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Felix Salmon on Improving Payment Systems

[Immediate funds transfer (IFT)] — the ability for me to pay you, and for you to receive the funds within minutes, rather than having to wait until the following business day — is already a fact of life in many countries around the world, from India to the UK. Where it doesn’t already exist, you can be pretty sure that someone is working hard on a plan to make it happen. Except in the US, where no one seems to have even started the process yet.

That’s Felix Salmon on the work of Bruce Summers. Summers, a consultant to the Chicago Fed, is a leading advocate for IFT in the United States, a country where digital payments remain characterized by delayed settlement rather than real-time processing. The rules governing payments in the United States have failed to keep pace with changes in technology, leading to inefficiencies. The failure appears to be a shortcoming of our fragmented system of financial regulation and Salmon is pretty pessimistic about a correction:

America desperately needs immediate funds transfer, or IFT. And we’re not going to get it.

We sometimes see cases where the fix for a wildly inefficient outcome is known but where political opposition changing the rules stands in the way. Center-city traffic congestion comes to mind. Though Stockholm and Singapore show the promise of congestion pricing, voters in cities like Chicago and New York seem dead-set against it.

From a political feasibility standpoint, a key difference between congestion pricing and IFT resides in the underlying social norms. In the case of congestion pricing, the norm - “it’s wrong to impair drivers’ mobility with congestion charges” - is at odds with the efficient policy. The path to reform is therefore difficult, involving as it will a shift in norms.

But in the case of IFT, it seems safe to assume that most Americans would prefer the option and convenience of real-time payment processing to the delayed system we’re currently stuck with. Perhaps the prospect for improving our payments system deserves a bit more optimism, even if, as Salmon suggests, it will ultimately be up to Congress.

Of course, the odds of an improvement will go up if more business and finance reporters pick up on the story.

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