Welcome to the June 2023 Innovating Payments Executive Summary. The Consumer Financial Protection Bureau (CFPB) issued a consumer advisory urging consumers to move their money from payment apps to insured accounts at financial institutions. In other news, the New York Federal Reserve and the Monetary Authority of Singapore linked their digital currency ledgers and achieved end-to-end settlement in less than 30 seconds.
Meanwhile, the Federal Reserve released new study results, affirming that U.S. businesses and consumers have a growing appetite for instant payments. Nacha is inviting the industry to weigh in on a Request for Comment and Request for Information on ACH Risk Management in 2023. Also, financial institutions and FinTechs continue to enter into collaborative partnerships to enhance data sharing and navigate the regulatory framework.
Read on to learn more.
Top Stories
CFPB Urges Consumers to Move Money from Payment Apps to Insured Accounts
The CFPB issued a consumer advisory on June 1, alerting consumers that their money is at greater risk when they hold it in a payment app, advising them to move their money to an account with deposit insurance instead.
The advisory makes this critical point:
Money you deposit in an account at an insured bank or credit union is protected up to the insurance limit if the firm fails. The Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) protect deposits up to $250,000 under the same owner or owners. If your bank or credit union fails, you still have quick access to your money.
If the nonbank payment app's business fails, your money is likely lost or tied up in a lengthy bankruptcy process. You might be standing in line with other lenders to the failed app, waiting to see if you can get any of your money back after the business is unwound.
Although some payment apps claim to provide “pass-through insurance” through business arrangements with a bank or credit union for customers who sign up for additional services, there could still be risks, including delays in receiving their money.
N.Y. Fed and MAS Test Distributed Ledger CBDC Payments
According to Central Banking, the New York Fed and the Monetary Authority of Singapore found in phase two of their joint project known as Cedar that distributed ledger technology can improve cross-border payments.
“The two central banks linked their digital currency ledgers without a central clearing authority or a shared central network. Central Banking stated that the payments were automatic, reducing counterparty risk and achieving end-to-end settlement in under 30 seconds.
For more on the New York Fed and the Monetary Authority of Singapore’s project Cedar, click here.
FedNow(SM)
New Fed Survey Reveals an Appetite for Faster Payments
According to new studies published by the Federal Reserve, U.S. businesses and consumers continue to show an appetite for instant payments. “A majority of businesses (83%) and consumers (75%) are already using faster payments, and most (66% of businesses and 61% of consumers) say they are likely to use faster payments more often in the future,” according to new studies released by the Federal Reserve.
Additional survey results, as reported by the Fed, include:
- Payments being too slow (causing delays in processing) was the top challenge identified by businesses (28%), highlighting the need for improved cash flow.
- Nearly half of businesses (45%) believe faster payments will lower their costs, primarily through more efficient processing with remittance data attached.
- Three-quarters of businesses indicate it is important that their bank offers instant payments, especially true among larger businesses (86%-90%).
You can read the full survey report on FedPaymentsImprovement.org.
As a reminder, the FedNow service will launch with a robust set of core clearing and settlement functionality and value-added features in July of this year. More features and enhancements will be added in future releases to continue supporting safety, resiliency, and innovation in the industry as the FedNow network expands in the coming years.
To learn more about how you can participate in the FedNow service, visit the Fed’s Explorer website.
Nacha
Request for Comment: ACH Risk Management 2023
On May 3, Nacha requested comment on proposals to amend the Nacha Operating Rules on ACH risk management as expanded in its Risk Management Framework.
An excerpt from Nacha’s RFC explains:
Nacha's latest Risk Management Framework expands the focus on fraud detection, prevention, and recovery to encompass credit-push payments. All participants in the payments system, whether the ACH Network or elsewhere, have roles to play in working together to combat fraud.
As part of implementing the Risk Management Framework objectives, Nacha requests comment on proposals to amend the Nacha Operating Rules:
- Seven proposals related to ACH credit risk management, and
- Two proposals related to ACH debit risk management.
Responses to the RFC topics are requested by Friday, June 16, 2023.
Should the proposed rule pass, additional details, including the potential impact on financial institutions, are available here.
Request for Information: ACH Risk Management 2023
In addition, Nacha requested information on topics related to ACH Risk Management in 2023. As noted on the Nacha website:
Nacha requests the industry to provide information and perspectives on four additional risk management topics. While these topics are not being put forth at this time as proposals to amend the Nacha Rules, Nacha requests information and perspective from industry stakeholders by Friday, June 30, in order to inform the rulemaking process.
- ACH Network Credit Return Threshold.
- “Third-Party Receivers.”
- Risk-based approach to early funds availability.
- NOC for SEC Code/Account Type mismatch.
Nacha asks that you please review the survey questions prior to beginning your response so that you can gather information and comments from all impacted areas of your organization before responding to the questions. Click here to download the materials, which are located on the left side of the page, and respond online.
To learn more, click here.
NEACH will be responding to Nacha's Requests for Comment and Information. NEACH's Standing Rules Committee members are reviewing the proposed Rule changes and will meet over the next few weeks to provide feedback from their institutions. NEACH staff will also meet to evaluate and provide feedback to Nacha.
We would like to get as much member feedback as possible, so please read these proposals and let us know your thoughts by responding to the discussion post on the Innovating Payments website.
Also, watch for an upcoming Town Hall on these proposals in the next few weeks.
And lastly, for now, all Nacha proposed rules are open for public comment via a Request for Comment. Nacha encourages responses from ACH Network participants and interested parties. If you and your institution/organization feel strongly about these proposals, please respond separately as well – the more feedback Nacha receives, the better!
Miscellaneous
Will Open Banking Regulations Force More Bank-FinTech Collaborations?
PYMNTS June 2023 FinTech Tracker reports that partnerships between financial institutions and FinTechs are rising. It purports that "when the U.S.'s open banking rules go into effect, banks and FinTechs will need to rely on each other to ensure compliance and make the most of the opportunity." As a result, financial institutions and FinTechs that once saw each other as competitors now view each other as partners.
According to the report:
- 89% of banks in 2021 saw partnerships with FinTechs as at least somewhat important
- 65% of financial institutions in 2021 had partnered with a FinTech in the past three years
Further, the digital shift underway is placing pressure on financial institutions to partner with FinTechs, as reflected by the data below:
- 77% of banks report feeling pressure to partner with FinTechs
- 76% of financial institutions view FinTech partnerships as necessary to meet customer expectations
- 95% of banks use partnerships to enhance their digital product offerings
To learn more about what financial institutions and FinTechs need as they begin to rely more heavily on each other for data sharing and compliance, check out PYMNTS FinTech Tracker.
NEACH
If you’ve not already done so, check out our Wrestling Payments podcast. The podcast is 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.
Check out this new resource, available now on the NEACH website.
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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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