NEACH Responds to Federal Reserve System Change with Guest Sean Carter
Wrestling Payments Podcast: Season 2 - Episode 18
Episode Summary
The U.S. payment system stands on the verge of a monumental shift. The Federal Reserve is proposing 24/7 operations for the National Net Settlement System (NSS), the backbone of payment finality. This means no more "lights out" on weekends; wires, ACH, and other payment types could flow around the clock.
In this episode of Wrestling Payments, Joseph Casali wrestles with this complex topic alongside Sean Carter, President & CEO of NEACH. Sean acknowledges the upsides: reduced settlement risk, increased liquidity, and alignment with global standards where 24/7 payments are becoming the norm. However, he also points out significant concerns, particularly for financial institutions.
Staffing for round-the-clock operations, ensuring downstream applications like online banking and core systems are ready, and bolstering fraud prevention measures in a faster-paced environment are just some of the hurdles. Sean highlights the potential impact on smaller institutions, questioning their ability to adapt without significant burdens. Will this proposal revolutionize payments or leave some players struggling to keep up? Tune in for a crucial discussion.
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Guest-at-a-Glance
💡 Name: Sean Carter
💡What they do: President & CEO
💡Company: NEACH
💡Noteworthy: Sean has worked with NEACH for over 30 years. He is an accredited AAP and NCP advocating for financial institutions in the payments space.
💡 Where to find them: LinkedIn
Key Insights
24/7 Settlement: A Game Changer with Growing Pains
While round-the-clock payment processing offers advantages like reduced risk and global consistency, it presents a massive operational challenge. Smaller financial institutions, in particular, face concerns about staffing and technology upgrades to handle the constant flow of transactions. The industry needs to address potential burdens and ensure a smooth transition, not a mad scramble to keep up.
Beyond the Network: Downstream Readiness Is Crucial
Successfully implementing 24/7 settlement goes beyond connecting to faster payment networks. Financial institutions must ensure their core systems, online banking platforms, and customer-facing applications are all equipped to reflect real-time transactions accurately. Otherwise, businesses and consumers could face confusion, errors, and a lack of clarity about their finances.
Optional Participation, Inevitable Pressure
The Federal Reserve proposes making 24/7 settlement optional for financial institutions. However, competitive pressures could render this option meaningless. To avoid falling behind, institutions may feel compelled to participate, even without adequate preparation. This highlights the need for industry-wide collaboration and support during the implementation process.
Episode Highlights
The ACH Question: Will Faster Settlement Mean Weekend Transactions?
Timestamp: [00:16:00]
While the initial focus is on National Net Settlement, the potential impact on specific payment systems like ACH is a key consideration. Sean notes that 24/7 settlement could open the door for weekend or late-night ACH processing, which presents its own set of challenges. NACHA, the governing body for ACH, will need to address rule changes, return timelines, and the definition of a "banking day" in an always-on environment.
"So we've been trying really hard to tell our members this is not an ACH piece. Right. This would be something that the ACH network could then entertain and would have to go through their own rulemaking process, which NEACH would be a part of obviously, as a direct member and voting member of NACHA."
From Complaints to Solutions: The Role of Technology
Timestamp: [00:25:00]
While concerns about staffing and operational burdens are valid, the conversation also hints at the potential for technology to bridge the gap. Sean predicts that innovative vendors will see the challenges presented by 24/7 settlement as an opportunity to develop automation solutions, streamlining operations, and potentially easing the burden on financial institutions.
"My other guess is that there are going to be vendors that read this and start saying, ‘How do I automate someone's operations?’ That I would say is a definite. And I don't know what that would look like or who's going to do that. But I would imagine that there is enough people with their eyes on this industry saying, ‘Wow, look at that proposal and look what people are complaining about. How do we solve for that?’"
A Tale of Two Coasts: Time Zones and the Same-Day Settlement Puzzle
Timestamp: [00:20:00]
The move towards 24/7 settlement could significantly impact how financial institutions across different time zones operate, particularly when it comes to same-day settlement deadlines. Sean points out that expanded operating hours may benefit institutions on the West Coast, who often face tighter deadlines compared to their East Coast counterparts. This shift could potentially level the playing field and offer greater flexibility for processing transactions.
"The same happens with the same-day windows today. And those would be pushed back. There would be potential if the hours are expanded, where maybe on the West Coast that becomes a better deal than it is today, and I know some people have brought that up."
Consumer Impact: Will 24/7 Settlement Translate to 24/7 Banking?
Timestamp: [00:06:00]
While much of the discussion centers on operational challenges for financial institutions, the potential impact on consumers is a crucial aspect. Sean raises the question of whether 24/7 settlement will translate to a true 24/7 banking experience for consumers. While real-time payment systems like RTP and FedNow already operate around the clock, they have limitations for larger transactions. The episode explores whether this shift will drive demand for expanded access to banking services outside of traditional business hours.
"And then there's talk of consumer benefit, which I find interesting, right? Because if you think about it, today a consumer, could transact either through RTP or FedNow, 7 days a week, 24/7, but I guess the argument would be that those are their only two choices."
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