“For more than 150 days each year, these funds, much of it cash, cannot be immediately infused into U.S. economy because the transactions currently cannot be settled on weekends,” said Tim Hammonds, president and CEO of the Food Marketing Institute, commenting on the report Weekend Settlement: Potential Benefits, Costs, and Legal Issues.
“In the retail food industry alone,” he said, “approximately $250 billion in sales on Fridays, Saturdays and Sundays — over half of total yearly sales — cannot be invested until the transactions are settled when banks reopen on Mondays.
“The economy, consumers, retailers and financial institutions would benefit if transactions could be settled seven days a week,” said Hammonds. “We live in a 24/7 world. We can buy groceries, obtain cash from an ATM at any time, day or night.”
The benefits to consumers and retailers include faster access to their funds, according to the report. Weekend settlements would also enable retailers to reduce the amount of cash in stores subject to robberies, which could lower insurance costs. In addition, banks would be freed from the burden of settling the large amounts of weekend transactions on Mondays.
“The GAO report provides us the first comprehensive look at the opportunities and challenges that weekend settlements present,” said Hammonds. “We do not agree with all its findings — particularly that the costs outweigh the benefits. We recognize that there are significant challenges, but they can be overcome. In fact, the GAO report acknowledges that “future changes in consumer preferences in payment instruments or technological innovations could alter the relative benefits and costs of weekend settlement.”
The report found that there are no legal obstacles to weekend settlements. The principal obstacle, according to financial institutions, is the cost for the additional computers and staffing to operate during weekends. Banking officials say they would have to create a parallel transaction-processing system in case the primary system fails, increasing operating costs by up to 40 percent.
“If such costs are the main barrier,” said Hammonds, “that is good news. Food retailers have been running parallel production systems that back up transactions, along with stand-alone systems that test operations on a 24/7 basis. The industry has used these systems for years at a cost far below banking industry estimates. Consumers and financial institutions would benefit from upgraded backup systems to ensure the safety and security of their assets.
“That future will arrive a lot sooner than people think,” said Hammonds. The GAO report noted that two of the world’s largest centers of finance, Hong Kong and Singapore, settle transactions on Saturdays — “offering models worth reviewing,” he said.
“The food retail industry is committed to working with the financial community to facilitate the transition to weekend settlements. As difficult as this change may be, consumers ultimately will demand it. And if today’s retailers and banks do not meet this demand, it is likely that non-banking institutions will do so.”
FMI introduced the idea of weekend settlements and has discussed it with the Federal Reserve Board, the American Bankers Association, the Senate Banking Committee and House Financial Services Committee. Through these efforts and others, the GAO was asked to research the issue.