Trends & Research

Trends & Research

Access the power of data and objective insight. Data from various sources, including NEACH surveys and member interviews, is compiled and made available as white papers, case studies, articles, benchmarking, and industry reports to provide a snapshot of both the current and future payments landscape. 

Published on Friday, October 15, 2021

October 2021 Executive Summary: Federal Reserve’s Supervision Function to Evolve

Welcome to this month’s issue of NEACH’s Innovating Payments Executive Summary. We start with new developments from the Fed. On September 28, Federal Reserve Governor Michelle Bowman announced to attendees at the Community Banking in the 21st Century Research and Policy Conference that the Fed is evolving its supervision function model “because the banking industry is evolving.” The Fed also announced the release of a paper, “Community Bank Access to Innovation through Partnerships,” which “provides an overview of the evolving landscape of community bank partnerships with FinTechs.”

In other news, BNY Mellon and Citi disclosed a collaboration with Verizon; it will be the first to send request-for-payment messages to consumers who bank with Citi using the RTP network. When using BNY Mellon's new Real-Time E-Bills and Payments functionality, Verizon customers with Citibank accounts can pay their bills immediately, at any time of day, 365 days a year. Also making headlines, Coinbase, a cryptocurrency exchange platform, announced it will soon be offering direct deposit to its customers in the U.S.

Read on for more on these and other stories.

The Federal Reserve

On September 28, 2021, Federal Reserve Governor Michelle W. Bowman addressed attendees at the Community Banking in the 21st Century Research and Policy Conference, acknowledging the interconnectedness of the future of banking and addressing the future of bank supervision.

“Supervision has to evolve because the banking industry is evolving,” Bowman said. “Therefore, the Federal Reserve is embarking on an initiative to investigate the implications of these changes for the Federal Reserve's Supervision function.”

She went on to say:

The goal of this initiative is to ensure our supervisory approaches accommodate a much broader range of activities while ensuring we don't create an unlevel playing field with unfair advantages, or unfair disadvantages, for some types of firms versus others. This will include investigating technology and innovative business practices that increase our agility and efficiency.

Innovation is a way of life for banks; it should be for supervisors as well. But we must do this in a way that also preserves what we know works and what we learned can work during the pandemic.

She further stated that a few aspects of the Federal Reserve’s supervision must be preserved, such as the Fed’s supervisory structure and direct outreach to and engagement with financial institutions. Principles guiding the new approach to supervision include enhancing transparency, avoiding adding additional regulatory burdens to financial institutions, and providing a framework that enables banks to be more flexible in serving their communities.

To read Governor Bowman’s remarks in full, click here.

Community Bank Access to Innovation through Partnerships

In other news, the Federal Reserve recently released a paper, “Community Bank Access to Innovation through Partnerships,” which “provides an overview of the evolving landscape of community bank partnerships with FinTechs, including the benefits and risks of different partnership types, and critical considerations for engaging in such partnerships.

“In a 2020 speech, Federal Reserve Board member Michelle W. Bowman stated that ‘the successful integration of financial technology into the community bank business model is proving to be enormously valuable to enable community banks to enhance the services they’ve already proven they can deliver effectively,’” the study points out. “Access to technology and services to meet customer needs is critical to ensuring community banks remain vibrant.’”

The study says that the paper is meant to serve as a resource for community banks as they embark on responsible innovation.

You can download the study in its entirety by clicking here.

Faster and Real-Time Payments

Real-time payments continue to grow in popularity among consumers, with PYMNTS recently reporting that:

70% of U.S. consumers who have used real-time payments services likely would use them again if they were available for free. Their satisfaction with these payment methods is great enough even to transcend cost concerns in some cases, with more than one-quarter of respondents saying they would be willing to pay for access to immediate payments. 

While the speed of real-time payments is the most noted benefit, other features are drawing added attention from financial institutions, particularly the request-to-pay function. Many of these real-time payments systems, including the RTP® network and FedNow(SM) (release date 2023), use messaging services, including ISO 20022, which transfer rich payments data with each transaction.

“This can give payors and payees detailed information about the payments they make or receive, which can be useful particularly when it comes to an increasingly popular feature: request to pay,” PYMNTS explains. “Request-to-pay functions allow payees to send messages to payors that ask them to settle bills, and the option allows payors to determine whether to pay the amount requested, ask for alternative payment terms or even deny the payment outright.”

To learn more about function, consider downloading PYMNTS Faster Payments Tracker (September 2021) and discover how request-to-pay is smoothing friction for U.S. Bank.

RTP® and FedNow(SM)

FedNow

The Federal Reserve is on track to bring real-time payment and settlement services to all financial institutions through its FedNow service. According to The Financial Brand, "Large retailers, e-commerce, restaurants, and gas stations will view FedNow as a boon for cost savings, shaving 1.5%-3.5% off transaction expenses from debit and credit card transaction fees. Many large retailers are looking to tie real-time ACH to rewards programs, thereby creating an increase in customer loyalty and a reduction in transaction costs.”

As a result of the anticipated adoption of FedNow, some larger U.S. Banks, many of which are Clearing House members, may lose hefty interchange fees, says The Financial Brand points out.

In other news, FedNow leaders led a 90-minute virtual Community Town Hall on September 22, 2021, which featured a panel discussion with FedNow Pilot Program participants. Topics included how panelists are building their business cases for instant payments, lessons learned on the implementation journey, upcoming engagement and educational opportunities, and more. (To view the town hall, click here.)

FedNow Pilot Program participants also had opportunities to provide feedback to the Fed to help ensure the FedNow Service meets industry needs. Examples of participant feedback incorporated into the FedNow Service, as noted on its website, include:

  • The request-for-payment workflow, including opportunities to decrease incomplete or rejected messages.
  • Design of the FedNow interface, which will be available via FedLine® Solutions.
  • Development of the onboarding process and reports related to supporting accounting and reconcilement activities.
  • LMT hours of operation, value limit, and correspondent controls and sign-off capabilities.

The FedNow community will also be offering new engagement opportunities and educational resources, including a curated series of checklists, mini-talks and promotional videos. A series of educational engagements that offer self-directed learning on ISO 20022 tools and specifications will also be available soon.

RTP

Meanwhile, BNY Mellon and Citi have collaborated with Verizon to be the first company to send request-for-payment messages to consumers who bank with Citi. When using BNY Mellon's new Real-Time E-Bills and Payments functionality, Verizon customers with Citibank accounts can pay their bills immediately, at any time of day, 365 days a year, and enjoy greater control over their finances to help avoid overdraft fees.

While real-time payments were previously available for bank-to-bank transactions for large organizations, this is the first at-scale use of the technology in production with retail customers. This innovative functionality revolutionizes the bill pay experience for both the biller and the customer, connecting BNY Mellon as the billing bank, Verizon as the biller, and Citi as the customer's bank, transmitting the transaction in real-time over the Clearing House's RTP network.

"We are thrilled to be working with Verizon on rolling out our Real-Time E-Bills and Payments capabilities to retail customers for the first time," said Robin Vince, Vice-Chair of BNY Mellon and CEO of Global Market Infrastructure. "Retail customers have grown accustomed to using instant payment apps for small value purchases but have not had access to the same functionality or the enhanced security benefits Real-Time Payments provides for paying their phone, internet, and other bills. Today's announcement fills in this gap in the marketplace, and we look forward to rolling out Real-Time E-Bills and Payments to customers across the U.S."

In other RTP news, Payfare recently announced it is expanding its partnership with Stride Bank to offer additional real-time payment options to gig platforms and their workforces. Payfare, a leading fintech powering instant payout and digital banking solutions for contract workers, and Stride Bank will leverage The Clearing House's RTP network to deliver fast, secure payments to U.S.-based gig economy workers 24 hours a day, seven days a week.

Payfare will be among the first to use the RTP network to support gig worker payouts. 

New Role of Operations Workgroup

The New Role of Operations Workgroup is pleased to announce the release of a white paper, The New Role of Operations: Exploring Channels, Talent, Innovation, Collaboration, and Risk, later this month.

The white paper, co-authored by NEACH and The New Role of Operations Workgroup defines the new role of operations, identifies the challenges facing operations today, highlights new opportunities in operations, and concludes with specific steps financial institutions may want to consider as they navigate “the new normal.”

Watch your inbox for more news and information as the white paper nears release.

Other News

According to a September 27 blog post, cryptocurrency exchange platform Coinbase will soon be offering direct deposit to their customers in the U.S. Customers will be able to deposit as much, or as little, of their paycheck as they would like.

The company adds that by implementing direct deposit, customers will save time on the extra steps it takes to move money so they can begin earning interest on their income or crypto rewards with their Coinbase Card. According to Coinbase, direct deposit provides immediate access to cryptocurrency and does not incur a transaction fee.

NEACH—Your Strategic Partner

To learn more about payments innovation and to explore the intersection of Financial Institution/FinTech innovation, join us for the Future of Payments Symposium, December 8-9, 2021.

Banking, payments, and fintech professionals from all over New England and surrounding states come together at the Future of Payments Symposium (FPS). This virtual event will address the evolution of the payments landscape and its impacts on financial institutions. To register, click here.

NEACH is pleased to be your strategic partner. Email us at info@neach.org or call us at 782-321-1011 and let us know how we can help. Or call our Payments Hotline at 855-NEACHQA.


#FasterPaymentsExecutiveSummary

 

Joe Casali, AAP, NCP

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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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