1. © 2013 Federal Reserve System. Materials are not to be used without consent. Federal Reserve Financial Services Strategic Direction: 2012-2016 Payment System Improvement – Public Consultation Paper Ken Isaacson Vice President Federal Reserve Bank of New York

2. © 2013 Federal Reserve System. Materials are not to be used without consent. Agenda Federal Reserve Financial Services (FRFS) Strategic Direction and Areas of Focus Payment System Improvement – Public Consultation Paper – Gaps and Opportunities – Desired Outcomes – Response Submission 2

3. © 2013 Federal Reserve System. Materials are not to be used without consent. FRFS Broadens its Strategic Focus toward End-to-End 3 Maintain and enhance FRB network security Enhance understanding of end-to-end security Collaborate and promote industry best practices Safety and Security Develop solutions to enhance payment speed Understand market demand for faster payments Continue migration of paper to electronic Speed Develop solutions to promote efficiency Understand needs and barriers Promote standards adoption to improve efficiency Efficiency

4. © 2013 Federal Reserve System. Materials are not to be used without consent. 4 Insight and Collaboration via … Industry Events and Conferences Consumer Payments Rules and Standards Groups Technology Solutions Providers Financial Institutions Business Government Payments Network Operators Emerging Payments Providers One-on-One and Trade Group Meetings Fed-Sponsored Forums and Communications Industry Relations Program (IRP) Engaging diverse stakeholders

5. © 2013 Federal Reserve System. Materials are not to be used without consent. Future Payments Team (FPT) Payment System Gaps and Opportunities Research Gathered available secondary research sources that relate to payment attributes Organized the research into “stories” Stories explain end user needs for payment speed and efficiency in different circumstances Seeking industry feedback on relevance and priority of identified gaps and opportunities 5

6. © 2013 Federal Reserve System. Materials are not to be used without consent. Executive Management Group (EMG) Payment System Improvement – Public Consultation Paper The paper seeks the input of payment system providers and end users on: – Payments system gaps, opportunities – Desired outcomes for the payment system in 10 years – Potential strategies and tactics to shape the future of the U.S. payments system – The Federal Reserve Banks’ role in implementing these strategies and tactics On September 10, the EMG released a Payments System Improvement – Public Consultation Paper for public comment until December 13. 6

7. © 2013 Federal Reserve System. Materials are not to be used without consent. Payment System Improvement – Public Consultation Paper Payment System Gaps and Opportunities 7 Continued End-User Check Writing Challenges in Converting Businesses to Electronics Closed Payment Communities Lack of real-time, end-user information on traditional payment rails Slowness of U.S. Payments Mobile Technology Revolution Obstacles in International Payments Security Concerns

8. © 2013 Federal Reserve System. Materials are not to be used without consent. Payment System Improvement – Public Consultation Paper Desired Outcomes Strategic Industry Engagement Key improvements for the future state of the payment system have been identified and embraced by payment participants with material progress made in implementing them. Ubiquitous Real-Time Retail Payments A ubiquitous electronic solution(s) for making retail payments provides confirmation of good funds at payment initiation and timely sender/receiver payment notification, debits payee funds and makes them available to payees in near real time. Improved Efficiency Greater electronification and process improvements have reduced the average end-to-end (societal) costs of payment transactions and resulted in innovative payment services that deliver improved value to all parties Improvements in Cross-Border Payments Consumers/businesses have better choice in making convenient, cost-effective and timely cross- border payments from and to the United States. Enhanced Payments Safety and Security We have collaborated with the industry to promote end-to-end payment system security amid a rapidly evolving technology and threat environment. Public confidence in FRFS security remains high. 8 ‘Good funds’ means the payer’s account is valid, funds/available credit are sufficient to cover the payment.

9. © 2013 Federal Reserve System. Materials are not to be used without consent. Payment System Improvement – Public Consultation Paper Questions for Comment For example: Are you in general agreement with the payment system gaps and opportunities? What is the cost, including the opportunity cost, of not implementing faster payments in the United States? To what extent would a ubiquitous near-real-time system bring about pivotal change to mobile payments? In what ways should the Federal Reserve Banks help improve the payment system as an operator, leader, and/or catalyst? The paper poses multiple questions for public consideration and response. Respondents are encouraged to answer as many or as few questions as desired, based on their interest and expertise, and to supplement their responses with any other general perspectives on payment system improvements. 9

10. © 2013 Federal Reserve System. Materials are not to be used without consent. Share Your Views on the Questions Posed in the Consultation Paper Respond via online survey at FedPaymentsImprovement.org Respond via email to comment@FedPaymentsImprovement.org Respond until December 13, 2013 10 Visit FedPaymentsImprovements.org to view the paper and instructions on submitting responses.