A panel moderated by Reed Luhtanen, Executive Director, Faster Payments Council: Featuring Jim Colassano, Senior Vice President, Product Development and Strategy, The Clearing House; Gail Hillebrand, Representative, National Consumers League; Kevin Miyamoto, Co-founder and Chief Operations Officer, Identifee; and Scott Green, Manager, Product Innovation, SHAZAM.
The world we live in now is different than the world just a few years ago. Customers, both B2B and B2C expect instant, on-demand access to payments—and it’s no longer a new thing. However, financial institution (FI) needs are supported by payment systems that are about 50 years old, which don’t fit all of today’s purposes, said moderator Reed Luhtanen at the panel he hosted at NEACH’s Future of Payments Symposium II in December 2022.
RTP and the FedNow service are the first new payment rails in decades, and they’re not your parents’ payment systems, Luhtanen added. Yet as FI implement faster payment systems, they still face enablement challenges.
Luhtanen spoke with panel members about the key issues that face faster payments today.
Luhtanen: Jim, let’s start with you. Can you share some information about the current market status for RTP and level-set on what the market is like right now?
Colassano: We have been in market for about five years now. In the last quarter, we have seen about 50 million transactions processed over our network, and we have been growing at a 10 percent clip over the last 16 quarters. We are up to 290 banks on the network and increasing daily; over 90 percent of the banks on the network are community banks and credit unions.
All owner banks were connected early on and pre-integrated with several core providers to make it easier for community banks and credit unions to integrate. We have about 125,000 distinct business originators and about three million consumer originators. Also, we increased the limit for individual transactions to $1 million.
The biggest surprise has been in the payroll space. Gig economy payments are set up using RTP. Early wage access is a good alternative to payday loans. We’ve also seen growth in volume; RTP can support just about every use case out there—consumer, business, we are seeing all that manifest in the network, and we see limitless potential applications as the market expands.
Luhtanen: Scott, SHAZAM has been looking at this from a few different angles: You’re operating a network of your own, but you are also serving FIs around the network. Can you talk about that network and how technology providers such as SHAZAM might help FIs who want to get connected to faster payments?
Green: We are a payment brand, and we have our own rails for faster payments, but we are also a service provider and can provide access to a variety of rails. That’s one way a provider can help; there are efficiencies that can be gained from connectivity like that, such as core providers, a software provider, or a digital/mobile banking provider. FIs can also work with providers who handle user interfaces and processes to do risk management and fraud control. Some providers offer APIs to integrate with nonbank service providers, also.
Luhtanen: Kevin, there is also all this information generated to make the services better. How would you rate the current financial services capabilities regarding data and how can they leverage it?
Miyamoto: When it comes to current capabilities, it’s pretty inconsistent and not that good.
We typically see FI in one of three buckets:
1. They have some tools to make better data-driven decisions, but these platforms aren’t really user-friendly, so they aren’t using them.
2. The FI has a bunch of raw data and is putting it into Excel and analyzing it that way, but that is such a manual process. It’s also prone to errors and takes forever.
3. The FI has a ton of data, but not doing anything with it because it’s overwhelming.
The biggest challenge is that data isn’t being effectively communicated to client-facing representatives. Say your FI rolls out RTP, but now what do you do? How do you sell it? Who are the right leads? FIs have the data, but if it isn’t being shared with the folks who talk to customers, it’s kind of worthless.
We see a lot of FIs tracking every single data point, but if everything is important, then nothing is important.
FIs should pick out 5-10 KPIs that are important so they can be tracked and quantified. The other thing with data is that buying behavior has changed; COVID accelerated that. When you think about customers, they want something really easy and really specific to them. The only way you are going to get that recommendation engine is by leveraging data—and that’s why it’s so important.
Luhtanen: Gail, there are services in the market, and FIs are making them available to businesses and consumers, but are they really ready for it?
Hillebrand: Even though people want to see fast, they also want to see right.
Here’s an example: AARP did a 2021 survey, and most of those surveyed thought they could get their money back if they sent it to the wrong person through a P2P app. As these apps hit the mainstream, we are going to see extension beyond smaller dollar amounts.
Just because the payment is irrevocable doesn’t mean there is no obligation; the customer has a right to get information about electronic transactions. There’s a tremendous role for networks we haven’t seen before. The FI might only see one customer, but the network will see the patterns of where the money is going.
Luhtanen: I want to ask the group: Is there a formalized process for FIs to report fraud so the network knows about it?
Colassano: Our network has an obligation for banks to report any fraud they see within the FI today. That’s a requirement that’s already there, but it’s for unauthorized fraud. In 2023 we’re expanding that to cover both unauthorized and authorized fraud.
Hillebrand: FedNow has a similar requirement where they require reporting of authorized payment fraud and investigations by both the sending and recipient FI.
Luhtanen: Gail, what do you see as the big needs for faster payments meeting consumer needs but ensuring safeguards?
Gail: I want to see an arms race between Zelle, RTP, FedNow, and all the networks to have the best broad-sided system. It’s also good for everyone if we can get rid of silos. That’s a big hope I have.
I’d say FIs need a few things to get ready: If you are a receiving FI, you want to build in ways to monitor the account. FIs have processes in place; for example, if it’s an unusual transaction you have to investigate it and if it’s fraud you have to report it. I hope we will see something similar from RTP.
Customers are going to be looking for mediation policies, so if we put the liability inside the system and spread the cost over many users other than the people who got tricked—that’s a reason consumer advocates like liability inside the system.
Luhtanen: Looking ahead, Jim, what is coming down the pike for RTP?
I’d say three things are top of mind for RTP this year:
1. Non-financial messaging. Most of the focus has been around the payment itself: making it, the credit transfer, etc. But in early 2023, we will be introducing a request for payment, a non-financial message you can originate through a bank, like a utility bill. They can send you information on the amount that’s due and you can say pay it and it will go through the account, but control remains in the customer’s hands. You get that instant debit and credit. It’s good for B2B use cases.
2. Information. We will be introducing a document exchange service akin to a secure deposit repository, similar to how you get images of your check. An organization would send an image of an invoice which goes to the bank bill pay experience and will pop up to bill. This can be done for both B2B and B2C transactions.
3. Cross-border instant payments. This is the holy grail of payments. We are piloting the interlinking of real-time payments systems for the Euro and U.S. dollar. In a test run, it took four seconds. That’s impressive. We’ll be doing more work on this in 2023.
Luhtanen: Kevin, what are the needs in the marketplace in terms of understanding faster payments and ISO20022 messaging?
Miyamoto: It all comes down to education. If you were to poll people, 99% of them have no idea what ISO20022 is. You might as well say C3PO or R2D2.
So, is an FI doing a good job of educating internal employees? If not, then they definitely aren’t educating their customers. When we ask FI employees if they feel they’re being educated on faster payments, the answer is usually no. But there’s a huge opportunity in education methods such as short, You Tube-style videos to educate both employees and customers.
Luhtanen: Scott, what do you see as the need for faster payments to really take off?
Green: Continued maturation of the systems that support faster payments. Work needs to be done by cores and digital banking partners. In bill pay, for example, there are changes that need to be done, and those types of changes can cause a ripple effect with both B2B and B2C users. Mobile phones or kiosks maybe have new sorts of interactions. There are touch points like QR codes to extend reaction to users. Those are developments that will need to catch up with the rails.
These are irrevocable payments, and we want to do fraud detection as best we can, but we still need authentication of the recipient credentials without some sort of centralized repository. We don’t have to worry as much about fraud detection if we are validating the credentials.
Luhtanen: What are your final thoughts on faster payments?
Colassano: If you aren’t in the game right now, get in. There are so many resources available to you. Join the RTP network, the FedNow network: It’s the future of payments. Don’t be afraid of it; there are ways to mitigate fraud risk and so many smart people are available to help.
Green: I would build off that and say there is a whole tier of service providers, vendors, and processors who can help you with faster payments implementations.
Miyamoto: From the product standpoint, if you are an FI, if you build a product, will the customers come? They don’t automatically, so how do you make better data-driven decisions to target the right customers? Everyone is excited about faster payments, but think holistically about what it means to your whole organization.
Hillebrand: If you are an FI, the customer will trust the network because you are offering it to them. That’s your obligation. Now is the time to get ready for it.
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.