Low-Key Laboratories


Federal Reserve Banks study an array of technologies and payments

By Elizabeth Judd

Suppose that, instead of paying a consultant, community banks had a credible free source of information on the latest bank technology and payment developments?

They do. The 12 district Federal Reserve Banks have created various low-key working groups researching various technology, payment and banking topics. Those topics range from tokenization and other innovative security measures to “now casting,” or deriving more reliable estimates of current economic conditions.

Moreover, the Reserve Banks make their research available, sometimes through free online white papers and podcasts.

“In the past, when a lot of people wrote checks, each Federal Reserve Bank had a check operation that processed these checks and cleared and settled them through the payment system,” says Marianne Crowe, vice president of payment strategies at the Federal Reserve Bank of Boston. As clearing checks has become a much smaller part of the Federal Reserve System’s overall activities, she says, some of its economists and payment experts have begun researching and analyzing various banking trends to guide the industry.

“Every Fed has some areas that support the payment business,” says Crowe, explaining that the payment groups generally operate with anywhere from three to a dozen or so participants. Some have a mix of economists and payment industry research specialists, and most have grown organically to address needs as they become apparent.

Robert Hunt, a vice president at the Federal Reserve Bank of Philadelphia and a director of its Payment Cards Center, notes that the center’s discussion papers and conference summaries are intentionally written to be “accessible to a broad audience,” including consumers, market participants and policymakers in addition to bankers. Recent topics the group has considered include how different generations use payment and financial services.

The Boston Federal Reserve Bank formed a study group six years ago that involves 45 industry professionals with expertise in developing mobile payments and purchases in the United States. What began as a one-time industry gathering has morphed into an established group that meets several times a year. Participants include representatives from core software providers, national clearinghouse associations, as well as payment and mobile network operators. American Trust & Savings Bank in Dubuque, Iowa, is also a member.

Recent work on tokenization by the Boston Fed group resulted from a discussion in which participants admitted to confusion about how all the pieces of card security might ultimately come together. Crowe notes that the new tokenization specification document from EMVCo, the organization that distributes standards for EMV chips within credit and debit cards, will address some of the gaps that were identified in the group’s white papers on the topic.

Making sure research conducted by the various Federal Reserve Banks harmonizes is an important goal, Hunt says. To coordinate the various projects at the individual Federal Reserve district banks, an informal System Payments Analysts Group was formed to minimize duplication of efforts.

“We collaborate on research projects,” Hunt says. “There is a great deal of interaction across the groups. That is natural given our mutual interests.”

Federal Reserve Bank Research Groups

Retail Payments Risk Forum.
The Atlanta Federal Reserve forum studies risk for paper, plastic and digital payments.

Consumer Payments Research Center. The Boston Federal Reserve office researches topics such as consumer payment choices and preferences. (www.bostonfed.org/economic/cprc)

Payments Policy Group. The Chicago Federal Reserve group researches payment trends, security and innovation.

Payment Systems Research. The Kansas City Federal Reserve group analyzes domestic and international payment systems.

Payments, Standards and Outreach Group. The Minneapolis Federal Reserve group researches business-to-business payment transactions, payment standards, payment fraud and emerging payments.

Money and Payment Studies. The New York Federal Reserve office researches interbank and money markets.

Payment Cards Center. The Philadelphia Federal Reserve group broadly studies consumer credit and payments. (www.philadelphiafed.org/consumer-credit-and-payments/payment-cards-center)

Payments Studies Group. The Richmond Federal Reserve group focuses on emerging payment technologies, specifically consumer-to-business payments. (www.richmondfed.org/banking/payments_services/overview/payment_studies)

Cash Product Office. The San Francisco Federal Reserve office formulates policies, operational guidance and technology strategies for currency and coin services. (www.frbsf.org/cash/federal-reserve-role-cash-distribution/cash-product-office)

Reserve Bank Operations and Payment Systems. This entity oversees the policies and operations of the 12 Federal Reserve Banks.

Elizabeth Judd is a financial writer in Maryland.