Walmart, Target, the National Retail Federation and other companies from the retail sector have been talking to the Federal Reserve about creating a real-time settlement system for debit card transactions so that they can get paid faster on sales, the Wall Street Journal reports.
The Fed said in early October that it was seeking public comment on possible actions to accelerate payment settlement, including the development of a real-time settlement system, as well as a liquidity management tool that would be key to enabling such a system. The comment period closes Dec. 14.
A real-time system would work 24 hours a day, seven days a week to process debit card transactions, instead of the typical current window of one to three days, according to the Federal Reserve's description of the proposal in a press release.
Customers who pay for purchases with debit cards expect to take their items home instantly, but for the merchants they buy from, obtaining the money exchanged for goods is anything but instant. The payment that has been made by the customer must be settled via interbank transfer for the seller to get paid. Improving that turnaround time for retailers could prove especially beneficial for sales that happen during the weekend
Thirty-six percent of Americans plan to use debit cards for their holiday purchases, a higher percentage than those who plan to use any other form of payment, according to a recent TD Bank report. The report found that 34% plan to use a credit card, 17% a check, 7% a store-branded credit card and 4% will opt for an in-store financing option. That's just one example of how prevalent paying with debit cards has become.
In its October announcement, the Fed was non-committal about whether or not it would pursue a real-time settlement system, emphasizing that it's only seeking public input on the idea for now. But the agency did note the importance of faster settlement times in the press release announcing the comment period.
"Consumers and businesses increasingly expect to be able to send and immediately receive payments at any time of the day, any day of the year," said Federal Reserve Board Governor Lael Brainard in a statement. "A 24/7 economy with 24/7 real-time payments needs 24/7 real-time settlement. That is where we believe that the Federal Reserve and the private sector together need to make investments for the future."
The speed of the reconciliation process isn't the only concern retailers have about card payments. Fraud has been a top concern for many years. According to research from NRF, 55% of retailers survey identified fraud as the top payment-related challenge they face. The industry's next most pressing concern related to card processing was the cost of accepting payment cards, such as swipe fees, followed by chargebacks.