Payments innovations continue to ramp up as we turn the page on another new year. A few days before the start of the new year, Alloy Labs Alliance, a group of “innovative community banks,” announced the launch of CHUCK™, an open payments “network for community banks by community banks.” Also, in the news, an update to the Federal Reserve Payments study reveals changes in card payments and increased adoption of innovative payment methods following the emergence of COVID-19. Federal Deposit Insurance Corporation Chair Jelena McWilliams announced she will resign, effective February 4, just weeks after a partisan struggle on the agency’s board. And U.S. Treasury Official Nellie Liang is advocating for introducing new stablecoin regulations, following claims of “potentially big risk” when using stablecoins.
Read on for more on these and other top headlines,
CHUCK™, An Open Network for Instant Payments
Alloy Labs Alliance, a group of community banks, announced on December 20 the launch of CHUCKTM, an open network for instant payments. This open network enables customers to send money from their already trusted banking application, on desktop or mobile, and let the recipient choose where they want the money to go, including some of the most popular payment networks.
Alloy Labs Alliance chose Payrailz, a digital payments company, as their partner in launching this new payment network. With the introduction of CHUCKTM, financial institutions now have a choice for providing instant payment capabilities and no longer must settle for a more expensive, restrictive, and closed network, the news release said.
"This is a network for community banks, by community banks. The first product we are launching is an innovative approach to peer-to-peer (P2P) payments,” Julie Thurlow, CEO of Reading Cooperative Bank, a $730M bank in Massachusetts that was instrumental in leading this effort, said in the release. “We have an extensive roadmap of applications that will provide community banks with the fast, flexible infrastructure they need to remain competitive over the long term."
The network will be made available to all U.S.-based banks.
NEACH will be following this story closely. Watch for updates on NEACH’s Innovating Payments website.
Federal Reserve Payments Study Update
The Federal Reserve on December 22 issued an update to the Federal Reserve Payments Study (FRPS) to include findings from recent survey data, a Fed news release states. The findings highlight changes in card payments and the increased adoption of innovative payment methods following the emergence of COVID-19.
According to the release:
The recent data show that the number and value of both in-person and remote (e.g., online, over the phone) card payments grew in 2019, broadly in line with recent trends. The year 2020, by contrast, saw an unprecedented decline of 11.7 billion, or almost 13 percent, in the number of in-person card payments accompanied by a similarly unprecedented surge of 8.7 billion, or nearly 24 percent, in the number of remote card payments.
In addition, the pace of adoption of new payment technologies increased in 2019 and 2020, with the share of in-person card payments initiated with contactless technologies increasing many times over. Card payments initiated with digital wallets, which securely store payments information on mobile devices or online, saw similar growth in recent years, including accelerated adoption in the second half of 2020. Finally, the adoption of person-to-person payments between bank accounts also exhibited growth in 2020, with a surge in first-time use in the second quarter.
To read the Federal Reserve Payments Study in its entirety, click here.
FDIC Chairman Jelena McWilliams Announces Resignation
Federal Deposit Insurance Corporation Chair Jelena McWilliams announced she will resign, effective February 4, just weeks after a partisan struggle on the agency’s board. According to The American Banker, “Her resignation means former FDIC Chair Martin Gruenberg, now an internal member of the agency’s board, will likely lead the agency on an acting basis until the Biden administration nominates a successor. It will be his third time at the helm of the FDIC.
In a letter to President Biden, McWilliams wrote: "When I immigrated to this country 30 years ago, I did so with a firm belief in the American system of government. During my tenure at the Federal Reserve Board of Governors, the United States Senate, and the FDIC, I have developed a deep appreciation for these venerable institutions and their traditions."
There is no word yet as to her successor.
U.S. Treasury Official Nellie Liang, who currently serves as Under Secretary, advocates for introducing new stablecoin regulations, following claims of “potentially big risk” when using stablecoins. Liang’s comments come after the Financial Stability Oversight Council’s November 2021 report on stablecoins, which states that if “Congress does not enact legislation, the regulators will try to use what authority they have.”
According to Coinspeaker:
Stablecoins currently functions as the fiat currency of the digital currency ecosystem, one many beliefs pose a competition risk to the U.S. Dollar. The majority of stablecoins in circulation today are notably backed on a ratio of 1 to 1 with the U.S. Dollar; however, the claims by Tether Holdings Ltd, the company in charge of the largest stablecoin USDT, are highly contested. The obscurity surrounding the Tether stablecoin has further led to the risky sentiments that lawmakers like Senator Elizabeth Warren have echoed in recent times.
“Stablecoins pose risks to consumers and our economy. They're propping up one of the shadiest parts of the crypto world, DeFi, where consumers are least protected from getting scammed. Our regulators need to get serious about clamping down before it is too late," she said in a statement recently.
Not all Congressional lawmakers hold Warren’s views, reported Coinspeaker.
"No longer just a payments issue, ISO 20022 is a chance for banks to transform their data, systems fundamentally, and services," journalist Joe Higginson wrote in PaymentsJournal. The COVID-19 pandemic and accelerating innovation in electronic payments has also caused a surge in the adoption of ISO 20022. But, according to the PaymentsJournal, “ISO 20022 is set to be a bumpy ride.”
For example, if you speak ISO 20022 at the payments end, you still need to translate data from hundreds of other downstream systems in your bank, including home origination, treasury, CRM, and more. "It's a bit like upgrading one part of the bank to a music streaming service and then expecting it to be compatible with the rest of the business that still listens on C.D.s and cassettes," Higginson wrote.
While ISO 20022 has its challenges, it is also an opportunity for financial institutions to gain a competitive advantage.
Journalist Paul Golden reporting for EuroMoney, speaks to this issue: “Banks are coming under competitive pressure to move to the new universal financial messaging standard ISO 20022 as the overall shift in the payment industry to instant payments means that existing products and services could become inoperable if they don’t act.”
Organizations worldwide are migrating to the new system, with Fedwire and Chips expected to move over in 2023. However, more than half of financial institutions are in no rush to make a move.
A recent Bottomline report, “The Future of Competitive Advantage in Banking & Payments,” shows “most banks and financial institutions seem to be leaving their preparations to the last minute,” report Golden. “Almost 60% of those surveyed had either not started planning, just started planning, or were still looking for information on how to move forward.”
Toward that end, NEACH will place a heightened focus on educating its member financial institutions and the industry about ISO 20022 and the opportunities it presents.
Also, in the news, PYMNTS reported that real-time payments reached a global market value of $10.6 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 33% from 2021 to 2028 in its December 27, 2021, Real-Time Tracker. According to PYMNTS, consumers are a primary driver of this payment option in making and receiving payments.
To read this and other real-time payments headlines, you can download the PYMNTS Real-Time Tracker here.
According to a December 14 Nacha news release, the following Rules changes go into effect in 2022:
Increased Same Day ACH Dollar Limit (effective March 18, 2022). The dollar limit for each Same Day ACH payment will increase from $100,000 to $1 million.
Supplementing Data Security Requirements—Phase Two (effective June 30, 2022). This is the second part of the Rule, which took effect in March 2021 (see above). It will now apply to those with an annual ACH volume of 2 million or more transactions.
Third-Party Sender Roles and Responsibilities (effective September 30, 2022). These Rules will further clarify the roles and responsibilities of Third-Party Senders (TPS) in the ACH Network by addressing the existing practice of Nested Third-Party Sender relationships and making explicit and clarifying the requirement that a TPS conduct a Risk Assessment.
To learn more about these important Rules changes, join NEACH for a 2022 Industry Update on January 27, 2022, from 2:00 – 3:30 pm E.T. You can register here.
PYMNTS Launches TechREG™ Platform
PYMNTS announced on December 6 the launch of the TechREG™ platform. This initiative will provide the industry with "cutting-edge regulatory intelligence on the topics that will impact the decisions they make and the strategies they develop in the years and decades to come." According to PYMNTS, the platform will cover a wide range of topics—from cryptocurrencies to FinTechs to neobanks, from artificial intelligence to data privacy, and more with news, analysis, and insights from some of the industry's leading experts.
With its newly acquired CPI platform, the TechREG initiative released its inaugural issue of the TechREG Chronicle. This monthly journal will feature articles from technology regulation experts “to drive discussion and debate.”
You can download the inaugural issue of the TechREG Chronicle here.
Consumers Want a Super App to Manage Their Digital Activities
According to The Connected Consumer in the Digital Economy, a PYMNTS study based on a survey of 3,166 consumers, 67% of consumers want to consolidate their digital experiences into a single interface.
According to the December study, the first of a series of PYMNTS’ monthly data briefs:
- 45%: Share of millennials who want to integrate all aspects of their online lives into one app
- 69%: Portion of consumers who bank and transact on their banks’ mobile app
- 173M: The number of U.S. consumers who want to consolidate their digital lives
The monthly data briefs will focus on ten pillars of the connected economy as PYMNTS has defined it: how consumers pay, bank, shop, eat, have fun, live, work, travel, communicate and stay healthy.
You can download the first brief here.
NEACH — Your Strategic Partner
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.
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.