The Federal Reserve System’s peer-to-peer payment system, FedNow®, debuted July 20, two decades after PayPal went public, creating the category of electronic payments for consumers and small businesses. PayPal holds pole position in the industry: 37% of surveyed American consumers say they used the service in 2022. Fifteen percent said they used Venmo, owned by PayPal. The next three most frequently used services were ApplePay, GooglePay and AmazonPay, each with 12%.[1] Meanwhile, “The global P2P payments market size was worth USD 2,219 billion in 2021. It is expected to reach USD 8,078.81 billion by 2030, growing at a CAGR of 17.53% during the forecast period (2022–2030).”[2]

Zelle, the instant payments system developed by American banks, handled 2.3 billion payments with a total value of $629 billion in 2022.[3] 1,700 U.S. banks offer Zelle, 33% of all banks. The system’s growth lately has been among banks having under $10 billion in assets, community banks in other words.

Given this market landscape, it’s fair to ask whether FedNow can succeed. Presently there are just 26 participating banks and credit unions. Of these, two are behemoths, JP Morgan Chase and Wells Fargo. Two are top 10 institutions, BNY Mellon and U.S. Bank. And the rest are community institutions, 15 banks and seven credit unions.

Culturally, the Fed is accustomed to holding the high ground. Sales and marketing are not its forté. Banks and credit unions seldom mix well. And as a matter of functionality, processing speed for FedNow transactions is unlikely to be faster than commercial services like PayPal or Zelle.

How can FedNow overcome those hurdles to market acceptance? In a word, “transparency.” Few words in our business and political dictionary today have a more muddled meaning. Every company and candidate for elected office promises transparency. Time and again, though, it is an empty promise. Plug the word into a Google search alongside the name of a P-to-P payment service. The results are either platitudes promising transparency or news of litigation settlements in which the companies are paying claims for not delivering it.

A leading example of this dichotomy between promise and performance came during Congressional testimony earlier this year concerning the bank-owned Zelle payments system. Many banks refused to reveal to Congress the number and value of fraudulent Zelle transactions they handled. Those like PNC that did disclose data proved the customer fraud issue is pervasive and growing. Complaints are rampant that banks almost always force their customers to bear the loss in fraud cases. The banks that own Zelle say they are working on the problem. Meanwhile it persists.

The Fed’s and participating financial institutions’ opportunity with FedNow is to not just copy commercial services, but to innovate a new service-level standard. Financial institutions and their regulators create and track myriad so-called Key Performance Indicators. Ratios abound, covering capital, liquidity, profitability, efficiency, and so forth. Why not create a set of metrics for P-to-P payment systems and publish the results? Strive to make FedNow the gold standard among payment systems. Challenge commercial services to reveal their KPIs. Shame them into doing better by and for their customers.

It worked for airlines. In the 1980s, after the industry was deregulated, carriers’ flights were almost always late on arrival. Beginning in 1987, they reported on-time performance and flight delays to the U.S. Department of Transportation. They adjusted their schedules so they could meet assigned arrival times. And at least that aspect of air travel is less painful than it used to be.

It worked for auto makers. J.D. Power & Associates’ rankings of auto brands’ build quality and service reliability have been a staple of automotive marketing since Subaru in 1984 first paid Power to use its results. J.D. Power III founded the company in 1968 at his family’s kitchen table. In the early days, the Associates were his wife who did market research and their children who stuffed envelopes. In 2019, a Chinese-backed buyout fund sold the company to U.S. private equity firm Thoma Bravo for $1.8 billion.

Power today publishes an annual survey of retail banking customer satisfaction. Seven criteria are measured including trust, problem resolution and convenience. Power’s survey though is handicapped by its inability to access banks’ internal data on KPIs. For example, what percentage of customer refund requests based on claims of fraud are paid? What is the average response time to resolve claims? What percentage of late fees are waived for customers whose relationship profitability exceeds established thresholds? What decisions are made strictly based on algorithms despite advertising that touts an institution’s community-centric brand? Well run financial institutions have all that data at hand and could share it if motivated to do so. Those that do not want to self-report such data should bear the consequences in the market.

There is no reason the Fed cannot promote truth-in-electronic-financial-services as it did truth-in-lending in the 1960s. Whether the Fed itself or a private company is the data repository and purveyor of comparative analysis does not matter. It does, however, need to be a party outside of the banking/shadow banking system. High quality financial institutions and their customers will all be better served as a result.

[1] https://www.statista.com/chart/27785/most-popular-digital-payment-services-united-states.

[2] https://www.globenewswire.com/en/news-release/2022/08/25/2504945/0/en/.

[3] https://www.zellepay.com/press-releases/financial-institutions-joining-zelle-networkr-increased-40-2022.