The Federal Reserve released its FedNow Service pricing approach and credit transfer limit late last month. It includes a monthly participation fee, a credit transfer fee, and a request for payment fee, along with a transfer transaction value limit of $500,000. This follows the Fed’s announcement of its white paper, Money and Payments: The U.S. Dollar in the Age of Digital Transformation, which examines the pros and cons of a potential U.S. central bank digital currency, or CBDC. Also, the Federal Reserve Bank of Boston and the Digital Currency Initiative at the Massachusetts Institute of Technology released the findings of their initial technological research into a central bank digital currency, or CBDC.
In other news, Walmart revealed it has entered into definitive agreements to acquire FinTech platforms Even and One, helping it become a neobank. Omer Ismail, the incoming CEO of ONE, told The Wall Street Journal: “The strategy is to build a financial services super app, a single place for consumers to manage their money.”
Also happening this month, Nacha released its 2021 volume and value amounts, and the Federal Deposit Insurance Corporation (FDIC) and the Financial Crimes Enforcement Network (FinCEN) opened registration for interested parties to participate in a new Tech Sprint. Venmo announced a new feature that allows customers to gift money to friends and family.
Read on to learn more.
Top Headlines
Federal Reserve Announces FedNow(SM) Service Pricing Approach
On January 27, the Federal Reserve announced its much-anticipated FedNow Service pricing approach and credit transfer limit. According to the news release, the 2023 FedNow Service fee schedule to be published later in 2022 will likely include the following fees and other pricing information:
A monthly $25 participation fee for each receiving routing transit number
- 5 cents per credit transfer to be paid by the sender
- 1 cent for a request for payment message, paid by the requestor
The planned FedNow Service’s credit transfer transaction value limit will be $500,000. Participants will have a default limit of $100,000, with the option to adjust it up or down. The Federal Reserve will evaluate the credit transfer limit on an ongoing basis and adjust as appropriate.
“Insights from our financial institution customers and pilot program participants continue to help us define FedNow Service pricing and transfer limits to achieve our goal of an accessible, competitive service that supports a wide array of use cases and innovation,” said Ken Montgomery, Federal Reserve Bank of Boston interim president, chief executive officer, and FedNow program executive, in the release.
Federal Reserve Releases White Paper on Central Bank Digital Currency
The Federal Reserve announced the release of its white paper, Money and Payments: The U.S. Dollar in the Age of Digital Transformation, which examines the pros and cons of a potential U.S. central bank digital currency, or CBDC. According to the Fed, the paper is the first step in a discussion of whether and how a CBDC could improve the safe and efficient domestic payments system.
“The paper summarizes the current state of the domestic payments system and discusses the different types of digital payment methods and assets that have emerged in recent years, including stablecoins and other cryptocurrencies,” reports the Fed. “It concludes by examining the potential benefits and risks of a CBDC, and identifies specific policy considerations.”
To fully evaluate a potential CBDC, Money and Payments: The U.S. Dollar in the Age of Digital Transformation (PDF) asks for public comment on more than 20 questions. Comments will be accepted for 120 days and can be submitted here. Parties may also email questions related to CBDC and the discussion paper to: Digital-innovations@frb.gov.
Federal Reserve Bank of Boston and MIT Release Research on Central Bank Digital Currency
In related news, the Federal Reserve Bank of Boston and the Digital Currency Initiative at the Massachusetts Institute of Technology released their findings of their initial technological research into a central bank digital currency, or CBDC.
According to the release:
The published research describes a theoretical high-performance and resilient transaction processor for a CBDC that was developed using open-source research software, OpenCBDC. This collaborative effort, known as Project Hamilton, focuses on technological experimentation and does not aim to create a usable CBDC for the United States. The research is separate from the Federal Reserve's Board's evaluation of the pros and cons of a CBDC.
To read the Project Hamilton Phase 1 Executive Summary, click here.
NEACH Crypto Currency and Developments in Banking Product Development Survey
As of January 2022, the total global market capitalization of all cryptocurrencies totaled $2.05 trillion, equating it in size to the world’s eighth largest economy. We’re at a tipping point, solidifying cryptocurrency’s place as an emerging financial services solution. No longer can it be considered an outlier offering; FIs must evaluate it more seriously as a piece of the product puzzle.
To that end, NEACH is currently working on creating new resources that will help members better navigate crypto currency and bank digital assets. Your opinions and feedback are two of the most important factors that help us validate these important decisions. Please take a few moments to complete the survey to help us come out with great products just for you. If you feel others in your organization would benefit from these types of future resources, please forward the survey to them. Thank you for your participation.
Take the NEACH Crypto Currency and Developments in Banking Product Development Survey here.
Walmart-Backed FinTech is Building a Super-App, Complete with a Neobank
On January 26, Walmart revealed it has entered into definitive agreements to acquire FinTech platforms Even and One, helping it become a neobank. “The transactions, which are expected to close in the first half of 2022 pending approvals, equip the combined business with immediate momentum in its strategy to deliver a single financial services app that empowers consumers to get paid, spend, save, borrow and grow their money,” the news release said.
It goes on to say, "The combined business, which will operate under the brand name ONE, will provide users with an all-in-one financial services app to holistically manage their finances in one place. The company’s products and services will be made available directly to consumers and through employers and merchants, including access to Walmart’s 1.6 million U.S. associates and 100 million-plus weekly shoppers."
“Consumers everywhere are being left behind by the world of financial services,” said Omer Ismail, incoming CEO of ONE, in the release. “Our vision is clear: build on Even and ONE’s success to offer a product that offers consumers the best way to spend, the best way to access their wages and helps millions save and grow their money.”
Ismail, a Marcus by Goldman Sachs alum, told The Wall Street Journal that “the strategy is to build a financial services super app, a single place for consumers to manage their money.”
To read the full release, click here.
FDIC and FINCEN
On February 1, 2022, the Federal Deposit Insurance Corporation (FDIC) and the Financial Crimes Enforcement Network (FinCEN) opened the registration period for interested parties to participate in a Tech Sprint to help measure the effectiveness of digital identity proofing—the process used to collect, validate, and verify information about a person, according to a joint news release. The release further states:
Through the Tech Sprint, FDIC's tech lab (FDITECH) and FinCEN seek to increase efficiency and account security; reduce fraud and other forms of identity-related crime, money laundering, and terrorist financing; and foster customer confidence in the digital banking environment. Read more about FDIC and FinCEN's Tech Sprint, Measuring the Effectiveness of Digital Identity Proofing for Digital Financial Services.
Digital identity proofing is a foundational element to enable digital financial services to function correctly. The proliferation of compromised personally identifiable information (PII), the increasing use of synthetic identities, and the presence of multiple, varied approaches for identity proofing challenge this element. The FDIC and FinCEN seek participants to answer the following question:
Individuals interested in participating may submit their applications by 5 p.m. ET on February 15, 2022. Send questions about the Tech Sprint to Innovation@FDIC.gov.
Nacha
On February 3, Nacha released its ACH Network volume and value for 2021. According to the release, the ACH Network experienced significant growth in 2021, with 29.1 billion payments valued at $72.6 trillion, and Same Day ACH payment volume grew nearly 74%. Further, "ACH Network payment volume was up 8.7%, or 2.3 billion, over 2020, marking the seventh consecutive year volume grew by at least 1 billion payments. The value of those payments rose 17.4%, or $10.8 trillion, making 2021 the ninth straight year to see a payment value increase of at least $1 trillion. Among the sectors experiencing tremendous growth in 2021 was business-to-business (B2B). The 5.3 billion B2B payments—valued at $50 trillion—reflect a 20.4% increase from 2020, as the pandemic fast-tracked businesses’ switch to ACH payments. Over just the past two years, ACH B2B payments are up 33.2%."
“Working with our partners in government, at financial institutions, and the ACH Operators, the ACH Network last year seamlessly handled 143 million economic impact payments, 182 million Advance Child Tax Credit (ACTC) payments, and hundreds of millions of unemployment benefits, all by Direct Deposit. These payments brought help to Americans at a time when they needed it most,” said Jane Larimer, Nacha President, and CEO.
In Other News
Venmo
On January 13, Venmo introduced a new way for customers to gift money to friends and family for any occasion, big or small, through its new gift-wrapping feature, reported PayPal. Venmo's latest feature gives customers access to eight unique and vibrant animated gift-wrap designs that they can add to a payment note for no additional cost.
"Gifting money through Venmo to say 'thanks' or 'just because is something the majority of our community does year-round, not just during holidays and special occasions," Darrell Esch, SVP and GM, Venmo, noted in the release. "The present emoji was one of the top ten emojis customers used in their payment notes in 2021.”
Currently available to select customers only, the new gift-wrapping feature will be available for all coming weeks.
Association of Finance Professionals (AFP) B2B Survey
The 2022 AFP Payments Cost Benchmarking Survey, underwritten by Corpay, reports that median check volumes have dropped by approximately half since 2015. However, the survey reveals that the increase in ACH transactions offsets check volume.
“The findings of this survey confirm that paper checks continue to be considerably more expensive than some electronic payment methods." In the news release, Jim Kaitz, president and CEO of AFP, said. "As the coronavirus pandemic unfolded, companies sought more streamlined and efficient payments processes, which accelerated the transition to digital payments. It will be interesting to see how payment types evolve as the pandemic continues and new real-time payment rails become more established."
Other key findings include:
- Median costs to issue and receive paper checks remain unchanged since 2015 at $2-$4 and $1-$2 per check, respectively, while costs to initiate and receive ACH transactions are far less at $0.26-$0.50 per transaction.
- Seventy-three percent of organizations are currently transitioning their B2B payments from paper checks to electronic payments. This figure is less than the 79 percent of respondents who reported their organizations were shifting from checks to electronic payments in the 2015 AFP Payments Cost Benchmarking Survey.
- Awareness of real-time payments cost is low, with less than half of respondents indicating they understand payments costs, while almost one-fourth admits to not having any knowledge about the cost of real-time payments.
"It's clear the thought process around business payments continues to evolve. While paper checks remain a popular payment method in B2B payments, the pandemic has accelerated a major shift and pushed companies toward fully automating payments," John Coughlin, President of Corpay, a FLEETCOR Company, noted in the release. "The last few years have demonstrated that electronic payments streamline operations and allow companies to close transactions and receive funds faster, without the traditional bottlenecks from previous processes such as paper checks."
You can find a complete summary of the survey here.
NEACH
NEACH remains at the forefront of these and other industry developments and will continue to keep you updated through our member communications and our NEACH Members Corner and Innovating Payments websites.
And if you've not yet done so, check out NEACH's new white paper, The New Role of Operations: Exploring Channels, Talent, Innovation, Collaboration, and Risk in a Complex World, on neach.org.
This white paper, co-authored by NEACH and The New Role of Operations Workgroup, addresses the disruption of COVID-19 on operations by defining the new role of operations, identifying the challenges facing operations today, highlighting new opportunities in operations, and concluding with specific actions financial institutions may want to consider as they navigate the "new normal."
Click here to download a copy of the white paper today.
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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.
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