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Industry Perspective

Learn more about the Federal Reserve Next Steps in the Payments Improvement Journey

October 2017

Over the last two years, the industry has collaborated to make real progress in advancing improvements in the U.S. payment system. The Federal Reserve Next Steps in the Payments Improvement Journey (Off-site Link) paper assesses that progress as it relates to marketplace activities and Federal Reserve initiatives. The paper also outlines the Federal Reserve’s next phase of work, including its plans to address Faster Payments Task Force recommendations and suggestions emanating from the Secure Payments Task Force.

The industry has made good progress, but much work remains to implement safe, ubiquitous, real-time payments and enhance the safety, efficiency and resiliency of the U.S. payment system. The Next Steps paper puts forward a series of refreshed strategies and describes new tactics the Federal Reserve will employ, in collaboration with stakeholders, to make further progress toward achieving the five desired outcomes:

  • Speed
  • Security
  • Efficiency
  • International
  • Collaboration

These outcomes continue to reflect the shared vision of the Federal Reserve and a broad spectrum of payment system stakeholders in the U.S. The Federal Reserve recognizes the tremendous contributions of leadership, time and effort to date, and seeks continued stakeholder commitment to the outcomes above, which remain the guiding framework for U.S. payment system improvements.

“The FedPayments Reporter Service is green and it’s flexible. The download feature makes it unnecessary to print out reports. They can be saved directly to my electronic database. From there, I can combine the data from weekly or monthly downloads to create quarterly or annual reports.”

Esther George
President and Chief Executive Officer
Federal Reserve Bank of Kansas City
Executive Sponsor of the Payments Improvement Initiative

 

Federal Reserve next steps

Desired outcome: Speed
A ubiquitous, safe, faster electronic solution(s) for making a broad variety of business and personal payments, supported by a flexible and cost-effective means for payment clearing and settlement groups to settle their positions rapidly and with finality.

The Federal Reserve will support industry efforts to implement a safe, ubiquitous, faster payments capability in the U.S. by:

  • Supporting an interim collaboration work group (Off-site Link) and other collaborative industry efforts to develop a faster payments ecosystem that achieves the Federal Reserve and industry shared desired outcome and the Faster Payments Task Force (Off-site Link) vision
  • Pursuing Federal Reserve settlement services that address the future needs of a ubiquitous, real-time retail payments environment
  • Exploring and assessing the need, if any, for Federal Reserve engagement as a service provider, beyond providing settlement services, in the faster payments ecosystem to support industry achievement of the desired outcome

Desired outcome: Security
U.S. payment system security that remains very strong, with public confidence that remains high, and protections and incident response that keeps pace with the rapidly evolving and expanding threat environment.

The Federal Reserve will work to reduce fraud risk and advance the safety, security and resiliency of the payment system by:

  • Analyzing payment security vulnerabilities, assessing potential approaches to mitigate them and identifying misalignment of incentives that may hinder progress
  • Establishing and engaging in collective industry work groups focused on approaches for reducing the cost and prevalence of specific payment security vulnerabilities

Desired outcome: Efficiency
Greater proportion of payments originated and received electronically to reduce the average end-to-end (societal) costs of payment transactions and enable innovative payment services that deliver improved value to consumers and businesses.

The Federal Reserve will work to achieve greater end-to-end efficiency for domestic payments by:

  • Supporting industry efforts to develop and promote adoption of standards that enable end-to-end electronic processing of business invoices, payments and remittance information

Desired outcome: International
Better choices for consumers and businesses to send and receive convenient, cost-effective and timely cross-border payments.

The Federal Reserve will work to enhance the timeliness, cost-effectiveness, and convenience of cross-border payments by:

  • Engaging stakeholders to understand and assess the challenges and opportunities to enhance the timeliness, cost effectiveness and convenience of cross-border payments

Desired outcome: Collaboration
Needed payment system improvements are collectively identified and embraced by a broad array of payment participants, with material progress in implementing them.

The Federal Reserve will actively engage with stakeholders on initiatives designed to improve the U.S. payment system by:

  • Facilitating ongoing stakeholder engagement in payments improvement efforts through a highly interactive and flexible payments improvement community
  • Furthering outreach and education efforts to create awareness and encourage adoption of identified improvements and initiatives

“Our close collaboration with stakeholders on payments improvement efforts the past two years, including engagement with 500 task force members, suggests these next steps are aligned with expectations and will help address industry challenges and opportunities.”

Jerome H. Powell
Federal Reserve Board Governor
Payments Oversight Committee Co-chair

These refreshed strategies and supporting tactics are representative of the Federal Reserve’s ongoing commitment to advancing improvements through leadership and action. With collaboration, inclusiveness and transparency as guiding principles, we will continue to:

  • Actively monitor and communicate progress
  • Seek feedback
  • Adjust approaches in response to developments, as necessary

As we reaffirm our commitment to this important endeavor through these next steps, we echo our original call for all stakeholders to engage in these efforts and continue their commitment to improving the U.S. payment system.

 

Engage for change

The Federal Reserve will continue to seek input and communicate progress on initiatives from all payment participants through live and virtual forums, surveys, industry- and Federal Reserve-sponsored groups and events and online feedback tools. To receive communications and invitations, join the FedPayments Improvement Community (Off-site Link) at FedPaymentsImprovement.org (Off-site Link).

Share your thoughts on our Payments Exchange Blog (Off-site Link) and stay connected by following us on social media:

 

FedLine® Access Solutions

TruStone's smooth transition to the FedLine Command® access solution

October 2017

What began in 1939 as a teacher-based credit union has expanded to a full-service financial institution with locations across Minnesota and Wisconsin. TruStone Financial Credit Union (Off-site Link) has grown substantially over the last decade, surpassing $1.2 billion in assets and more than 106,000 members across the country. Over the years, TruStone has also grown in the way it utilizes Federal Reserve Bank Services. The credit union’s story offers great insight into how Fed services can align with an organization’s needs to help keep its customers happy and to lessen the workload of its employees.

 

Starting from scratch

When Senior Vice President of Information Technology John Verplank began working at TruStone several years ago, the organization was not leveraging any Fed services. However, in late 2012, TruStone began exploring the FedLine® access solutions. After taking time to understand each solution, TruStone decided to move forward with implementing the FedLine Advantage® access solution in 2013. FedLine Advantage offers access to critical payment and information services, including:

 

Moving to automation

In 2015, to create more efficiency in Automated Clearing House (ACH) processing, Verplank began looking into the FedLine Command® access solution. FedLine Command provides access to critical payment services, such as FedACH, Accounting and Billing Services. FedLine Command is an unattended solution, which means no individual user is involved in the day-to-day ACH transaction processing.

“Selecting FedLine Command allows us to automate our ACH process, in addition to using it for checks and other services.”

John Verplank
Senior Vice President of Information Technology
TruStone Financial Credit Union

After his initial research, Verplank called Mark Wall, TruStone’s account executive, to learn more. Soon after, TruStone began transitioning to FedLine Command. “When we transitioned from FedLine Advantage to FedLine Command, our ACH process became automated,” Verplank said. “With an upfront time investment, the transition for our network staff was smooth.”

Today, TruStone uses FedLine Command with third-party software to download files. When describing the learning curve, Timothy Spicer, a senior programmer analyst at TruStone, said, “FedLine Command is straightforward, easy and clean. It’s easy to manage and worth the transition from FedLine Advantage.”

 

Happy customers and time savings for staff

In addition to the ease of use, FedLine Command has also helped TruStone save time through automation. “We receive more than 20 ACH files per day,” Verplank said. “Without FedLine Command, we would have to manually download these files. By moving from manual to automated files, we have decreased our risk, decreased the amount of employee time necessary for ACH files and increased our overall efficiencies; the investment is well worth it.”

To learn more about how FedLine Command could benefit your organization, contact your account executive for more information.

 

The Federal Reserve Banks do not sponsor or endorse any of the non-Federal Reserve Bank-related products, parties or entities discussed in this publication.

 

General

Fed Facts: How do the Fed and the Treasury work together?

October 2017

In the April Fed Facts article, we covered the Federal Reserve System’s role as a fiscal agent of the U.S. government, the Fed’s part in tax collection and the purpose of the Treasury’s general account. This month, we’ll take a closer look at the relationship between the Federal Reserve and the U.S. Department of the Treasury.

The Federal Reserve serves as a fiscal and depository agent for the United States Government. In this role, the Reserve Banks perform a variety of services for the Treasury, other federal agencies and government-sponsored enterprises, including:

 

Have you heard of the Treasury-Federal Reserve Accord?

The 1951 Treasury-Federal Reserve Accord (Off-site Link) helped establish part of today’s relationship between these two institutions. In April 1942, at the request of the Treasury, the Federal Reserve formally committed to maintaining a low interest-rate peg of 3/8 percent on short-term Treasury bills. The Fed also implicitly set a cap of 2.5 percent on long-term Treasury bonds. The goal of these limits was to stabilize the securities market and allow the federal government to engage in cheaper debt financing of World War II, which the U.S. had entered in December 1941.

Inflation then became a concern when between June 1946 and June 1947, Consumer Price Index (CPI) inflation rose to 17.6 percent. The Fed's priority thus switched from financing the war to restricting inflation, but President Harry S. Truman and Secretary of the Treasury John Snyder were both strong supporters of the low interest-rate peg to protect the value of war bonds.

After the U.S. entered the Korean War in June 1950, inflation was on the rise, and the Federal Open Market Committee (FOMC) worried that the continuation of the limit would lead to even higher inflation. Throughout that year, the FOMC tried various tactics to raise short-term interest rates, but the Treasury successfully stopped them.

Then the Fed informed the Treasury that as of February 19, 1951, it would no longer “maintain the existing situation.” After this announcement, Assistant Treasury Secretary William McChesney Martin, Jr. met with Robert Rouse, Woodlief Thomas, and Winfield Riefler from the Federal Reserve and negotiated a compromise. They agreed that the Fed would continue to support the price of five-year notes for a short time, but after that, the bond market would be on its own.

On March 4, 1951, the Treasury and the Fed issued a statement saying they had “reached full accord with respect to debt management and monetary policies to be pursued in furthering their common purpose and to assure the successful financing of the government’s requirements and, at the same time, to minimize monetization of the public debt.” What became known as the Treasury-Federal Reserve Accord marked the start of the development of a strong free market in government securities, which continues today.

 

Does the Fed print money?

Another piece of the relationship between the Fed and the Treasury that continues today relates to U.S. currency. Have you ever wondered where your U.S. dollars come from? A common misconception is that the Federal Reserve prints money. The U.S government’s only source for paper currency production is the Treasury’s Bureau of Engraving and Printing (BEP) (Off-site Link), which prints billions of dollars (also known as Federal Reserve notes) each year for delivery to the Federal Reserve System. The Federal Reserve Banks act as a distribution center for the issuance of currency designed and printed by the BEP, and for coins developed by the United States Mint (Off-site Link). The Federal Reserve Banks offer FedCash® Services to help ensure that depository institutions have sufficient supplies of currency and coin to meet public demand.

Watch the U.S. Currency Education Program (CEP) video below to learn how money is printed, and check out the About BEP (Off-site Link) resource document for more information.

 

 

Want to learn more about CEP resources?

The CEP is responsible for ensuring that users of U.S. currency around the world have access to education, training and information about Federal Reserve notes. Managed by the Federal Reserve Board, the CEP works closely with its government partners at the U.S. Secret Service and the BEP to raise awareness about how to use the design and security features of U.S. currency.

Visit the links below to watch additional informational videos developed by the CEP:

Check out the CEP Resource Center (Off-site Link) for more information and training resources.

 

SOURCE: https://www.moneyfactory.gov/ (Off-site Link)

SOURCE: https://www.uscurrency.gov/ (Off-site Link)

SOURCE: https://www.federalreservehistory.org/essays/treasury_fed_accord (Off-site Link)

 

Events and Education

Resource Centers and FAQs: Helping you work toward efficiency

October 2017

One common goal institutions strive for is efficiency — whether that be in everyday work, taking care of customers or back-end processes that the public doesn’t see. The Federal Reserve Banks want to help you improve productivity and efficiency, no matter what goal you are trying to reach.

To help support your institution, the Fed has tools and information ready at your fingertips on the Resource Centers and FAQs page. Found in the left navigation, this page is full of places to find support for work you are doing every day. Let’s explore some of the resources.

  • Business Banking Toolbox: Information found here highlights our suite of services that can assist your Treasury/Cash Management and Business Banking staff to increase the flow of information to your clients, reduce risk in the system and enhance your institution’s relationship with your clients.
  • EUAC Support Page: End User Authorization Contacts (EUACs) fill an important role in your organization. On this page, you’ll find information about identifying staff for this role, the responsibilities of an EUAC, how to onboard a new EUAC and support for existing EUACs.
  • Same Day ACH Resource Center: The second phase implementation of Same Day Automated Clearing House (ACH) became effective on September 15, 2017. Find answers to questions you may have in this resource center. Along with frequently asked questions (FAQs), find other tools and communications that will assist you with Same Day ACH support.
  • Risk Management Toolbox: We all think about risk. If you’re looking to build your risk management program, this toolbox may help provide the information you need.
  • FAQs: There are a variety of services and processes that you may need help with throughout the year. In our FAQs section, find answers to the questions you have about a wide array of topics, right at the tip of your fingers.

The Federal Reserve Banks are here to help — we have developed these resource centers with you in mind. If you would rather speak to someone, you can always utilize My FedDirectory® to find the right Federal Reserve Bank representative. The information you need is just a click or call away.

 

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FedFocus is your source for the latest Federal Reserve Bank Services news. Each issue keeps you informed about hot topics in the industry, as well as provides insight into the value of Federal Reserve Financial Services.