Welcome to the September 2022 issue of Innovating Payments Executive Summary. The Federal Reserve announced it has updated to FedNow Service timing to launch mid-2023. Additionally, the Fed announced the addition of new pilot participants, including the U.S. Department of the Treasury’s Bureau of the Fiscal Service, among others. In other news, Fed Governor Michelle Bowman suggested in comments made at the VenCent Fintech Conference that she believes the FedNow real-time payments system will make a digital dollar unnecessary.
Also in the news, Nacha announced that the ACH Network moved 7.5 billion payments in the second quarter of 2022, led by growth in Same Day ACH and business-to-business (B2B) payments. In addition, Bank Director released the results of its 2022 Technology Survey. The survey delves into the technology concerns and challenges senior bank executives and board members face, and where they’ve been investing their resources. Jack Henry & Associates, Inc.® announced that it has entered into a definitive agreement to acquire Payrailz, adding the company’s next-generation digital payment capabilities, including real-time person-to-person (P2P) payments, to its payments ecosystem.
For more on these and other stories, read on.
The Federal Reserve
Federal Reserve Updates FedNow(SM) Service Timing
The Federal Reserve Banks have narrowed the timing of the FedNow Service launch to mid-year 2023, specifically targeting a production rollout of the service in the May to July timeframe, an Aug. 29 press release stated. The release further defines the previously communicated 2023 launch window for the anticipated instant payments service and comes as the FedNow Pilot Program prepares to enter technical testing for the service starting in September.
"Today, with the FedNow launch date in sight, we are pleased with the collaboration and dedication our pilot participants have brought to advance modern payments in America," said Esther George, president and CEO of the Federal Reserve Bank of Kansas City and Executive Sponsor of the FedNow program, in the release.
The FedNow Service will be accessible to financial institutions of any size, helping broaden the reach of instant payments to communities nationwide. Payment recipients will have full access to funds immediately, giving them greater flexibility to manage their money and make time-sensitive payments.
"The benefits of instant payments are increasingly important to consumers and businesses, and the ability to provide this service will be critical for financial institutions to remain competitive," said Ken Montgomery, Federal Reserve Bank of Boston First Vice President and FedNow Service program executive, in the release. "Next year, financial institutions will be able to use the FedNow Service as a springboard to provide innovative solutions to their customers."
Federal Reserve Updates Pilot Participants to Include U.S. Dept. of Treasury
According to a news release, the Federal Reserve announced on Aug. 11 the addition of several organizations to the FedNow Service Pilot Program. The new pilot participants include the U.S. Department of the Treasury’s Bureau of the Fiscal Service, Exchange Bank, and several payment processors and solution providers. The participants are joining more than 120 other organizations amid the program’s testing phase, which began earlier this year and will continue through the launch of the FedNow Service in 2023.
“We’re pleased to welcome these new organizations to the FedNow Pilot Program and are excited for how their solutions will help build the end-to-end ecosystem, as well as drive innovation and broad adoption of instant payments,” Nick Stanescu, Senior Vice President and Business Executive for the FedNow Service, said in the release.
As noted in the release, “FedNow pilot participants (Off-site) are onboarding with the service, which involves establishing connectivity and performing technical and operational tasks that will lay the groundwork for full-scale, end-to-end testing starting early this fall.”
Will FedNow Make a Central Bank Digital Currency Unnecessary?
“Fed Governor Michelle Bowman suggested that she believes the FedNow real-time payments system will make a digital dollar unnecessary,” reported PYMNTS. “Speaking at the VenCent Fintech Conference in Little Rock, Arkansas, on Aug. 17, Bowman said that ‘my expectation is that FedNow addresses the issues that some have raised about the need for a CBDC.’”
“FedNow will help transform the way payments are made through new services that allow consumers and businesses to make payments conveniently, in real-time, on any day, and with immediate availability of funds for receivers,” said to conference attendees. “Our assessment of these benefits has not changed even as we consider whether a central bank digital currency (CBDC) might fit into the future U.S. money and payments landscape.”
My expectation, said Bowman, is that FedNow addresses the issues that some have raised about the need for a CBDC.
Fed Provides Information for Financial Institutions Seeking to Engage in Crypto-Asset-Related Activities
“The Federal Reserve Board on Tuesday provided additional information for banking organizations engaging or seeking to engage in crypto-asset-related activities,” stated an Aug. 16 news release. “The emerging crypto-asset sector presents potential opportunities to banking organizations, their customers, and the overall financial system; however, crypto-asset-related activities may also pose risks related to safety and soundness, consumer protection, and financial stability.”
The supervisory letter outlines the steps all banking organizations supervised by the Federal Reserve, including those with $10 billion or less in consolidated assets, should take before engaging in crypto-asset-related activities. For example, financial institutions should assess whether such activities are legally permissible and determine whether any regulatory filings are required. The supervisory letter further states that Board-supervised banking organizations should notify the Board before engaging in crypto-asset-related activities.
“In all cases, a supervised banking organization should, prior to engaging in these activities, have in place adequate systems, risk management, and controls to conduct crypto-asset-related activities in a safe and sound manner and consistent with applicable laws, including applicable consumer protection statutes and regulations.”
You can read the supervisory letter in its entirety here.
ACH Volume Q2 Gains
“The ACH Network moved 7.5 billion payments in the second quarter of 2022, led by growth in Same Day ACH and business-to-business (B2B) payments,” reported Nacha.
“This quarter was the first in which the Same Day ACH dollar limit was $1 million per payment, following the increase on Mar. 18, 2022. There were 185 million Same Day ACH payments transferring $486 billion in the second quarter, respective increases of 24.4% and 94.4% over the same timeframe in 2021,” a Nacha news release said.
“The payments community asked for the $1 million limit, and the ACH Operators and financial institutions joined with Nacha to make it a reality. The results show the benefits of Same Day to users of the ACH Network,” Jane Larimer, Nacha President and CEO, said in the release.
Overall, the ACH Network moved 7.5 billion payments, a growth of 3.5%, transferring $19.6 trillion in the second quarter.
2022 Technology Survey: Concerns and Challenges Senior Bank Executives Face
“As competitive pressures continue to alter the landscape for financial institutions, Bank Director’s 2022 Technology Survey, sponsored by CDM, delves into the technology concerns and challenges senior bank executives and board members face, and where they’ve been investing their resources,” according to a company news release.
Highlights from the survey are below:
- Eighty-one percent of respondents say their bank increased its 2022 technology budget over last year, reporting a median 11% increase.
- Forty-eight percent worry about an inadequate understanding within the bank of emerging technologies.
- Forty-two percent of respondents say their Board has at least one member they would consider to be a technology expert.
- Three-quarters say their board or leadership team has discussed risks or opportunities related to cryptocurrency or digital assets in the past 18 months.
To view the survey results in their entirety, click here.
Jack Henry & Associates to Acquire Payrailz®
Jack Henry & Associates, Inc.® announced that it has entered into a definitive agreement to acquire Payrailz, adding the company’s next-generation digital payment capabilities, including real-time person-to-person (P2P) payments, to Jack Henry’s payments ecosystem, according to a company news release.
“Based in Glastonbury, Conn., Payrailz provides cloud-native, API-first, AI-enabled consumer and commercial digital payment solutions and experiences that enable money to be moved in the moment of need,” stated the release, “and banks and credit unions to successfully compete with industry disruptors.”
“We are excited about the opportunity to add these next-generation solutions to our payments capabilities,” Greg Adelson, President and COO of Jack Henry, said in the release. “Our company is engaged in technology modernization that is supporting banks and credit unions with innovative solutions that enable them to respond to business opportunities and challenges and to improve the financial health of their account holders.”
“Considering the importance of modern digital and payments strategies to financial institutions, we plan to acquire Payrailz as a strategic addition to our payments ecosystem, which enables our clients to simplify the complexity of payments, modernize their existing payment channels, and remain at the center of their account holders’ payment experiences,” he added.
Financial details and terms of the definitive purchase agreement were not disclosed.
CFPB Report Offers Cautionary Take on FinTech Platforms That Consumers Value
The Consumer Financial Protection Bureau (CFPB) released a new report, “The Convergence of Payments and Commerce: Implications for Consumers,” that addresses new payment types taking the market by storm. According to a news release accompanying the report, the CFPB is “focused on how large technology platforms and other emerging business models that operate outside of the traditional banking system use peoples’ sensitive spending and transaction data. We want to preserve the benefits of real-time payments, while still ensuring that the payments ecosystem in the United States is fair, transparent, and competitive.”
Specifically, the report calls out three major payments technologies impacting consumer finance today: super apps, buy now, pay later (BNPL), and embedded commerce. “These new offerings can expose consumers to unanticipated risks and potentially decrease consumer control over their personal information,” according to the report. The report outlines the challenges and risks inherent in the rapid evolution of the payment ecosystem.
To read the report in its entirety, click here.
Now is a great time to expand your knowledge through NEACH’s training and educational offerings. There’s still time to register for the first NEACH Fraud Symposium on Thursday, Sept. 8, from 9:30 am – 4:30 pm ET. This virtual event is the place to be to explore the newest fraud trends, learn tips from industry experts, and collaborate with your peers. This full-day event is filled with information, actionable intel, and helpful tips to help you better recognize potential fraud, mitigate exposure, educate account holders, and more.
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.