, leaving naive consumers with higher unpaid balances. Naive consumers also follow a sub-optimal balance-matching heuristic when repaying their credit cards, incurring higher costs....

January 17, 2023

On the web

Money and Payments: The U.S. Dollar in the Age of Digital Transformation

Federal Reserve

The Federal Reserve, as the nation’s central bank, works to maintain the public’s confidence by fostering monetary stability, financial stability, and a safe and efficient payment system. This paper is the first step in a public discussion between the Federal Reserve and stakeholders about central bank digital currencies (CBDCs). For the purpose of this paper, a CBDC is defined as a digital liability of a central bank that is widely available to the general public.

January 9, 2023

On the web

Open Banking's Slow March Advances

Atlanta Fed

"In June, I wrote about the revived and deliberate process of the Consumer Financial Protection Bureau (CFPB) in developing rules covering the implementation of open banking in the United States. I promised that the Retail Payments Risk Forum would continue to follow developments in open banking, so in this post, I'm providing a small update. In an October 25 speech at this year's Money20/20 conference, CFPB director Rohit Chopra delivered a detailed roadmap and timeline for the rulemaking process for open banking."

December 23, 2022

On the web

Boston Fed, MIT Complete Research Project into Feasibility of a Central Bank Digital Currency

Federal Reserve Bank of Boston

“A joint research effort between the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology into the technical feasibility of a potential central bank digital currency is now complete. The Boston Fed’s work on CBDC with MIT’s Digital Currency Initiative is known as Project Hamilton. Boston Fed Executive Vice President Jim Cunha said the now-concluded project was “agnostic” from the start about any future policy decisions regarding new technologies and U.S. currency.”

December 21, 2022

On the web

Why the Fed Needs to Take the Digital Yuan Seriously

Bloomberg

“If the Federal Reserve still wants proof of China’s intention to challenge the dollar’s hegemony, it should look no further than a small experiment currently under way in Hong Kong. Last week, Bank of China (Hong Kong), one of the city’s big deposit-taking institutions, had its offer of 500 trial accounts tied to the e-CNY, the electronic version of official Chinese money, snapped up in two days. The customers are each being gifted 100 yuan in digital form, which they can spend at mainland stores, the JD.com website or a supermarket chain in Hong Kong.  (Subscription required)”

December 8, 2022

On the web

Industry Working Group to Establish Principles for FedNowSM Service Request for Payment Solutions

FedNow

“In preparation for the mid-2023 FedNow Service launch, the Federal Reserve has formed an industry working group to establish voluntary principles for a consistent end-customer experience for solutions leveraging FedNow Service request for payment (RFP) functionality, and to consider other practices or standards that may be useful to encourage broad adoption of RFP functionality across the industry. RFP will be one of the key features of the FedNow Service. It will allow financial institutions and service providers to build bill pay solutions that can help consumers and businesses conveniently send invoices, receive instant bill payments and better manage cash flow. The working group, composed of nearly 100 FedNow Community members (PDF) , will meet monthly between Q4 2022 and the second half of 2023 to outline recommended payer and payee experiences for business and consumers, and provide input on practices for the Federal Reserve to consider. The working group will also produce an “RFP Customer Experience” document that will be publicly available.”

November 28, 2022

On the web

Real-Time Payments In U.S. Marks Fifth Year — FedNow Coming In July

“To mark the fifth anniversary of real-time payments in the U.S. The Clearing House (TCH) and Jack Henry launched a flurry of statistics which cast a bit of an obscuring haze over the topic.   TCH says its RTP network reaches 62% of all demand deposit accounts in the U.S. and 85% of insured depository institutions have technical access to the network through more than 20 technology solutions providers, including Jack Henry & Associates, FIS, Fiserv, COCC, Finastra and Shazam. The Clearing House is eager to show that it provides services for small banks and credit unions and isn’t just a network for the major banks.”

November 8, 2022

On the web

New York Fed Completes Pilot For Cross-border CBDC Transactions

Blockonomi

“Central banks around the world have made massive investments into CBDC’s research. The FED, despite lagging behind other peers in the race, has sharply ramped up efforts to issue its CBDC in recent times. The Federal Reserve Bank of New York has completed a successful pilot of the use of central bank digital currencies (CBDCs) for wholesale, cross-border transactions. The experiment, also known as Project Cedar: Phase One, aims to explore the capabilities of blockchain technology in payment delivery and the application of CBDC in wholesale payments. Conducted on separate blockchains to explore the capabilities of blockchain technology in delivering fast and safe payments for a lower settlement cost, the FED is now taking blockchain seriously.”

November 4, 2022

On the web

Federal Reserve Board Announces Pricing for Payment Services (FedNow)

frbservices

The Federal Reserve Board on Thursday announced pricing, effective January 3, 2023, for payment services the Federal Reserve Banks provide to depository institutions, such as the clearing of checks, ACH transactions, and wholesale payment and settlement services…The Board also announced the 2023 pricing for the FedNowSM Service, a real-time payments platform, which is targeted to launch between May and July next year. The pricing is substantially similar to the anticipated pricing announced on January 27, 2022.

October 4, 2022

On the web

Federal Reserve Board Finalizes Updates to the Board’s Rule Concerning Debit Card Transactions

Board of Governors of the Federal Reserve System

“The Federal Reserve Board on Monday finalized updates to the Board’s rule concerning debit card transactions. Pursuant to statute, the updates specify that debit card issuers should enable at least two payment card networks to process all debit card transactions, including “card-not-present” transactions, such as online payments. 1 The final rule is substantially similar to the proposal issued last year. By law, the Board is required to make rules ensuring that debit card issuers give merchants the opportunity to choose between at least two unaffiliated networks when routing debit card transactions. When the Board initially issued the rule in July 2011, the market had not developed solutions to broadly support multiple networks for card-not-present debit card transactions. Since that time, technology has evolved to address these barriers. However, some debit card issuers have not yet enabled at least two unaffiliated networks for merchants to choose between when routing such transactions. This issue has become increasingly pronounced because of continued growth in online payments.”

September 20, 2022

On the web

Federal Reserve Launches Service to Help Financial Institutions Track Trends for Payments Settled Through its FedACH® Service

FRB Services

“Federal Reserve Financial Services today launched the FedPayments® Insights Service, a business and analytics tool that generates reports on a financial institution’s payments settled through the FedACH Service to help the organization advance its business strategy and day-to-day ACH operations. “In recent years, ACH transactions have grown in both volume and total value,” said Keith Melton, senior vice president and head of product management, Federal Reserve Financial Services. “As a result, it’s more important than ever before for financial institutions to analyze their ACH payment trends to help inform operational, risk management and strategic decisions. The FedPayments Insights Service provides a comprehensive, easy-to-access view of an institution’s daily and historical FedACH activity, including government and commercial transactions.””

August 29, 2022

On the web

Federal Reserve Updates FedNow Service Timing to Mid-2023, Marks Beginning of Full-Scale Pilot Testing  

EIN News

“The Federal Reserve Banks have narrowed the timing of the FedNow Service launch to mid-year 2023, specifically targeting a production rollout of the service in the May to July timeframe. This further defines the previously communicated 2023 launch window for the anticipated instant payments service and comes as the FedNow Pilot Program prepares to enter technical testing for the service starting in September. “Today, with the FedNow launch date in sight, we are pleased with the collaboration and dedication our pilot participants have brought to advance modern payments in America,” said Esther George, president and CEO of the Federal Reserve Bank of Kansas City and executive sponsor of the FedNow program. Currently, more than 120 organizations are participating in the FedNow Pilot Program. Recent newcomers include U.S. Bank, Exchange Bank, and several payment processors and solution providers, including Alacriti Payments LLC, ECS Fin Inc., Form3 and ModusBox, Inc.”

August 16, 2022

On the web

Federal Reserve Guidelines Crack Banking System Open to Crypto Banks

Axios

“The Federal Reserve Board on Monday announced final guidelines that could open up a path for institutions peddling new types of financial products, or those with novel charters, to tap into the banking system. Why it matters: The guidelines seek to clarify a longstanding question critical to the crypto industry — who is allowed to have a master account. Such accounts would allow crypto banks and fintech platforms to access the central bank’s rails (payments and services) without partnering with a traditional bank.”

August 11, 2022

On the web

New Participants Named to FedNowSM Pilot Program

Fednow

“The Federal Reserve today announced the addition of several organizations to the FedNow Service Pilot Program. The participants are joining more than 120 other organizations amid the program’s testing phase, which began earlier this year and will continue through the launch of the FedNow Service in 2023. The new pilot participants include the U.S. Department of the Treasury’s Bureau of the Fiscal Service, Exchange Bank, and several payment processors and solution providers, including Alacriti Payments LLC, ECS Fin Inc., Form3 and ModusBox, Inc.”

August 9, 2022

On the web

China’s Digital Yuan Pushes Key US Lawmakers to Seek Urgency From the Fed on a Digital Dollar That Fends Off Global Rivals

Markets Insider

“A bipartisan group of US lawmakers wants the Federal Reserve to get more serious about issuing a digital dollar to compete with rivals like China’s digital yuan. Democrat Rep. Maxine Waters has drafted legislation that aims for the Fed to further study the prospect of a digital dollar and design a route for it to come to fruition, The Wall Street Journal reported.  It comes after Waters, who is chair of the House Financial Services Committee, called the area of central bank digital currencies “a new digital assets space race.” Another supporter of the digital-dollar effort, Republican Rep. French Hill, cited China’s creation of a digital yuan in 2020 as a concern, noting Beijing’s lending around the world could aid its adoption and threaten the dollar’s dominance.”

August 5, 2022

On the web

With COVID Now in Year Two, Some Consumers Return to Cash Payments

San Francisco Fed

“In the last 12 months, American consumers have used slightly more cash for transactions than they did at this time last year. This rise in cash usage along with a small increase in purchases and peer-to-peer payments made in-person may imply that some consumers are moving back to the way they did business prior to COVID-19. The rise in cash payments is one key finding from a recent survey the Federal Reserve Banks of San Francisco and Atlanta conducted to better understand U.S. consumers’ payment behavior. Additional key findings from the Diary of Consumer Payment Choice highlight how consumer cash preferences have changed during the pandemic: In October 2021, the average number of cash payments increased from six to seven payments per month and accounted for 20 percent of all payments, up from 19 percent in 2020 and down from 26 percent in 2019. The share of in-person purchases and person-to-person payments increased to 82 percent, up from 80 percent in 2020 and down from 87 percent in 2019. The value of cash held in a consumer’s pocket, purse, or wallet averaged $67 in 2021, compared to $76 in 2020 and $60 in 2019. The value of cash held in a consumer’s home, car, or elsewhere remained elevated at $347, compared to $299 in 2020 and $241 in 2019.”

August 3, 2022

On the web

Americans Are Piling Up Credit Card Debt As They Struggle to Keep Up With The High Cost Of Living

CNN

“Americans are piling up credit card debt as they struggle to keep up with the high cost of living. US household debt surpassed $16 trillion for the first time ever during the second quarter, the New York Federal Reserve said Tuesday. Even as borrowing costs surge, the NY Fed said credit card balances increased by $46 billion last quarter. Over the past year, credit card debt has jumped by $100 billion, or 13%, the biggest percentage increase in more than 20 years. Credit cards typically charge high interest rates when balances aren’t fully paid off, making this an expensive form of debt.  The NY Fed said the credit card binge at least partly reflects inflation as prices rise at the fastest pace in more than four decades.”

July 28, 2022

On the web

Crypto Bank Custodia Sues Federal Reserve

Coindesk

“Custodia filed suit against the U.S. Federal Reserve on Tuesday, saying the central bank was unlawfully delaying a decision on the crypto bank’s application for a master account. In the filing in the United States District Court of Wyoming, Custodia accused the Federal Reserve Board of Governors and Federal Reserve Bank of Kansas City of delaying the application process by 19 months and called the master account “critical” to Custodia’s business.” Such an account would allow Custodia to directly access the Federal Reserve, rather than going through an intermediary bank,” Custodia said in the complaint. It also accuses the Fed of adopting “standardless” procedures that allowed it “to act in complete secrecy, whenever and however they choose.” The suit said the Fed’s own paperwork says that “a master account decision “ordinarily takes [five to seven] business days,” and that the processing delay had “clearly violated the [one]-year statutory deadline for doing so.”

July 22, 2022

On the web

UL Solutions and Iliad Solutions Collaborate to Offer Security Testing and Technology for Adopters of the FedNow[SM] Service

PR Newswire

“UL Solutions, a global leader in applied safety science, today announced its collaboration with Iliad Solutions, a company that helps test and launch payment solutions. The collaboration combines independent third-party services from UL Solutions with Iliad’s testing platform to offer optional support features for financial institutions and processors implementing the FedNow Service. Launching in 2023, the FedNow Service is a new instant payment system under development by the Federal Reserve… Iliad’s established testing platform has proven successful with top-tier providers of solutions to national real time payment schemes. UL Solutions currently delivers multiple large-scale secure virtual laboratories and hosted models for numerous central banks, government organizations, international and U.S. domestic payment brands, top-tier issuers and acquirers, payment service providers and ATM and point-of-sale (POS) terminal vendors. While the Iliad platform tests for ISO 20022, an international standard for exchanging electronic messages between financial institutions, and application programming interface (APIs), UL Solutions brings expertise in designing, operating and maintaining testing platforms and environments. Their combined offerings can help enable financial institutions and processors implementing the FedNow Service to securely launch and host.”

July 14, 2022

On the web

Powell: US CBDC Could Help Maintain International Role of Dollar

Dodd Frank Update

“In remarks delivered to a research conference hosted by the Federal Reserve Board, Fed Chair Jerome Powell discussed the international role of the U.S. dollar as well as the role a central bank digital currency (CBDC) might have in the future… The adoption of a U.S. CBDC, according to Powell, would improve on an already safe and efficient domestic payments system. “As the Fed’s white paper on this topic notes, a U.S. CBDC could also potentially help maintain the dollar’s international standing.” Powell emphasized the importance of considering not just what the global financial system needs now, but where it will be and what it will need in the next five to ten years.”

May 19, 2022

On the web

Federal Reserve Board Finalizes Rule That Governs Funds Transfers Over the Federal Reserve Banks’ FedNow Service

Board of Governors of the Federal Reserve System

“The Federal Reserve Board on Thursday finalized a rule that governs funds transfers over the Federal Reserve Banks’ FedNow℠ Service. The final rule is substantially similar to the proposal from last year, with a few clarifications in response to comments. The FedNow Service is a new 24x7x365 interbank settlement service with clearing functionality to support instant payments in the United States and is expected to be available in 2023. The final rule provides a comprehensive set of rules governing funds transfers over the FedNow Service and provides legal certainty and clarity on the rights and obligations of parties to a transfer over the FedNow Service.”

May 6, 2022

On the web

2022 Findings from the Diary of Consumer Payment Choice

Federal Reserve Bank of San Francisco

“The 2021 Diary of Consumer Payment Choice (Diary) finds that the COVID-19 pandemic has continued to affect the way U.S. consumers use and hold cash. The share of payments made in cash dropped sharply from 2019 to 2020 and then increased slightly in 2021, implying that cash use hit its lowest point in the first pandemic year. In contrast to cash use, consumers’ cash holdings remained elevated in 2021 when compared to 2019 and prior years, indicating that consumers continued to demand cash in the uncertain environment of the pandemic’s second year.”

May 2, 2022

On the web

FedNowSM Service Pilot Program Achieves Message Delivery Milestone, Welcomes New Participants

FRB Services

“The Federal Reserve has officially started onboarding pilot participants onto the FedNow Service, signaling that the initial testing phase of the FedNow Pilot Program is underway. A few organizations have now successfully connected and delivered test messages over a pilot version of the FedNow Service, marking a key milestone for the service, which remains on course to launch in 2023.  “The FedNow Service pilot participants, including financial institutions of all sizes, processors and correspondents, have been working hard at every step of this journey,” said Nick Stanescu, senior vice president and business executive of the FedNow Service. “Though much work remains, this progress sets the stage for thousands of financial institutions to be up and running with instant payments in the near future, including those that work with third-party payment providers.””

May 6, 2021

On the wires

Federal Reserve Board Invites Public Comment on Proposed Guidelines to Evaluate Requests for Accounts and Payment Services at Federal Reserve Banks

“The Federal Reserve Board on Wednesday invited public comment on proposed guidelines to evaluate requests for accounts and payment services at Federal Reserve Banks (“Account Access Guidelines”). Recent years have seen the introduction of new financial products and delivery mechanisms for traditional banking services, notably leveraging emerging technologies, including from institutions with novel types of banking charters designed to support such innovation. To facilitate these activities, some such institutions have requested access to the payments system offered by Federal Reserve Banks.”

July 21, 2020

On the wires

Federal Reserve Board to Maintain the Current Schedule of Prices for Most Payment Services That the Federal Reserve Banks Provide to Depository Institutions in 2021

“The Federal Reserve Board on Tuesday announced its intent to maintain the current schedule of prices for most payment services that the Federal Reserve Banks provide to depository institutions (priced services) in 2021. This approach recognizes the uncertainties created by the COVID-19 pandemic, and the difficulty in applying standard forecasting tools in this environment.”

July 7, 2020

On the web

Federal Reserve official warns US recovery may be ‘levelling off’

Financial Times (paywall)

“A senior Federal Reserve official has warned that the rebound in the world’s largest economy is in danger of stalling as a result of the recent spike in coronavirus infections across several large US southern and western states. In an interview with the Financial Times, Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, whose district covers some of the regions hardest hit by the current outbreaks, including Florida, said high-frequency data had shown a “levelling off” of economic activity both in terms of business openings and mobility.”

June 26, 2019