Mark Gould is the chief payments executive of Federal Reserve Financial Services (FRFS). He leads nearly 2,000 employees in providing the Federal Reserve System’s portfolio of retail payments, wholesale payments, instant payments and cash services to more than 9,000 financial institutions across the United States. On a typical day, FRFS processes about $5 trillion through its systems and manages $2.3 trillion of U.S. currency in circulation. Here, Gould reflects on the state of the U.S. payment system and its bright future.
Q: Why does the Federal Reserve offer payment services?
A: The Federal Reserve System was established by Congress in 1913 as a central bank to provide our nation with a safer, more flexible, and more stable monetary and financial system. One of its primary functions is to provide financial services to financial institutions and the U.S. Treasury. Payments continue to be vital to the lives of individual consumers and businesses – and they are critical to making the U.S. economy work for all of us.
Q: Now that we’ve reached mid-2024, what are your observations about the state of the U.S. payments industry?
A: I’m a “payments geek.” I love that I get to hear the views of people across the country about payments and how they think we can work together to shape the future of our industry. In recent months, customers and industry thought leaders have expressed excitement about three major themes and opportunities.
- Instant payments momentum: As we all know, the world continues to speed up. Many of us pay for services that help us avoid waiting in long airport security lines. We also loathe sitting in traffic or being in a slow-moving grocery checkout lane. In other words, we don’t associate good things with waiting – yet people in the U.S. often are waiting for money. This is why I see so much opportunity for U.S. instant payments in general and the FedNow® Service (Off-site) in particular. The Federal Reserve’s goal is nothing short of making instant payments ubiquitously available and widely used in the United States. A number of current use cases will help us get there, and more are being explored.
- Fraud mitigation: The potential for fraud is one of the top three concerns CEOs and leaders at community banks and credit unions tell me they have about instant payments – but we all know that fraud is an age-old issue for all types of payments. A service like FedNow actually creates more safeguards against some types of fraud, because senders can use micropayments to authenticate receivers in real time. The FedNow Service has additional built-in tools to help participants manage fraud risk, which can augment the anti-fraud tools financial institutions and their service providers use today. FRFS also has implemented new services to help address fraud threats in other payment rails, such as the FedDetect® Duplicate Treasury Check Notifier Service and FedPayments® Reporter for Check.
Finally, battling fraud will require broad collaboration across the industry, because none of us – whether we are senders, receivers, or the operators in the middle – can see the full picture. The Federal Reserve has convened work groups that have created tools to help encourage industry dialogue and shared solutions, such as our FraudClassifierSM model, a voluntary classification structure which provides organizations with a consistent way to classify fraud, better understand how fraudulent activity occurs, and gather insights on the magnitude of fraud across the payments industry. - Innovation: We need structure to guide modern payment innovation and deliver it at scale. That’s where standards come in. For example, migration of the Fedwire® Funds Service to the ISO® 20022 messaging format has our industry buzzing. Less than a year remains before the migration date of March 10, 2025. While the Fed, in partnership with financial institutions, processors, fintechs and technology providers, has some work to do before then, we all will reap subsequent benefits by leveraging the data-rich capabilities of the ISO format. I think it’s something people will continue capitalizing on for many years to come.
Q: Which use cases are driving FedNow Service growth?
A: Instant payments in the U.S. are still maturing and new use cases are evolving quickly. We’re seeing a variety of use cases where instant payments can solve pain points and offer efficiencies – digital wallets, payroll and earned wage access, e-commerce, bill pay, real estate transactions, online marketplaces, insurance, government payments. In many situations, these use cases will benefit from the service’s “Request for Payment” feature. The FedNow Service was built to be a platform for industry innovation, and we’re starting to see the fruits of that, which is exciting.
Q: How do you expect the FedNow Service to affect other FRFS payment rails?
A: The introduction of airplanes didn’t make automobiles obsolete. Likewise, the FedNow Service simply offers another option as financial institutions seek out rails that are optimal for a given payment type. Instant payments are an ideal rail for anything that requires speed, certainty, finality and irrevocability. As a result, certain low-value wires, some types of ACH payments, and even some cash transactions may move to instant payments over time.
Beyond movement between payment rails, I believe the total number of payments made in the United States will grow significantly. Earned wage access is one example. Instead of getting paid twice a month, an hourly wage or gig worker could be paid at the end of a shift via an instant payment. In the meantime, our mission at FRFS is to ensure that the full spectrum of our payment services delivers safety, resilience and choice to all financial institutions.
Q: Look into your crystal ball for the rest of 2024 and into 2025. What are your expectations, hopes and dreams?
A: I have described this as the most dynamic decade for payments in history. I see that financial institutions have renewed energy and ongoing enthusiasm for payments innovation. They also are eager to collaborate with Fed experts and the entire ecosystem of processors, fintechs and technology providers that support their operations. There are many products, services and use cases yet to be seen – and that will make us wonder how we ever got by without them.
At FRFS, we’re working hard to transform these hopes and dreams into reality. For example, we want to increase both send and receive volume for the FedNow Service. We’re building our network, the number of receive points, and send-side adoption, with more financial institutions gradually gaining the ability to send on their technology platforms. We expect to enhance the service’s functionality over time as the network and volumes grow. Financial institutions are working with their corporate customers on specific use cases, such as encouraging corporate originators to make more single B2B payments for single-invoice items, as opposed to single payments for multiple invoice items. That's a real focus for us in the year ahead.
It has been a very fast year since the FedNow Service launch. I’m really excited to mark additional milestones as adoption and usage continue to mature.
