July 2022 Innovating Payments Executive Summary — Fed Prioritizes FedNow(SM) Service, Delays Launch of Fedwire Funds Service Message Format

Welcome to the July 2022 Innovating Payments Executive Summary. Topping this month’s headlines, the Federal Reserve announced it is moving the implementation date of the new Fedwire Funds Service message format from November 2023 to March 10, 2025, to prioritize the FedNow^SM Service, which they expect to launch in 2023. A new PYMNTS report, released in collaboration with Mastercard, reveals that large-market firms make and receive nearly twice as many real-time payments as mid-market firms, placing smaller firms at a competitive disadvantage.

In other news, PayPal announced that select U.S. users can now transfer, send, and receive Bitcoin, Ethereum, Bitcoin Cash, and Litecoin cryptocurrencies between PayPal and other wallets and exchanges. Nacha announced a partnership with Phixius and Aliaswire to enable financial institutions, FinTechs, and businesses to originate a small volume of ACH transactions to comply with Nacha's WEB Debit Account Validation Rule. Mark Zuckerberg also announced that Facebook Pay will become Meta Pay. Meta (formerly Facebook) will also be adding a wallet that lets you securely manage your identity, what you own, and how you pay.

Read on to learn more.

The Federal Reserve

The Federal Reserve Board, on June 27, announced the final timeline and implementation details for adopting a new Fedwire Funds Service message format. The final details are broadly similar to the proposal issued last year. The reason for the delay, according to PYMNTS, is that the Fed is prioritizing the implementation of its new real-time payment network—the FedNow^(SM) Service, which they expect to launch in 2023.

The Board confirmed that the new message format, ISO 20022, will be adopted on a single day as proposed last year, rather than in three separate phases. The Board also provided a new timeline for implementation based on a review of public comments, with the new message format to be adopted on March 10, 2025. In addition, the Board provided further information regarding customer testing and other implementation details.

“The board believes that shifting the implementation date for the migration of the Fedwire Funds Service to the ISO 20022 format to March 10, 2025, rather than targeting November 2023 as proposed, should mitigate commenters’ concerns regarding resource constraints in light of the launch of the FedNow Service,” the Fed board told PYMNTS. 

Real-Time Payments

New Report Finds Large U.S. Firms Make and Receive Nearly Twice as Many Real-time Payments as Mid-Market U.S. Firms

A report released by PYMNTS in collaboration with Mastercard revealed that "large-market U.S. firms make and receive nearly twice as many real-time payments as mid-market U.S. firms. This could put mid-market firms at a competitive disadvantage as many are not taking full advantage of real-time payments' benefits, such as better cash flow management and 24/7 year-round access.”

According to the report, Accelerating the Time to Realized Revenue: The Real-Time Payments Edition, large-market U.S. businesses use real-time payments rails in 7.9 percent of the payments received and 8.6 percent of the payments made. By contrast, the average mid-market U.S. firm receives 4.3 percent of its payments and makes 4.3 percent of its payments via real-time payment rails. "This signals that mid-sized U.S. firms are twice as likely as their larger counterparts to be forgoing any operational benefits they stand to gain from adopting real-time payments," concludes the report. 

Misconceptions about fraud risk are top of mind in preventing mid-size businesses from adopting real-time payments, although it is not a concern among companies that use these payments. Eighty-four percent of U.S. businesses that currently use real-time payments say that fraud is not an issue when using real-time payments.

Sixty-nine percent of survey respondents cited fear of irrevocability as their greatest concern. When instances of fraud do occur, they are more challenging to resolve, says the report.

To download the full report, click here.

Cryptocurrency

PayPal Users Can Now Transfer, Send, and Receive Bitcoin, Ethereum, Bitcoin Cash, and Litecoin

Also making headlines, PayPal announced on June 28 that it now supports the native transfer of cryptocurrencies between PayPal and other wallets and exchanges. Users have consistently ranked this feature as one of the most requested enhancements since we began offering the purchase of crypto on our platform, the release stated.

Available now to select U.S. users starting today and rolling out to all eligible U.S. customers in the coming weeks, this new functionality lets PayPal customers transfer supported coins into PayPal. In addition, customers can move crypto from PayPal to external crypto addresses, including exchanges and hardware wallets, and send crypto to family and friends via PayPal in seconds, with no fees or network charges to send or receive.

“Allowing PayPal customers the flexibility to move their crypto assets (Bitcoin, Ethereum, Bitcoin Cash, or Litecoin) into, outside of, and within our PayPal platform reflects the continuing evolution of our best-in-class platform and enables customers to interact with the broader crypto ecosystem,” Jose Fernandez da Ponte, Senior Vice President and General Manager, Blockchain, Crypto & Digital Currencies, PayPal, said in the release. “Customers who transfer their crypto into PayPal can extend the utility of their crypto by spending using our Checkout with Crypto product at millions of merchants.”

Nacha

On June 6, Nacha announced a partnership with Phixius and Aliaswire that will enable financial institutions, fintechs, and businesses that originate a small volume of ACH transactions to comply with Nacha’s WEB Debit Account Validation Rule, according to a Nacha news release. Phixius by Nacha is a trusted peer-to-peer network for the efficient and safe exchange and verification of payment-related information. The partnership will enable lower-volume ACH users to utilize Phixius as a safe, secure and fast option to verify the routing and account numbers for ACH payments.

"Many smaller organizations came to Nacha looking for options to comply with the WEB Debit Account Validation Rule and validate account information," George Throckmorton, Managing Director of Strategic Initiatives & Network Development at Nacha, who oversees Phixius, said in the release. “The partnership with Aliaswire will ensure that all financial institutions, fintechs, and businesses offering consumer ACH debits will have a reliable option to verify the consumers' account information in compliance with the Nacha Rule."

Interested organizations should complete the Phixius Interest Form.

In Other News

Facebook Pay Rebrands as Meta Pay

On June 22, Mark Zuckerberg announced on Facebook that Meta (formerly Facebook) is changing Facebook Pay to Meta Pay to align with last year’s company rebrand. Meta Pay will fulfill the same functions as Facebook Pay did previously. However, the company will be adding “a wallet for the metaverse that lets you securely manage your identity, what you own, and how you pay.”

Zuckerberg wrote:

In the future, there will be all sorts of digital items you might want to create or buy -- digital clothing, art, videos, music, experiences, virtual events, and more. Proof of ownership will be important, especially if you want to take some items with you across different services.

"Ideally, you should be able to sign into any metaverse experience, and everything you've bought should be right there," he said. While significant work remains, this interoperability should deliver a better customer experience and greater opportunities for creators.

The First FinTech to Receive a National Bank Charter Faces Cash Crunch

In other news, Varo, the first FinTech to receive a national bank charter, is now facing a cash crunch, said Forbes.

“Since raising $510 million at a $2.5 billion valuation last September, it [Varo] has been burning through that money quickly, losing $84 million last quarter alone,” reported Forbes. “The bank has less than $263 million of that $510 million left, and if it were to continue spending at its current rate, it would be insolvent in about nine months.” While a Varo spokesperson told Forbes that these figures are "inaccurate and incomplete," the spokesperson "declined to provide different numbers."

If Varo hopes to turn things around in the ongoing market downturn, some severe cost reductions will be essential to keep the bank afloat, said Forbes.

FTC Sues Walmart for Facilitating Money Transfer Fraud

“On June 28, the Federal Trade Commission (FTC) sued Walmart for allowing its money transfer services to be used by fraudsters, who fleeced consumers out of hundreds of millions of dollars,” according to a company news release.

“In its lawsuit, the FTC alleges that for years, the company turned a blind eye while scammers took advantage of its failure to properly secure the money transfer services offered at Walmart stores,” stated the release. “The company did not properly train its employees, failed to warn customers, and used procedures that allowed fraudsters to cash out at its stores. The FTC is asking the court to order Walmart to return money to consumers and to impose civil penalties for Walmart's violations.”

To read the release in its entirety, click here.

NEACH—Your Strategic Partner

We invite you to join us for our Annual Summer Member Meeting on Wednesday, August 17, from the comfort of your workspace. Member Meetings are great for networking, exchanging information, and getting real value in an interactive environment. Enjoy fair games and prizes, sessions on check fraud and mail theft and faster payments, and a special update from NEACH.

Reserve your seat and register today!