Welcome to the April 2023 Innovating Payments Executive Summary. In this issue, we continue our coverage of the Silicon Valley Bank and Signature Bank failures, and the swift response from the U.S. government, stepping in to ensure depositors were able to access their funds. We also provide an update and considerations for financial institutions for effectively mitigating risk.
In other news, the Federal Reserve announced it would launch its FedNow(SM) Service in July. During the first week of April, the Federal Reserve will begin the formal certification of participants for launch of the service. Nacha President and CEO Jane Larimer commented on the FedNow service, saying it is likely to fill gaps left by the ACH Network. Also happening, PYMNTS released a new intelligence report on how organizations deliver on faster payments. Meanwhile, sources say that Zelle is revising its network rules in light of recent fraud scams.
For more on these and other stories, read on.
Silicon Valley Bank and Signature Bank Update
As reported by the New York Times, “On March 10, Silicon Valley Bank, one of the most prominent lenders in the start-up ecosystem, collapsed. The turmoil has led to the seizure of Silicon Valley Bank and Signature Bank, the private-sector bailout of the U.S. regional lender First Republic Bank and the takeover of the troubled Swiss bank Credit Suisse by its rival, UBS.”
In response, a joint statement was released on March 12 by Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg, ensuring depositors access to their funds and that no losses would be borne by taxpayers.
The statement concluded:
The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today's actions demonstrate our commitment to take the necessary steps to ensure that depositors' savings remain safe.
(To read the statement in its entirety, visit the Federal Reserve website.)
Meanwhile, “North Carolina-based First Citizens will buy Silicon Valley Bank, the tech industry-focused financial institution that collapsed earlier this month, rattling the banking industry and sending shockwaves around the world,” NPR reported on March 27. “The sale involves the sale of all deposits and loans of SVB to First-Citizens Bank and Trust Co., the FDIC said in a statement late Sunday. Customers of SVB automatically will become customers of First Citizens, which is headquartered in Raleigh. The 17 former branches of SVB will open as First Citizens branches Monday.”
This is a developing story, and NEACH will provide updates to its members as appropriate.
NEACH would like to encourage its member financial institutions to continue their risk mitigation efforts and to thank them for their ongoing contributions to their members, customers, and communities.
FedNow Launch Set for July
The Federal Reserve announced that the FedNow Service will start operating in July and provided details on preparations for launch in a news release.
According to the release:
The first week of April, the Federal Reserve will begin the formal certification of participants for launch of the service. Early adopters will complete a customer testing and certification program, informed by feedback from the FedNow Pilot Program, to prepare for sending live transactions through the system.
Certification encompasses a comprehensive testing curriculum with defined expectations for operational readiness and network experience. In June, the Federal Reserve and certified participants will conduct production validation activities to confirm readiness for the July launch.
"We couldn't be more excited about the forthcoming FedNow launch, which will enable every participating financial institution, the smallest to the largest and from all corners of the country, to offer a modern instant payment solution," said Ken Montgomery, first vice president of the Federal Reserve Bank of Boston and FedNow program executive. "With the launch drawing near, we urge financial institutions and their industry partners to move full steam ahead with preparations to join the FedNow Service."
Is FedNow Competition for Nacha?
In other news, “The upcoming launch of FedNow might present more payments competition for the ACH Network, but Nacha CEO Jane Larimer largely envisions that forthcoming real-time service meeting different payment needs,” Payments Dive reported.
The article quoted Jane Larimer NACHA CEO:
On one level, every payments system competes against each other, right?’ Larimer said. She and William Sullivan, Nacha’s senior director and group manager of government and industry relations, discussed electronic payment developments with KPMG Managing Director Mindy Mayo at the American Payroll Association’s conference in Arlington, Virginia this week.
Competition aside, there are payment system attributes that appeal to users in different scenarios. As the public and private sectors both work to speed up payments, FedNow is likely to fill gaps left by the ACH Network, Larimer said.
In other real-time payments news, PYMNTS released new intelligence on how organizations deliver on faster payments.
According to the March 23 report:
- Customers and merchants expect their payments to be faster with 77 percent of respondents saying they expect instantaneous payments and 58 percent saying they expect to make online payments in one click.
- Friction is rampant in many digital payment experiences with 52 percent of consumers saying they encountered at least one pain point when making a digital payment in the last 90 days. Further, 29 percent of consumers said they experienced multiple pain points when making a digital payment in the last 90 days.
- Younger generations are particularly interested in leveraging faster payments with 61 percent of Millennials said they are “highly interested” in real-time payments. In addition, 59 percent of bridge Millennials said they are “highly interested” in real-time payments.
To learn more, download the full report.
As reported by WMAR-2 News, a Baltimore-based news station, “Early Warnings Services, LLC, the network operator of Zelle, the peer-to-peer payment service offered by major banks, confirmed it’s revising its rules to better protect users from fraud schemes.”
Specifically, a spokesman for Zelle told the news station:
I can confirm that Zelle is revising its network rules as part of ongoing efforts to protect users against the most recent fraudulent schemes. We will not issue details because we then risk tipping off the fraudsters.
“Although federal law requires banks to reimburse fraud victims, banks have argued that they only have to cover unauthorized transfers,” said the news outlet. “If a customer sends the money, even under false pretenses, the bank is not responsible for reimbursing the victim.”
On March 22, Panera Bread announced its planned rollout of Amazon One as a loyalty identification for MyPanera, its industry-leading loyalty program with 52+ million members, and a contactless payment method, according to a company news release. The technology is deployed at select bakery-cafes in Panera’s hometown of St. Louis with plans to expand to additional locations in the coming months. Panera is the first national restaurant company to use Amazon One as both a way for guests to pay and access their loyalty account with a scan of their palm.
According to the release:
Amazon One will bring an even more personalized touch to the Panera dining experience. Guests who link their MyPanera account to Amazon One will enjoy the convenience of fast payments, as well as tailored meal recommendations from Panera associates based on their preferences and previous orders. After a simple scan of the palm, Panera associates will be able to greet guests by name, communicate their available rewards, reorder their favorite menu items, or take another order of their choice, extending the guest experience into a true and meaningful relationship. When they are done ordering, guests can simply scan their palm again to pay.
“Collaborating with Amazon Web Services to bring this service into our bakery-cafes is a natural extension of the tech-forward, guest-centric digital thinking that Panera is known for,” said Niren Chaudhary, CEO of Panera Bread and Panera Brands in the release. “Our philosophy has been centered around leveraging best-in-class technology to create a better Panera experience and using that to deepen our relationship with our loyal guests. Introducing Amazon One, as a frictionless, personalized, and convenient service, is another way we’re redefining the loyalty experience.”
Join us on May 22-23 at the Foxwoods Resort and Casino in Ledyard, CT, for NEACH’s 2023 Payments Management Conference, the region’s most established and respected payments conference. You can join countless payments professionals in gathering for two days filled with education, networking, and opportunity. Attendees will include payments executives, strategists, managers, consultants, analysts, technologists, operations, and more!
You can register for NEACH’s 2023 Payments Management Conference here.
AUTHOR: Joe Casali, AAP, NCP
Executive Vice President
As the EVP of Payments Innovation for NEACH, Joe focuses on exploring innovative solutions and technologies that will help position members for success, both now and in the future. Connect with Joe to read more of his blogs, articles, and posts.