Welcome to the July 2023 Innovating Payments Executive Summary. In this issue, the Fed announced that 57 early adopter organizations have completed formal testing and certification before the FedNow Service’s planned launch in late July. In other news, the Federal Trade Commission (FTC) filed an amended complaint furthering the agency's complaint against Walmart for allowing scammers to use its money transfer services to fleece consumers out of hundreds of millions of dollars. Also in the news, the Consumer Financial Protection Bureau (CFPB) said it has fined payments provider ACI Worldwide Inc. $25 million for erroneously debiting $2.3 billion in mortgage payments from nearly 500,000 through the automated clearing house network in 2021.
Also, small and midsize businesses (SMBs) are interested in exploring real-time payments and settlements, providing new opportunities for financial institutions. In addition, financial institutions are leveraging the cloud for everything from strengthening cybersecurity to enhancing fraud detection capabilities.
Read on for more on this month’s top headlines.
Federal Reserve Announces FedNow(SM) Early Adopter Organizations
On June 29, the Federal Reserve announced that 57 early adopter organizations, including financial institutions and service providers, have completed formal testing and certification before the FedNow Service's launch planned for late July, according to a Federal Reserve news release. The list includes three New England financial institutions: Avidia Bank, Eastern Corporate Federal Credit Union, and Salem Five Bank.
"We are on track for the FedNow Service launch, with a strong cohort of financial institutions and service providers of all sizes in the process of completing the final round of readiness testing," said Ken Montgomery, first vice president of the Federal Reserve Bank of Boston and FedNow program executive in the news release. "With go-live nearing, financial institutions and their industry partners should be confident in moving forward with plans to join the network of organizations participating in the FedNow Service."
Over time, the Fed expects financial institutions to adopt and build on the FedNow Service. Montgomery noted in the release that as a platform for innovation, the FedNow Service intends to support multiple use cases, including account-to-account transfer, requests for payment, bill pay, and others.
The Fed continues to work with and onboard financial institutions planning to join later in 2023 and beyond, to grow a robust network aimed at reaching all 10,0000 U.S. financial institutions.
Federal Trade Commission
“The Federal Trade Commission filed an amended complaint bolstering the agency’s case that Walmart allowed its money transfer services to be used by scammers, who fleeced consumers out of hundreds of millions of dollars,” according to a news release.
As noted in the release:
According to the amended complaint, Walmart for years turned a blind eye while scammers took advantage of its failure to properly secure the money transfer services offered at Walmart stores. According to the FTC's complaint, Walmart did not properly train its employees, failed to warn customers, and used procedures that allowed scammers to cash out at its stores.
Money transfers are frequently used by fraudsters across a wide variety of scams because they are nearly impossible to retrieve after the money has been picked up. The amended complaint cites numerous instances in which scammers relied on Walmart money transfers as a primary way to receive payments, including in telemarketing schemes such as sweepstakes scams, advance-fee loan scams, IRS impersonation schemes, relative-in-need “grandparent” scams, and others.
The Commission voted to authorize staff to file the amended complaint in the U.S. District Court for the Northern District of Illinois 3-0, noted the FTC.
Consumer Financial Protection Bureau
According to Digital Transactions, the Consumer Financial Protection Bureau said it had fined payments provider ACI Worldwide Inc. $25 million for erroneously debiting from nearly 500,000 homeowners a total of $2.3 billion in mortgage payments through the automated clearing house network in 2021.
ACI’s data handling practices negatively impacted nearly 500,000 homeowners with mortgages serviced by Mr. Cooper (formerly known as Nationstar), according to a CFPB news release. By unlawfully processing erroneous and unauthorized transactions, ACI opened homeowners to overdraft and insufficient funds fees from their financial institutions.
“The CFPB’s investigation found that ACI perpetrated the 2021 Mr. Cooper mortgage fiasco that impacted homeowners across the country,” said CFPB Director Rohit Chopra in the release. “While borrower accounts have now been fixed, we are penalizing ACI for its unlawful actions that created headaches for hundreds of thousands of borrowers.”
According to CFPB, “ACI’s actions violated federal consumer financial protection laws, including the Consumer Financial Protection Act and the Electronic Fund Transfer Act.”
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SMBs want to explore real-time payments and settlements to improve cash flow, customer loyalty, and the bottom line. According to PYMNTS’ Real-Time Payments Tracker, “A recent study found that 59% of SMBs required easy and effective cross-border payments, 57% said they desired process automation and optimization, and 55% demanded real-time payments processing and settlement.”
Real-time payments empower SMBs to send payments to their suppliers more efficiently and foster customer loyalty by meeting the increasing demand for diverse payment choices. In addition, 61% of millennials expressed interest in faster payment options, as they appreciate the convenience and the ability to manage their financial situations more effectively.
According to the Real-Time Tracker, SMBs are also actively exploring innovative payment solutions for their customers. For instance, 82% of SMBs nationwide already accept peer-to-peer options like Zelle, with an overwhelming 92% expressing satisfaction with their experiences. Extending this adoption to real-time transactions is a natural progression and can significantly boost sales for SMBs.
Financial Institutions Leveraging the Cloud
According to the July issue of PYMNTS’ Digital-First Banking Tracker Series — Tapping the Cloud for Accelerated Banking Innovation — more than half (51%) of banks adopting cloud technology are doing so to strengthen cybersecurity. Additionally, 39% are aiming to enhance fraud detection capabilities, while 34% are focusing on improving claims management. All three objectives greatly benefit from cloud technology's advanced data science capabilities, with 34% of financial institutions citing this as a core benefit.
According to the Tracker, the primary benefits to financial institutions leveraging cloud banking include enhanced abilities to:
· Automate processes
· Apply advanced analytics to data
· Embed partners, i.e., FinTechs
· Develop new products and services
· Lower IT and operating costs
While cloud infrastructure implements processes more swiftly than traditional, legacy systems, it is costly. In addition, financial institutions must consider how cloud banking could support their business and strategic plans.
To learn more about these and other emerging payments topics, be sure to check out NEACH's new Wrestling Payments podcast. Wrestling Payments is a podcast for professionals at banks, credit unions, and FinTechs responsible for managing ACH and payment operations. In each episode, members of NEACH guide conversations to help professionals examine the challenges of modernizing payment operations. Ultimately, the stories uncovered through guest interviews and solo episodes will highlight industry trends and identify how organizations can build their payment operations for the future.
Click here to learn more.
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.