Private Markets, Public Options, and the Payment System

58 Pages Posted: 6 May 2020

See all articles by Peter Conti-Brown

Peter Conti-Brown

University of Pennsylvania - The Wharton School; Brookings Institution

David A. Wishnick

University of Pennsylvania - Center for Technology, Innovation & Competition

Date Written: April 17, 2020

Abstract

The speed at which money moves between people and businesses in the United States lags well behind international standards. Far from being a mere inconvenience, slow payment speeds create needless financial uncertainty, lead to inefficiencies across the economy, and drive demand for high-cost credit products like payday loans and overdraft protection. To speed up the payment system, the Federal Reserve has announced “FedNow” a platform due in 2023 that would operate as a public real-time payment rail, competing with a privately-run platform in the interbank payment market.

This Article analyzes the problem of slow payments and the Fed’s many roles in addressing it. Against the Fed’s critics, we argue that the Fed’s operational involvement in the payment system holds the capacity to achieve three objectives at the heart of payment policy in the United States: to catalyze innovation, enhance access to developing payment networks, and shore up financial stability. Fed participation in the payment system and public-private competition are not troublesome bugs or unfortunate byproducts of political compromise. Rather, they represent valuable features of the Fed’s hybrid, public-private system and are likely to drive faster payment development in the United States.

We also argue for an expanded use of Fed tools to achieve payment objectives well beyond FedNow, including by using the Fed’s unique status as operator, market participant, regulator, and supervisor of the payment system and the private financial institutions that participate in it. These are different roles that can be harmonized for the same public policy outcome.

Keywords: payment system, central banking, financial regulation, Federal Reserve, real-time payments, banking, public options, administrative law, regulation

JEL Classification: k00, k10, k2, k22, k23, g20, g21, g23, g28, n12

Suggested Citation

Conti-Brown, Peter and Wishnick, David, Private Markets, Public Options, and the Payment System (April 17, 2020). Yale Journal on Regulation, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3578844

Peter Conti-Brown (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

David Wishnick

University of Pennsylvania - Center for Technology, Innovation & Competition ( email )

Philadelphia, PA
United States

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