Welcome to the February 2023 Innovating Payments Executive Summary. In this month’s headlines, the Federal Reserve says it intends to help financial institutions “raise the bar” on fraud management with the release of the FedNow(SM)Service later this year. In other news from the Fed, the Federal Reserve Board issued a statement saying both insured and uninsured financial institutions will have imposed limits on certain activities related to cryptocurrencies.
Meanwhile, instant payments continue to make headlines with news of early wage access being a top use case for instant payments, a critical benefit for many gig workers and younger employees. Businesses also show a strong preference for instant payments, with 61 percent saying they expect a competitive advantage with instant payments.
Also, in this month's issue, PayPal and Venmo are now available as trusted payment methods within QuickBooks, joining Apple Pay, credit and debit cards, and ACH transfers. America’s biggest banks also are reportedly launching a digital wallet that will compete with Apple and PayPal. Bank of America, JP Morgan Chase, Wells Fargo, and others, says the Wall Street Journal, are developing a product that will allow consumers to make online purchases with a wallet tied to their Visa or Mastercard debit or credit cards.
Read on to learn more.
FedNow Says Features Will Help FIs “Raise the Bar” on Fraud Management
The Federal Reserve’s FedNow Service, expected to launch later this year, will include features that will help “raise the bar” on mitigating fraud. Nick Stanescu, Senior Vice President and FedNow business executive, Federal Reserve Financial Services, told PYMNTS that fraud management features are a high priority for FIs and are being tested along with transaction flows.
The Fed will release additional fraud measures in 2024. The features under consideration, reports PYMNTS, include the ability to fine-tune controls for different customers and screen non-value messages and a feature that "would enable financial institutions to activate a control setting that rejects payments that exhibit unusual frequency patterns or cumulative value over a period of time."
“The schemes are mutating as the payment system evolves, and it will be critical for payments stakeholders to work together in order to minimize risks,” Stanescu told PYMNTS.
Education will remain a critical component in the war against fraud. Financial institutions can find tools and resources on the FedNow Explorer site.
Fed Says Insured and Uninsured Banks Will be Subject to Limits on Certain Activities Associated with Crypto Assets
In other news, “The United States Federal Reserve Board issued a statement on Jan. 27, saying that both insured and uninsured banks will be subjected to limits on certain activities, including those associated with crypto assets," reported Bitcoin.com. According to the statement, “The equal treatment will promote a level playing field and limit regulatory arbitrage.”
"The statement reiterates that banks must both ensure that the activities they engage in are allowed under the law and conduct their business in a safe and sound manner. For instance, a bank should have in place risk management processes, internal controls, and information systems that are appropriate and adequate for the nature, scope, and risks of its activities."
The Fed's action would not prohibit a state member bank, or prospective applicant, from providing safekeeping services, in a custodial capacity, for crypto-assets if conducted safely and soundly and in compliance with consumer, anti-money laundering, and anti-terrorist financing laws.
To learn more, click here.
“The ACH Network continued growing in the final quarter of 2022. Payment volume totaled 7.6 billion, up 2.3% from the fourth quarter of 2021,” reported Nacha. “The value of those payments, $19.4 trillion, is a 3% rise.”
Nacha goes on to say:
Use of Same Day ACH remained solid following the March 2022 increase in the per payment maximum to $1 million. In the fourth quarter, $503.3 billion in same-day payments moved safely and swiftly along the modern ACH Network, an 87.5% increase from a year earlier. Volume was 181.6 million same-day payments, up 7.3%.
ACH business-to-business (B2B) payments rose 8.5% to 1.5 billion payments. “B2B is keeping the growth momentum going that began even before the COVID lockdowns,” said Michael Herd, Nacha Senior Vice President, ACH Network Administration. “B2B payments are a major success story for the ACH Network.”
Nacha will issue full 2022 ACH Network volume later in February.
Instant Payments and Early Wage Access
In other news, “Payroll delay is rampant among the American workforce, especially gig workers,” reported PYMNTS. “Studies have found that 74% of freelance workers have not received their pay on time, with 20% receiving pay one day late and 16% reporting they are regularly not getting paid for up to two months after they expected. A full 59% said clients currently owe them more than $50,000 for finished work,
In addition, early wage access is essential to younger employees, with 83 percent of workers between the ages of 18 and 44 saying they should have access to their wages at the end of each workday. Seventy-eight percent of workers when so far as to say that early wage access would increase their loyalty to their employer.
Most workplaces that provide early wage access to their employees use The Real-Time Payments® Network. However, that may shift when the FedNow Service launches later in 2023.
With the surge of interest in early wage access, financial institutions offering instant payments to their business clients could help them gain a competitive advantage.
61 Percent of Businesses Expect a Competitive Advantage with Instant Payments
According to the latest Real-Time Payments Tracker®, 61 percent of businesses believe that real-time payments will give them a competitive advantage. One key reason, says PYMNTS, is that businesses are finding that their customers have come to expect faster payments—just as they experience fast and always-on capabilities in other digital interactions.
“Customers expect the same behavior in financial transactions as in everything else they do when it comes to everyday services, with the key theme being instant gratification,” J.P. Morgan Head of Global Real-Time Payments Rupa Krishnansaid in the report, according to PYMNTS.
“While the ability to gain a competitive advantage is the benefit mentioned by the greatest share of the businesses which were surveyed for the report,” PYMNTS reported, “respondents also said they expect the addition of real-time payment features and capabilities to give them increased accounting efficiency (45%), reduced risk of payment failure (37%) and more transparency in payment processes (35%).”
Offering instant payments may give financial institutions a competitive advantage in attracting and retaining business customers.
For more on the role of instant payments in 2023, check out PYMNTS Jan. 2023 Real-Time Payments Tracker.
PayPal and Venmo
PayPal and Venmo Available Within QuickBooks
PayPal and Venmo are now available as trusted payment methods within QuickBooks Online, CPA Practical Advisorrecently reported. Other checkout options include Apple Pay, credit and debit cards, and ACH transfers.
The new, automated options save clients time by matching PayPal and Venmo transactions within QuickBooks without connecting and reconciling additional applications.
“Even for QuickBooks businesses that invoice customers, adding a button for online payments significantly reduces the time it takes to get paid four times faster than businesses issuing paper invoices (based on U.S. customers using QuickBooks Online invoice tracking and payment features compared to customers not using these features from August 2021 to July 2022,)” according to the publication.
Big Banks to Launch Apple Pay Competitor in 2023 H2
America's biggest banks are reportedly launching a digital wallet that will compete with Apple and PayPal. According to the Wall Street Journal, the Bank of America, JP Morgan Chase, Wells Fargo, and others are developing a product that will allow consumers to make online purchases with a wallet tied to their Visa or Mastercard debit or credit cards.
Early Warning Services (EWS) told CNBC that it plans to launch the wallet this year. EWS, which also runs the money-transfer service, Zelle, says the wallet will function separately from Zelle, according to PYMNTS.
“According to the WSJ,” says PYMNTS, “the banks expect to make 150 million debit and credit cards available for use within the wallet when it launches. Consumers who are caught up on payments and have used a card online in recent years will be eligible after providing their email and phone number.”
Research from a PYMNTS study from the 2022 holiday shopping season revealed that the use of Apple Pay for online transactions grew 63 percent year over year, pointing to consumers increasing interest in brands that offer quick, convenient transactions.
Early-bird registration is now open for NEACH’s 2023 Payments Management Conference, the region’s most established and respected payments conference. Join countless payments professionals at every level as they gather for a one-of-a-kind conference that gives you two days filled with education, networking, and opportunity.
Also, on the education front, download NEACH's 2023 Educational Catalog. NEACH Professional Development programs are thoughtfully designed for payments professionals at every stage in their career progress. Based on your personal interest and professional experience, you can choose from more than 75 courses covering core to advanced payments topics.
We hope to see you soon at one of our upcoming educational events.
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.