Until recently, banking transactions in America failed miserably to keep up with our 24/7 real-time economy. Apps, websites, and mobile payment companies allowed us send money to friends, accept credit cards at garage sales, employ a driver to deliver food from a restaurant that doesn’t offer delivery, and book an apartment on the other side of the world within seconds.
But it would take hours or even days until the money became available to the recipient.
The private marketplace responded.
In 2017, a group of 24 leading banks and credit unions came together with the approval of the Federal Reserve to create the Clearing House's real-time payments system, a network allowing recipients to receive payments into their bank accounts nearly instantly.
This new system of real-time financial transactions has been an unmitigated success.
The Clearing House serves roughly half of all checking account volume in the U.S. and is revolutionizing the way Americans do business.
Despite the widespread satisfaction with this new real-time payments system, the Federal Reserve now wants to get in on the act and compete against these private businesses by creating its own instant payment network.
And it comes with an eye-popping price tag for Americans.
It’s estimated the Fed’s real-time payments scheme will directly and indirectly devour nearly $1 billion of taxpayers’ hard-earned money.
Additionally, the Fed’s foray into communist-style intrusion into the marketplace is wrought with conflicts of interest and even violations of its own mandate.
One of the Fed’s primary roles is supervising and regulating banks. If the Fed gets in the real-time payment business, it would be competing against the very companies it is supposed to regulate.
It’s not hard to imagine a scenario where the Fed concocted rules to benefit its real-time payments business or harm private providers. Congress could even step in and regulate private real-time payments services out of existence in favor of the government’s version.
The laws that govern the Fed forbid America’s central bank from intervening into the private marketplace unless "the service is one that other providers alone cannot be expected to provide with reasonable effectiveness, scope, and equity."
That is certainly not the case when it comes to real-time payments systems.
Providers including Mastercard Send, Visa Direct, and Zelle will allow 90 percent of financial institutions to provide real-time payments services by the end of this year.
PayPal, Square, and Venmo also recently introduced networks that will further expand the number of Americans with access to real-time payments options.
Clearly, customers have a wide variety of reputable choices when it comes to companies providing real-time payments innovations.
This fact destroys the Fed’s argument that it should step in to prevent a monopoly in the real-time payments sector.
Dozens of quality options are already available, and more are coming online all the time.
The Fed also claims it needs to get in the business of real-time payments services because not all financial institutions are currently connected to real-time payments systems and the services are not available to all consumers.
Humorously, it will take the Fed three to five years to build its network and begin serving customers, even though virtually all Americans are expected to have access to private real-time payments services by the end of next year.
There’s no real benefit for customers as a result of a government-owned and operated real-time payments system.
It violates the Fed’s own mandate, allows the government to become a competitor in a business it regulates, does nothing to benefit consumers, and stands to cost taxpayers dearly. So why would the Fed get in the real-time payments business?
It might be because the Fed’s intrusion into the real-time payments system marketplace would allow the government to intercept and store data related to the smallest and most intimate financial transactions occurring between hundreds of millions of law-abiding American citizens.
Under the Fed’s real-time payments system, the federal government could learn how much a mother paid for her son’s piano lesson, how friends chose to split a dinner bill, where an individual traveled using a rideshare app, how much a couple spent on concert tickets for their anniversary, and billions of other nuggets of information the government, frankly, has no right to know.
Every day, more and more Americans benefit from real-time payments systems that are revolutionizing the way our economy works and people transfer money.
The last thing we need is for the Federal Reserve to spend hundreds of millions of tax dollars duplicating a private network that is already working well.
Rather than competing against the very businesses it regulates by creating a service that everyone will already have by the time it’s available, the Fed should kill its troubling, expensive, and invasive plan to create a real-time payments system.
Drew Johnson Drew Johnson is a senior fellow at the National Center for Public Policy Research. To read more of his reports — Click Here Now.
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