Tag: Payments

Fiserv tests a hub approach to embedded finance

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Sunil Sachdev is Fiserv’s new head of embedded finance.

In the push to bring banking services to merchants’ platforms via embedded finance, core provider Fiserv has lacked one thing: a holistic vision of users’ finances.

That component fell into place recently as Fiserv unpacked the capabilities of Finxact, a core bank ledger provider the financial giant acquired last year for $650 million.

“We bought Finxact to advance open banking, and as we looked further under the hood, we realized its potential to look across a merchant’s payment flows to create more personalized digital banking services via embedded finance,” said Sunil Sachdev, a longtime Fiserv executive who assumed the new title of head of embedded finance in July.

Using Finxact’s cloud-based account-aggregation tools in combination with the digital commerce capabilities of its Carat arm, Fiserv acts as a hub connecting sponsor banks to merchants who may offer loans, card-issuing and loyalty programs through their own platforms and apps, according to Sachdev.

Jacksonville, Florida-based Fiserv initially is pitching its embedded finance tools to independent software vendors serving merchants in industries such as e-commerce, health care, logistics and travel, he said.

“Many [Software-as-a-Service] firms already handle payment acceptance and processing for businesses in various niches, but as the revenue for those services gets compressed, merchant software platforms are looking for other ways to grow,” Sachdev said.

For example, a medical practice management software provider could tap Fiserv’s embedded finance approach to offer loans and card-issuing services for doctors’ offices using a streamlined set of application program interfaces.

“Fiserv is enabling clients to embed financial services through myriad traditional and non-traditional channels such as software platforms, marketplaces and merchant wallets,” Sachdev said. Finxact also speeds up payment-settlement processes and helps financial institutions tap into new channels of deposits and fee revenue, Sachdev said.

The first customer integrating with Fiserv’s embedded finance service is Pay Theory, a Cincinnati-based e-commerce payment platform provider serving SaaS vendors in education, health care and youth-sports businesses that receive funds from government agencies and other highly regulated payers, according to Fiserv.

“Customers like Pay Theory using embedded finance from Fiserv will have the ability to expand value that would otherwise be trapped across different payment methods with limited fungibility,” Sachdev said, declining to name the sponsor bank working with Pay Theory.

Fiserv is working with multiple sponsor banks that plan to act as partners for software platform providers. Pathward Bank, based in Sioux Falls, South Dakota, with $7.5 billion in assets, is one of Fiserv’s potential sponsor banks, he said, though he didn’t name Pathward’s merchant partners for embedded finance deployments.

In the emerging embedded finance arena, Fiserv faces competition from a range of financial infrastructure providers that have some of the same advantages of serving merchants, acquirers and banks, said Zil Bareisis, who heads Celent’s retail banking and payments practice.

It’s increasingly common for banks and fintechs like Marqeta to provide digitally based embedded finance for merchants, but it’s generally new territory for payments platforms like Fiserv, Bareisis wrote in a recent report.

“For payments companies like Stripe, Adyen or FIS and Fiserv, enabling [merchant] clients to offer Uber-like payment experiences is a huge opportunity,” he wrote.

For players like Fiserv, competitive differentiation will come from the ease of use or flexibility of the underlying technology platform, Bareisis added.

Sachdev says Fiserv’s key advantage over other embedded finance providers is the size of its ecosystem.

“We’re one of the largest core banking providers, one of the largest merchant acquirers and one of the largest issuer-processors, plus we have relationships with close to 1,000 firms offering vertical software, and each of those firms has a lot of merchants, which creates a very large radius for our embedded payments,” he said. “With Finxact, we are stitching all of this together so businesses can consume financial services directly from a business’ platform.”

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Kate Fitzgerald

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November 10, 2023
CFPB proposal cracks down on payments providers | Bank Automation News

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The Consumer Financial Protection Bureau proposed a new rule today that would subject large nonbank companies, including digital wallet providers and payments apps, to undergo the same supervisory exam process as banks — leveling the payments playing field. Digital application usership has been on the rise in recent years as consumers looked to the apps […]

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Whitney McDonald

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November 7, 2023
FIS adds 74 banks to FedNow in Q3 | Bank Automation News

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Payments giant FIS saw dozens of bank customers looking to join FedNow as the adoption of real-time payments grew in the third quarter. “We are encouraged by the interest we are seeing related to the rollout of FedNow,” Chief Executive Stephanie Ferris said during the company’s Q3 earnings call today. “We currently have over 190 […]

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Vaidik Trivedi

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November 7, 2023
PayPal rival fintech Adyen faces investor confidence test | Bank Automation News

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For years, Dutch payments fintech Adyen NV’s founders and management ran things their own way, thanks to some blowout growth. During its listing in 2018 they didn’t feel the need to pre-brief investors — the shares doubled in the first two hours of trading all the same, making one of the founders an instant billionaire. There was […]

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Bloomberg News

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November 7, 2023
Big Tech companies’ latest forays into financial services

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How much should traditional financial institutions fear the creep of Big Tech firms into banking, payments and prospective superapps?

Mega technology companies such as Amazon, Apple, Meta and Alphabet, the parent company of Google, occupy the tricky space of being both a vendor and perceived threat to traditional financial institutions. X, formerly known as Twitter, is making its own noises about entering financial services.

On one hand, these companies’ credit cards, buy now/pay later products and deposit accounts depend on traditional financial institutions or fintechs to get off the ground. Banks are also increasingly migrating to cloud services offered by Amazon and Google. On the other hand, they periodically play with the idea of rolling out financial products to their massive customer bases that would compete with bank partners.

Some of these firms could be examined and supervised by the Consumer Financial Protection Bureau as early as 2024; the agency’s director, Rohit Chopra, has expressed concern with restrictions Apple and Google have placed on their mobile wallets.

None of the companies mentioned have taken steps to obtain a banking license, so for now they need the support of financial institutions to offer bank products. Moreover, these entities have no desire to become banks themselves, said Peter Wannemacher, principal analyst in digital banking at research and consulting firm Forrester, in a recent interview.

“Our research has more consistently pointed to tech titans being overstated or misunderstood as a threat to traditional financial services providers rather than as an unseen or underappreciated threat,” he said. “Bank executives have tended to be more worried, at least in the short term, than was appropriate.”

Still, potential threats lurk in the long term view, especially in two key areas.

One is the tendency of Big Tech firms to build products that offer a “superior value proposition for people with financial needs,” said Wannemacher. He points to Apple Card and its easy transaction views as one example, an area where many big banks fall short in their mobile apps, according to Forrester research.

“Banks still basically chase other people’s ideas,” said Wannemacher. “They’ve fallen short at thinking of new ideas, products, and ways of interacting with people.”

Another growing area of concern is these firms’ ability to lock customers into their ecosystems and nurture brand loyalty — which could provide a built-in customer acquisition funnel when they introduce financial products.

“If the battle is for attention and affection, traditional financial institutions are in trouble,” said Wannemacher.

Here is a closer look at the latest investments Amazon, Apple, Meta, Google and X have made or are teasing in their financial services arms.

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Miriam Cross

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November 3, 2023
Podcast: Managing payments pressure | Bank Automation News

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Payments fintechs are leaning on technology as consumers look to them to alleviate payments pressure in today’s high interest rate environment.

“The payments space today is in a stress test,” payments fintech Sunbit’s Chief Executive Arad Levertov, tells Bank Automation News on this episode of “The Buzz” podcast, noting that consumers are struggling to make payments and payments fintechs are struggling to scale.

Sunbit uses machine learning, AI and software to offer payment options to customers through retailers, according to Sunbit. The tech provider connects to retail APIs to collect data on performance of their technology and simultaneously offers buy-now-pay-later capabilities, a credit card and point-of-sale lending.

Sunbit customers include dental office Dossett Dental, automotive retailer Highline Parts and Service Center and vision eyewear retailer Henry Ford OptimEyes, according to the Sunbit website.

As payments providers help consumers, they also want to ensure they can scale. To be sure payment companies can accomplish both, Levertov says they should ask themselves:

Listen as Sunbit’s Levertov discusses with “The Buzz” how to navigate a high-rate environment with consumers and technology at the forefront.

The following is a transcript generated by AI technology that has been lightly edited but still contains errors.

Whitney McDonald 0:03
Hello and welcome to The Buzz a bank automation news podcast. My name is Whitney McDonald and I’m the editor of bank automation News. Today is November 2 2023. Joining me is Chief Executive of FinTech Sunit Arad Levertov. He is here to discuss payments disruptors, leveraging AI and Gen AI today and the future of the payments landscape. he co founded Sunday in 2016, and has been in FinTech since 2009. Thanks for joining us.

Arad Levertov 0:30
Thank you for having me. Happy to be here. I’m Arad Levertov. I’m the co founder and CEO of Sunbit. Sunbit is a financial technology for Real Life. We are based in Los Angeles, and we have about 500 employees across the nation. Many people are familiar with the pay overtime functionality, or the Buy Now pay later. And usually the this happens in the online sun beat we have two main products. The first product is a pair of real time functionality that is used for where people needed the most. So when you go to fix your car, or when you go to the dentist or to to get an eyeglass, we help the customer to get the service they need and pay overtime. We are right now operate in about 7500 locations of car repair services, which is about 40% of the market of authorized car dealerships. So if you go to fix a car in the authorized car dealership, there is four out of 10 chances that you will see us. In addition, we are in dental, as I mentioned that eyeglasses places overall over 20,000 locations, and we are adding five to 700 a month. Our second product is the sun beat card. And the Sunday card is a product that we announced in 2022. And basically brings the best of credit, debit and buy now pay later into the hands of each customers. And the customer can use it in with a physical card, or with a virtual card. In over there, we’ve processed over 300 million transaction and customer uses 60% of the time in everyday purchases like gas, food, and groceries. And basically we allow the customer to choose each transaction, how they want to pay where it’s like a debit, which means paying full credit, paid only the minimum or split into 236 or 12 months like buy now pay later. Our products are focused on the customers, we are inclusive, which means we have to have more customers, and we never charge any fees.

Whitney McDonald 2:43
Great. Well, thank you again for joining us and for talking us through some bit. I’d love to get started with just setting the scene for today’s payments industry. What are you seeing today kind of where to where do we stand within payments today?

Arad Levertov 2:58
That’s a good question. Because when you think about where we are today, you you cannot ignore the macro economics condition. Right. So you know, the Fed increased rates starting last year. And the current interest rate is super, super high, which impacts the entire economy, but mostly the payments and the FinTech companies. So today, when the interest is I customers are struggling more to make payments and customer struggling more to make purchases. And that actually it’s an opportunity and also I call it a stress test for every company, especially companies that are in the payment spreads, which also got impacted by the by the increase in interest rate. And when it when I look at this stress test, each company needs to ask itself like three basic questions. One, do I really add value to consumer? Two? Can I make profit out of it? And three? Can I do it? With the same core values and promises? I promised the consumers the employee like you know, three, four years ago when things were easier. So what does it mean? It means that especially in the payment space, when interest is high in customer struggling, our customers still willing to take my product and pay money for it? In our case, it’s like you know, the customers and the merchant Do they really value needs? Second, can I do it while I my cost is lower than the revenue which is super important these days? And three Can I do it with the same core values and promises? As I promised to my employees, we promise to customers we promise to invest up to three years ago when the market was different. So I think that the payment space today is in in a stress test and in the good news that eventually it will differentiate the I call it the real value companies from the free riders companies that were riding on the payment Space. Two, three years ago when interest was low, and everybody was, you know, money was easy.

Whitney McDonald 5:06
Now you talk through the stress that’s in the macroeconomic environment today, maybe you could talk us through where technology comes in to address these pain points within payments.

Arad Levertov 5:20
So this is exactly where technology technology, but only if it’s kind of in the fundamental of the business is coming into play. Because at the end of the day, in order to both serve customers, and make profit, when you’re you know, basic costs increasing, you need to think about scale, and scale comes with technology. So, when you are able to operate with, you know, with more technology, better underwriting, smarter decisions, better go to market or you know, something that is pretty famous right now, what we call the CAC, to LTV, the customer acquisition costs, and the lifetime value of the to get from the from the from the customer, the CAC to LTV ratio. This is where technology comes into play. So you can actually operate in scale without the additional cost of you know, manual costs or travel costs or stuff like this. And this is happens in the entire world. In many, many industries. I mean, right now we’re sitting in a recording of podcasts, which was never like 2030 years ago, there was no podcast, people actually listen only to what comes to the news. Now people listen to us because they want to focus on something personalized. In the payment space. Specifically, it’s a little bit delayed because of regulations because of other stuff. But now when you get to the technology around regulation, this is where you will be able to win for the long term.

Whitney McDonald 6:56
Now, when it comes to payments, companies like Sunday, it’s not a traditional means means for payments, how do companies like sun bet, disrupt the financial services industry, if you could kind of talk us through that that would be great. Course.

Arad Levertov 7:18
So there are many people talking about FinTech over the last literally 10 years, which is great. However, still, the biggest, biggest player in the markets are the credit cards, right. And consumer credit, people use credit cards, everybody has credit card in their hand, and credit card are easy to use many people you know it is to pay, but it’s horrible experience to apply. approval rate is really low there, you know, sometimes only 50%, actually of the people get approved, people get declined. By the way, I personally got declined for credit card after moving to the US when applying at point of sale at one of the retail places. And the most important there are many, many unnecessary and hidden fees. And when you think about this, in general financial market, they focus on making a lot of money, and they less focus on the consumer. fun bit. Try to innovate for good and put the customer in the center. So for example, one of our our main mission was from day one, eliminate financial waste and pass the value to the consumers. And one of our values innovate for good. So what does it mean? We try to be better to be more personalized for the customer. So your rate should be different in my rate, right? And end it up. But both rates should be transparent. No hidden fees, no fees at all. Actually, exactly. You know how much you’re gonna pay. We want to be more inclusive than the competition because we use more under more sophisticated data, more machine learning, and we use it across the across the business to get more customer into the door. And if we do it well and these customer pay back, we can get lower rates for everybody. So use technology across the entire spectrum. How do we get to the merchant? As I said, we are adding five to 700 new merchants amongst we choose them to make sure that we do it with the right operating costs. So we add them right the sales calls, of course, how do we handle customers? How do we treat customers? And how do we run the operation in general, we use technology. However, I would say that this is not enough. Technology is amazing in the most sophisticated under artificial intelligence, and machine learning is being used across the nation across the business. However, in addition, one we put the customer in the center, which is super important, we remember that it’s all for the customer and to we never get blinded by the numbers. You know at some beat we sell have millions of customers and posts of billions of dollars of loans. But we remember that behind these numbers, there are people that at the end of the day, wanted to fix the car and go back to work, wanted to get the root canal. And you know, and get out with the pain and go back to the life. And when I’m able to, to help these customers, split the purchase, over three months over sometimes 12 months without paying any interest and still make money because they make from the merchant, I see that I’m doing the right thing. And using technology to help people, that’s the basic of what we do we never forget about it.

Whitney McDonald 10:42
Now I know they said it’s not the most important part. But technology is is a key player here for some but can we talk through the application of data and machine learning and AI to accomplish all of this?

Arad Levertov 10:56
Of course, yes, technology is the basically enabler that helps us actually get what we do, right. So when you think about some between when we think about machine learning, you know, all the big world machine learning AI data science, we from day one, and we started in in 2016, decided to put it really across their operations. So because we work with mostly physical locations, we have retail operations, which means we need to get to the stores, we need to sell to them, we need to implement our solution into their systems into their API’s into the system. And we all need to do it in a smart way because it costs money. So we build technology and data that basics, give us feedback on how does the how the how much time it takes to get the store how much data you’d like these stories better than the other stories, these vertical versus that better than the other vertical. And we get this data and get better and better and better. And then we need the stars to keep using us and working with us and working with the customer. So again, here, use underwriting use technology to get the feedback about these customers and how they do versus the store to get better and better and continue when you serve the customer, you want the end user customer to have seamless experience when they take the loan when they pay for the loan. And if they want to, you know to change some time and they have some challenges not paying the loan, give them the best experience. And we use technology look at the entire system, from A to Z with technology with underwriting with AI, and then go back with the focus on the customer.

Whitney McDonald 12:41
Now, of course, you’re in the business of innovation in payments, wondering if you could give us kind of a look ahead as to where the payments market is heading in the next year as we look into 2024.

Arad Levertov 12:56
So I think that the first thing I will try to look is look even farther, like even, you know, 20 to 2030. Because, again, I mentioned that you and I are doing right now podcast, which 20 years ago was nowhere, right. I mean, when I was a kid, we used to read newspaper like literally newspaper. When you think about the payment and you know, financial financial industry, it’s still closer to the newspaper and to the podcast that we are doing right now, which means it stuck many years ago, because customer gets the same, the same many customer get the same, the same products, and it’s all personnel is not focused on the customer. So I think that you know, 10 years from now or whatever, in the long term, it will have to change because customers deserve more, they deserve better product more personalized, and actually cheaper, right? So the companies that will be able to do it are the companies as we mentioned that, you know, focus on technology, put the customer in the in the center, and of course, make profit because if not, you’re not going to survive. So this is the long term, the next year is still going to be challenging, because the interest is high. And this is the new reality whether it’s ends or stuck, you know, easing in end of 2024 and 2025. I don’t know I treat right now this the current situation is the new normal. So it will actually, as I mentioned, be a stress test for all the companies in the space to see if you can get through this and keep growing and you know, doing it while while building profitable, profitable business. You will definitely be the winning for the long term. And you will do it if you focus on technology customers and in Detroit and this is what we try to do they have today.

Whitney McDonald 14:51
You’ve been listening to the buzz, a bank automation news podcast, please follow us on LinkedIn. And as a reminder, you can rate this podcast on your platform Choice thank you for your time and be sure to visit us at Bank automation news.com For more automation news

Transcribed by https://otter.ai

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Whitney McDonald

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November 2, 2023
EU future-proofs its payments and Open Banking ecosystem with PSD3 | Accenture Banking Blog
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PSD2 helped drive electronic payment and data-sharing volumes while enhancing security.

So why is the EU proposing to enhance it with the new Payment Services Directive 3 (PSD3) and Payment Services Regulations (PSR) package, and what does this entail?

1)  Gaps in the regulatory application of PSD2. The new framework will create a consistent regulatory environment with mandated APIs. PSD2, in large parts, will be amended and replaced with the PSR. There will also be a strengthening of enforcement rules, licensing and penalties.

2)  The need for a level playing field for non-bank payment providers and banks. Inconsistent application put payment providers at a disadvantage, depending on where they operate. PSD3 will also go further in giving payment and e-money institutions the right to directly access settlement infrastructures across the EU.

3)  The emerging fraud landscape. Even with strong customer authentication (SCA), fraud remains a significant and evolving threat that poses the risk of consumers losing confidence in payments. PSD3 aims to enhance payment transparency and security by introducing:
- Validation similar to the ‘confirmation of payee’ used in the UK;
- A liability model for cases of authorised push payment (APP) fraud; and
- Transaction monitoring to facilitate the application of SCA.
Access to cash remains a priority—transparent ATM charges and allowing customers to withdraw cash in shops without having to make a purchase are two additional proposals.

4)  Evolution of the Open Banking standards / functionality with an emphasis on enhancing consumer access and useability. More detailed API specifications (e.g. for a permissions dashboard), with clear standards, will increase both performance and availability. This standard aims to drive cross-border innovation and services and even extends to wider access to data with the Financial Data Access (FIDA) regulation as part of the overall regulatory package. FIDA is a framework that governs access to and use of customer data; there will be a new scheme for data holders to comply with.

These proposals will be reviewed by the European Council and Parliament, with application likely to happen from 2026. Yet their impact will soon be felt by all types of financial and payment institutions.

So what are the expected industry impacts?

Just like PSD2, this is a transformative piece of legislation that will affect the entire payments ecosystem. However, the scale of change and the opportunities will differ greatly among banks, payment service providers and technology service providers.   

For banks: The obvious impact will be on significant cross-functional investment (e.g. across IT, Operations, Security, Risk, Compliance, etc.) that will intensify existing cost pressures. However, this should be seen as an investment with three goals: to comply, to protect their existing customer bases, and to seek opportunities to capture market share. All three will be supported by PSD3’s greater access to data (driving new propositions and revenue) and enhanced security, which will increase competition. Banks are already in a strong position with their existing relationship with customers. The potential upside lies in strengthening this and capturing new relationships, while the downside is the prospect of losing it altogether.

Commercially, there is even another incentive: the offset of investment costs by lower fraud reimbursements. Overall, therefore, a proactive cost / benefit analysis and operating model readiness for PSD3 is a surefire way to prepare for the opportunities it presents.  

For PSPs: The investment case still needs to be made, but clearly the opportunity size is greater. Increased customer confidence and access / transparency with dashboards will bring new customers to existing API-enabled propositions. Also, similarly, with other financial institutions, standardized rules and name checks hold the potential to reduce operational costs and fraud-related payouts. Supporting this, cross-EU market barriers have been lowered with consistent application of PSD3 across member states. This has opened up new markets. Innovative and targeted product development by PSPs can exploit this expanded market reach.

For technology service providers: We only need look at the opportunities for banks to recognize that the same is true for TSPs. With fraud mitigation being a key part of PSD3, TSPs stand to benefit from investment in robust fraud prevention solutions. There is also the need for newer areas of technology and services: from API standardisation to name checks, data access interfaces and dashboards. TSPs will do well to focus on new product development and support for and/or partnerships with banks.

Accenture has extensive experience across payments, Open Banking and regulatory change. If you would like to discuss how we could support you as you enter this important next phase of payments and Open Banking, please reach out to me at amit.mallick@accenture.com.

Read our latest thinking on commercial payments in “Reinventing commercial payments for profitable growth.”
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Amit Mallick

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October 31, 2023
Mastercard teams up with JPMorgan | Bank Automation News
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Payments behemoth Mastercard has joined forces with JPMorgan Chase to provide customers with a pay-by-bank option.

Pay-by-bank can be used by billers for recurring payments like rent, utilities, health care and tuition, among others, according to an Oct. 20 Mastercard release.

Photographer: Lionel Ng/Bloomberg

The capability taps into Mastercard’s open banking technology to allow consumers and businesses to safely share their data to easily access a variety of financial services, a Mastercard spokesperson told Bank Automation News.

Telecom service provider Verizon will be the first to use this payment channel for its customers, according to the release, and Mastercard expects more billers to join the payment channel in the coming months.

The card giant is not the only FI getting into pay-by-bank; Bank of America is also exploring expanding its pay-by-bank offering in the United States, although it is already available in the United Kingdom.

JPMorgan Payments selects Trulioo for identity verification

JPMorgan Payments has selected identify verification platform Trulioo to help crack down on fraud and other financial crimes.

Vancouver, Canada-based Trulioo will provide JPMorgan with its Person Match and Identity Document Verification solutions to verify a person’s identity and provide business verification, according to a recent JPMorgan release.

“We chose the platform because of its breadth of personally identifiable data sources, impressive match rates and global footprint,” Ryan Schmiedl, managing director and global head of payments trust and safety at JPMorgan, said in the release. “Trulioo has the trusted authentication and verification experience we want to offer clients and additional layers of protection from fraud during the onboarding experience and beyond.”

Trulioo uses data points from 190 countries, including personally identifiable information, government documents, biometrics and business names in order to verify users for its bank customers, Trulioo Chief Product Officer Michael Ramsbacker told BAN.

Machine learning is utilized by the identity verification company’s platform for document auto-capture and AI-driven face detection.

Trulioo raised $394 million in series D round in June 2021 for a $1.75 billion valuation. AmEx Ventures, Citi Ventures and Blumberg Capital participated in the funding round.

Mastercard joins forces with Remitly

Mastercard selected the cross-border payments company Remitly to provide customers with more options to make remittance payments.

Customers can use Mastercard Send, a payment solution by Mastercard, to add their debit card as a payment option on the Remitly app, and receivers of the payment can access their money through multiple channels including mobile wallets, direct deposit or cash pickups, an Oct. 19 Mastercard release stated.

Last October, Remitly teamed with Visa to provide real-time payment options for Canadian customers to send payments to 100 countries using Visa Direct.

Envestnet teams with 4 fintechs

Wealthtech giant Envestnet is teaming up with four fintechs:
- IT service provider Tata Consultancy Services;
- digital financial wellness company BrightUp;
- fintech as a service platform VoPay; and
- privacy-compliant identity network Deduce.
Envestnet Data & Analytics will provide secure account linking, open banking and multichannel payment rails to provide more financial wealth management tools to customers, according to an Oct. 24 Envestnet release. The wealthtech company will also provide the fintechs with financial datasets to help them provide better financial advice to their customers.

“Data has the power to harmonize and connect all parts of a person’s financial life so that their daily monetary decisions support their long-term goals,” Farouk Ferchichi, group president at Envestnet Data & Analytics, said in the release.

Visit Bank Automation News’ Transactions Database, which lists the technology selected or acquired by companies in the financial services industry, with a specific focus on technology that enhances automation.
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Vaidik Trivedi

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October 25, 2023
Alliant Credit Union to enable RTP | Bank Automation News

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Alliant Credit Union is investing in digital capabilities, including an effort to launch real-time payments next year. The Chicago-based credit union will join 351 banks and credit unions that are already RTP-enabled, up 32% year over year from 265 in July 2022, according to The Clearing House website. Of the 351 RTP- enabled financial […]

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Whitney McDonald

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October 24, 2023
For broader adoption of FedNow, experts say it’s all about use cases

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The Federal Reserve’s FedNow payments rail has garnered only about 140 adopters three months after its launch, but experts say they expect more financial institutions to join over time as more and more uses for the faster payments platform are developed.
Rafael Henrique – Adobe Stock

The Federal Reserve’s instant payments network has been live for three months, but the system is still waiting on banks — and their customers — to get with the program.

FedNow has attracted dozens of banks and credit unions interested in supercharging their intake of funds. But getting more to connect and transmit through the system will rely on the discovery of new use cases, experts say.

Since FedNow launched in July, nearly 140 financial institutions and 22 certified service providers have signed up for the network, according to a public register of users, a fraction of the nearly 10,000 institutions with access to the central bank’s other payments and settlements services. But early adopters and former Fed staffers say the rollout has played out as expected and compares favorably to the trajectory of the private RTP network, which has amassed roughly 400 participants since 2017.

Miriam Sheril, a former FedNow project manager at the Federal Reserve Banks of New York and Boston, said industry-wide adoption was never going to be instantaneous. She noted that most banks were reluctant to foot the bill of connecting to the system until they could see it in action.

“There was a lot of wait and see — to see when FedNow would land and, from a budgeting cycle perspective, banks weren’t willing to make commitments,” Sheril said.

Now the head of U.S. product at the payments service provider Form3, Sheril said she is seeing banks embrace the idea that instant payment capabilities could be beneficial, if not essential, in the not-too-distant future. But the lag between acceptance and adoption remains substantial.

“You can’t build and connect to a brand new rail in three months. It just doesn’t happen,” she said. “For all the banks that were waiting or were hesitant, even if they’re making the decision to connect now, they’re not going live right now, so FedNow is not going to miraculously have 1,000 banks come online overnight.”

Payments specialists say the launch of FedNow has benefited the instant payment space in multiple ways. Along with giving banks another option for facilitating faster transactions, it has also ended the stasis that came from financial institutions sitting on the sidelines until the Fed-back system debuted.

Rusiru Gunasena, senior vice president of RTP product management and strategy at The Clearing House — a private payments platform owned by a consortium of large U.S. banks — said the Fed’s announcement in 2020 that it would create an instant payments network caused many banks and credit unions to go into “hold mode” while they waited to see how the two offerings compared to one another.

“Finally, now the institutions can make a decision and move on,” Gunasena said. “They understand the value of real-time payments. It has created a renewed interest in the industry, in the marketplace among the financial institutions. Both banks and credit unions are now implementing real-time payments.”

Gunasena said there is now a “backlog” of interested counterparties looking to join the RTP network.

Similarly, Justin Jackson, vice president of integrated payment and bill payment at Fiserv, described the launch of FedNow as a dam breaking open. Since then, he has seen a surge in demand for groups to connect to FedNow or RTP — and, in many cases, both.

Jackson said many early adopters were motivated by a desire to be ahead of the curve rather than risk being left behind. Others, meanwhile, view it through a “dollars and cents” lens, he said, which has led to some mixed results. For now, he said, it is “significantly more common” for banks and credit unions to set up as receive-only participants in the FedNow network rather than send-and-receive — even though it is most cost effective to get set up for both functions at once.

“The economics are still pretty unsettled in this space. The transactions that are flowing across these rails, what type of transactions are they? Are they cannibalizing other revenue streams, like wire transactions? Are they a source of incremental revenue because they’re replacing an ACH payment and they’re adding real value there?” Jackson said. “The types of payments really influences the economics, so there are a lot of questions in play for institutions to consider.”

On the receiving side of the equation, Jackson said, the math is easier. Anything that lowers the barrier to banks receiving funding through deposits is going to be beneficial, he said, whether it comes in the form of a payroll direct deposit or an insurance disbursement.

Most of the origination activity on FedNow comes from a small number of financial institutions, though that group includes the U.S. Treasury. The story is similar on the RTP network, Gunasena said, though the sending contingent consists of TCH’s owner banks.

Overall, the strongest case for instant payments is being made by commercial banking customers, Jackson said, largely from entities that deal with large transactions that can take place outside traditional banking hours, such as auto purchases or certain homebuying-related activities. But he said he expects more applications to develop over time, creating greater adoption incentives for financial institutions.

“You will see originations on the retail side perhaps lag a little bit compared to originations on the commercial and business side,” he said. “But, eventually, both will be there with originations. That’s a short-term thing.”

On the topic of innovation, some in and around the payments space see meaningful differences between the FedNow and RTP networks.

Sheril said the messaging technology that underpins FedNow was designed to enable a wider variety of use cases. She cites the example of an option for selecting account types in transactions as a feature that could make it easier for creating specific payments products.

“None of these things say ‘I allow or don’t allow a use case’ — neither RTP nor FedNow say that, they say they’re agnostic, but they enable them,” she said. “FedNow has opened up the ISO messaging data to enable more things, and I think they’re trying to enable more use cases to let the banks and the industry drive what’s going to move over to the rail than RTP did at the beginning.”

Sheril noted that RTP has adopted its approach over time and she expects the two systems to push each other to be more innovative.

Jackson has noted that FedNow takes a more permissive approach to different use cases than RTP, but he sees the difference between the two as minimal and likely to close over time as participant demands and expectations solidify.

“For the Fed, once you’re connected to FedNow you can use FedNow, regardless of use case. TCH has certain use cases that are allowed to be supported on the network and others that are not, that is true, but I don’t know that that’s a long term thing,” he said “That that’s more about TCH wanting to make sure that they’re ready for each use case that comes on board.”

Jess Cheng, a lawyer with Wilson Sonsini Goodrich & Rosati and a former Fed attorney, said the legal framework within the FedNow system is advantageous to financial technology firms and other nonbank financial institutions.

Cheng, who helped draft the framework during her time working for the Fed Board of Governors, noted that while both FedNow and RTP require fintech to partner with an approved financial institution to access their networks, the Fed’s process is less onerous on fintechs.

“It’s just a different approach, one that’s just more open to nonbanks,” Cheng said. “It’s not like any and everyone can just use it, but it is a different approach that the Fed has taken and in part it’s relying more on the bank, the FedNow participant that a nonbank is partnering with, and expecting them to do the risk management.”

Gunasena said RTP and FedNow are subject to the same regulations regarding access to payment rails and chalks up the differences between the two networks to lessons learned during the past six years of operation.

“Both networks operate as the financial institutions being a part of the network, they are the participants and then their customers will integrate either directly to the network or through a financial instrument. Both models are the same,” he said. “I would say we have streamlined operations throughout the years from the lessons learned and the feedback.”

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Kyle Campbell

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October 23, 2023
California Implements New Cryptocurrency Laws to Combat Bitcoin ATM Scams

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Bitcoin (BTC) ATMs have become both convenient and worrying, with scammers taking advantage of unsuspecting victims. Authorities in the US and other jurisdictions are now waging a war against crypto-ATM-based scams.

California takes a stance on new cryptocurrency laws

The state of California has introduced rules for cryptocurrency transactions. Senate Bill 401, signed by Governor Gavin Newsom, means you can only make $1,000 worth of cryptocurrency transactions at ATMs each day, and starting in 2025, the maximum they can charge you is $5, or 15% of the transaction. Whichever is higher.

Initially, some Bitcoin ATMs allowed up to $50,000 in transactions with fees ranging between 12% and 25% above the value of the digital asset. These changes are intended to protect people from scams and high fees, explained Sen. Monique Lemon, one of the co-authors.

Scammers taking advantage of the convenience of Bitcoin ATMs have been a growing concern, with the Federal Trade Commission reporting that more than 46,000 people have lost more than $1 billion to cryptocurrency scams since 2021. New transaction limits give victims more time to spot scams before loss of money. But Charles Bell of the Blockchain Advocacy Coalition worries that these rules could hurt the cryptocurrency industry and small businesses.

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FBI Alerts About Bitcoin ATM and QR Code Scams

The Federal Bureau of Investigation (FBI) has raised the alarm about fraudulent schemes exploiting ATMs for cryptocurrencies and quick response (QR) codes for payments. These schemes take various forms, including online impersonation, romance scams, and lottery fraud, all using cryptocurrency ATMs and QR codes as tools.

QR codes, which smartphone cameras can scan, simplify cryptocurrency payments. However, criminals are now using it to trick victims into paying money. Victims are often asked to withdraw money from their accounts and use a QR code provided by scammers to complete transactions at physical cryptocurrency ATMs.

Once the victim makes the payment, the cryptocurrency is transferred to the scammer’s wallet, making recovery nearly impossible due to the decentralized nature of cryptocurrencies. The FBI offers several tips to protect against these schemes, focusing on caution, verification, and avoiding cryptocurrency ATM transactions that promise anonymity using only a phone number or email.

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Cryptocurrency regulation efforts in California

The passage of Senate Bill 401 in California is part of a broader effort to regulate the cryptocurrency industry while protecting consumers. Another law, scheduled to take effect in July 2025, will require digital financial asset companies to obtain licenses from the California Department of Financial Protection and Innovation. This represents a clear shift towards tightening government regulation and oversight in the world of digital finance.

Gavin Newsom’s decision to sign these bills into law demonstrates California’s commitment to strengthening the cryptocurrency industry and protecting its citizens. Balancing innovation and security remains a challenge, especially in a rapidly evolving digital landscape.

Bitcoin Depot’s historic debut on the NASDAQ

In July, Bitcoin Depot, a leading bitcoin ATM operator, went public on the Nasdaq. This milestone comes after Bitcoin Depot merged with GSR II Meteora, a blank check company.

The move to go public demonstrates the growing legitimacy and acceptance of cryptocurrencies in major financial markets.

Authorities vs. illegal crypto ATMs

The UK Financial Conduct Authority (FCA) is taking a strong stance against illegal cryptocurrency ATM operators. Using its power under money laundering regulations, the Financial Conduct Authority (FCA) has carried out raids on cryptocurrency ATMs suspected of illegal activities across England.

The measures, which follow previous operations in east London and Leeds, are part of the Financial Conduct Authority’s (FCA) efforts to crack down on unregulated cryptocurrency operations. This highlights global pressure for stronger cryptocurrency regulation, mirroring steps taken in California. The balance between innovation and security remains a fundamental concern for regulatory bodies around the world.

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McLennan County Bitcoin ATM Lawsuit Resolved

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Editorial Team

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October 23, 2023
5 ways merchants are fighting card-swipe fees at the point of sale

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Payment card interchange, a major factor of the “swipe fees” that average about 2% of each sale, is in the news again as lawmakers and regulators react to claims that the pricing of card payments is unfairly controlled by card networks Visa and Mastercard.

The existing systems supporting U.S. swipe fees are coming under pressure from at least three directions on political and legal fronts, briefly described below.

But merchants are also using technologies and policies to offset the cost of payment card swipe fees, helped by the rise of faster payments, new approaches to merchant-funded rewards and new U.S. regulations encouraging open banking.

“Merchants surprisingly have a lot of levers to push and pull when it comes to controlling how much they pay in payment card interchange,” said Eric Cohen, CEO of Merchant Advocate, a consulting firm based in Colts Neck, New Jersey, which counsels merchants on managing card-processing costs.

Sen. Dick Durbin, D-Ill., and Roger Marshall, R-Kan., are co-sponsoring the Credit Card Competition Act, which would give merchants a lower-cost credit card processing option by requiring banks with assets of $100 billion-plus to offer merchants a choice of two unaffiliated card networks that aren’t both Visa or Mastercard.

Separately, the Federal Reserve plans to vote this week on revising debit card interchange fees the agency set more than a decade ago as part of the 2010 Dodd-Frank Act, affecting banks with at least $10 billion in assets.

On another front, the Supreme Court last month agreed to hear a case brought by a North Dakota convenience store challenging the statute of limitations for the Fed’s Regulation II rule enacted in 2011 to implement debit interchange rates as a result of Dodd-Frank.

Visa and Mastercard argue that swipe fees cover the cost of payment card acceptance, technology and fraud. But card-network rules don’t prevent merchants from exploring alternative strategies to reduce the effect of credit and debit card swipe fees. Here are five examples.

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Kate Fitzgerald

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October 22, 2023
Discover invests in tech & analytics | Bank Automation News

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Discover Financial Services continues to invest in technology and advanced analytics within customer service, originations, risk and compliance, fraud detection and application processes. During the third quarter of 2023, the financial institution spent $149 million on information processing, an increase of 20% year over year, according to the its earnings presentation. Information processing was up […]

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Whitney McDonald

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October 19, 2023
US Bank invests in digital payments | Bank Automation News

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U.S. Bank invested in digital capabilities within its payments business during the third quarter of 2023 as it shifted toward a more tech-led revenue approach. Tech spend at the $668 billion bank was up 20% year over year to $511 million, according to the bank’s Q3 earnings presentation. “Within payments services, we continue to invest […]

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Whitney McDonald

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October 18, 2023
The smiling face of Chinese interests in the Indo-Pacific: David Cameron

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LONDON — It is a multi-billion-dollar plan to build a metropolis in the Indo-Pacific which critics fear may one day act as a Chinese military outpost.

Now the vast Colombo Port City project has a new champion — former British Prime Minister David Cameron.

Cameron has been enlisted to drum up foreign investment in the controversial Sri Lankan project, which is a major part of Xi Jinping’s Belt and Road Initiative — China’s global infrastructure strategy — and is billed as a Chinese-funded rival to Singapore and Dubai.

Cameron flew to the Middle East in late September to speak at two glitzy investment events for Colombo Port City, having visited the waterside site in Sri Lanka in person earlier this year.

His spokesperson said the former PM had had no direct contact with either the Chinese government or the Chinese firm involved. But Cameron’s lobbying for the scheme has drawn severe backlash from critics, who say his activities will aid China in its geopolitical ambitions.

Former Conservative Party leader Iain Duncan Smith, who was sanctioned by Beijing for criticizing its human rights record, said: “Cameron of all people must realize that China’s Belt and Road is not about help and support and development, it’s ultimately about gaining control — as they’ve already demonstrated in Sri Lanka.

“I hope that he will reconsider the position he’s taken on this.”

Tim Loughton, another Tory MP sanctioned by China, said: “The Sri Lankan project is a classic example of how China buys votes and influence in developing countries and then sends the bailiffs in when those countries can’t keep up the payments.”

“Cameron should be working to help wean vulnerable countries off Chinese influence and debt rather than tying them in more tightly.”

At the roadshow

Dilum Amunugama, Sri Lanka’s investment minister who attended the investment events in the UAE last month, told POLITICO he believed Cameron was enlisted to convince Western investors to put their money into the project.

Amunugama was at two events where Cameron spoke — one in Abu Dhabi with an audience of 100, and one in Dubai with an audience of 300.

“The main point he [Cameron] was trying to stress is that it is not a purely Chinese project, it is a Sri Lankan-owned project — and that is the main point I think the Chinese also wanted him to iron out,” Amunugama said.

Cameron is in charge of drumming up investment into the Chinese-funded Colombo Port City project | Ishara S. Kodikara/AFP via Getty Images

The Sri Lankan minister said the decision to enlist Cameron “was taken by the Chinese company, not the government.”

Cameron’s office said his involvement was organized by the Washington Speakers Bureau, a D.C.-based agency that books guest speakers for corporate events.

His spokesperson said: “David Cameron spoke at two events in the UAE organized via Washington Speakers Bureau (WSB), in support of Port City Colombo, Sri Lanka.

“The contracting party for the events was KPMG Sri Lanka and Mr Cameron’s engagement followed a meeting he had with Sri Lanka’s president, Ranil Wickremesinghe, earlier in the year.

“Mr Cameron has not engaged in any way with China or any Chinese company about these speaking events. The Port City project is fully supported by the Sri Lankan government,” his spokesperson added.

The spokesperson declined to say how much Cameron was paid for his time. Cameron traveled to Sri Lanka in January and visited the development, but his office said that he did so as a guest of the president and that there was no commercial aspect to that trip.

Mired in controversy

The Colombo Port City project has been controversial since its inception.

It was unveiled in 2014 by China’s Xi and Sri Lanka’s then-president, Mahinda Rajapaksa. Three years later, Sri Lanka handed it over to Chinese control after struggling to pay off its debt to Chinese firms.

Multiple concerns have been raised about the project, including its environmental impact; U.S. warnings it could be used for money laundering; and fears that it will ultimately be used as a Chinese military outpost.

Analysts have warned repeatedly that China is using the project to extend its strategic influence in the region. Beijing has already used the nearby Hambantota port — also funded by Chinese loans — to dock military vessels.

The main developer behind the Colombo Port City Project, CHEC Port City Colombo Ltd, has pumped in an initial $1.3 billion. Its ultimate owner is the China Communications Construction Company, a majority state-owned enterprise headquartered in Beijing.

Golden era no more

As prime minister, Cameron and his Chancellor George Osborne famously heralded a “golden era” of U.K. relations with China. Since leaving office in 2016, the ex-PM has come under heavy scrutiny over his lobbying activities, including for the now-collapsed finance company Greensill Capital.

The ex-PM has come under scrutiny for his lobbying activities, including for the now-bankrupt company Greensill Capital | David Hecker/Getty Images

For a period Cameron was also vice-chair of a £1 billion China-U.K. investment fund. The U.K. parliament’s intelligence and security committee said this year that Cameron’s appointment to that role could have been “in some part engineered by the Chinese state to lend credibility to Chinese investment.”

Sam Hogg, a U.K.-China analyst who writes the “Beijing to Britain” briefing, said: “As the ISC pointed out, China has a habit of utilizing former senior-ranking politicians to give credibility to their companies and projects.

“At a time when the Belt and Road Initiative is under intense scrutiny ahead of its 10^th anniversary next week, Cameron’s involvement will raise a few eyebrows.”

Luke de Pulford, executive director of the Inter-Parliamentary Alliance on China, added: “We can’t have a situation where the EU and U.S. are so concerned about the Belt and Road Initiative that they’re pumping billions into alternative projects, while our own former PM appears to be batting for Beijing.”

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Eleni Courea

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October 17, 2023
American Express tech stack | Bank Automation News

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American Express’ recent technology investments include product development and tech stack enhancements. In the second quarter of 2023, the financial institution increased expenses 23% year over year to $402 million, according to its earnings supplement, with the increase primarily driven by higher technology costs. The $245 billion financial institution’s tech focus continued into the third […]

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Whitney McDonald

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October 9, 2023
EU U-turns after halting Palestinian funding following Hamas attack

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The EU’s united front on Israel’s war with Hamas is already showing its first cracks.

On Monday, EU Enlargement Commissioner Olivér Várhelyi announced the Commission would put €691 million in aid to the Palestinian Authority under review, with all payments immediately suspended. Hours later, with that move causing concern across the bloc, the EU’s top diplomat, Josep Borrell, said the Commission “will not suspend the due payments” as “punishing all the Palestinian people” would have “damaged the EU interests in the region and would have only further emboldened terrorists.”

Before the U-turn, there were already public disagreements within the Commission over whether to freeze aid to the Palestinian Authority. Meanwhile, Tuesday’s EU foreign affairs ministers meeting risks leading to an internal showdown, EU diplomats and officials warned, given the disagreements between EU countries on the conflict.

“Israel-Palestine is one of the most divisive issues in the EU,” said one EU official, who was granted anonymity to speak publicly. “The intra-European divisions on this conflict are almost as old as the conflict itself.”

The most immediate row is over the EU’s financial aid flows to the region.

As EU foreign ministers prepared to meet Tuesday, a growing row brewed over the Commission’s announcement to cut Palestinian aid.

Várhelyi’s announcement of a funding halt coincided with Israel’s defense minister ordering a “complete siege” of Gaza, cutting off water, food and energy supplies to more than 2 million people in the Hamas-controlled territory.

Following Várhelyi’s announcement, the Commission struggled to clarify which parts of Palestinian aid would be cut. EU Commissioner Janez Lenarčič, who is responsible for crisis management, said while he condemned the Hamas attack, EU humanitarian aid to Palestinians in need will “continue as long as needed.”

The splits within the Commission — Várhelyi, the Hungarian commissioner, previously blocked the disbursement of funding over the content of Palestinian schoolbooks, while Lenarčič hails from Slovenia, which is traditionally one of the more pro-Palestinian EU countries — presaged the debate between member states due to play out Tuesday.

By late Monday, the Commission was publicly backtracking on Várhelyi’s announcement, saying in a press release that it was “launching an urgent review of the EU’s assistance for Palestine.”

“The objective of this review is to ensure that no EU funding indirectly enables any terrorist organization to carry out attacks against Israel. The Commission will equally review if, in light of the changed circumstances on the ground, its support programmes to the Palestinian population and the Palestinian Authority need to be adjusted.

“The Commission will carry out this review as soon as possible with Member States … in the meantime, as there were no payments foreseen, there will be no suspension of payments.”

Luxembourg’s Foreign Minister Jean Asselborn was the first senior European official to publicly break rank, criticizing Várhelyi’s announcement. “The decision on this is up to the member states and it is only on Tuesday that the foreign ministers from the 27 EU countries will meet to discuss it,” Asselborn told Luxembourgish media.

The European Commission on Monday publicly disagreed over whether to freeze aid to the Palestinian Authority | Johanna Geron/AFP via Getty Images

According to Spain’s ABC, which quoted unnamed officials, Foreign Minister José Manuel Albares “has had a telephone conversation with the commissioner” in which he conveyed, in regard to the suspension of aid, “his disagreement with the decision, which the foreign ministers were not aware of.”

At a technical meeting between EU countries on Monday, several diplomats asked questions about the legal grounds for Várhelyi’s decision, just as Asselborn did publicly, one EU diplomat said. “Várhelyi might have been a bit too eager not to waste a good crisis,” the diplomat said.

Turning on the lights

Even before the announcement of cuts to Palestinian aid, there was internal division within the EU about how the bloc should respond.

Borrell issued a statement Sunday on behalf of the EU, condemning “in the strongest possible terms the multiple and indiscriminate attacks across Israel by Hamas.”

But several countries — including Ireland, Luxembourg and Denmark — sought a reference to de-escalation in the joint text, which was opposed by others, including Austria, three officials who were granted anonymity to discuss sensitive matters told POLITICO. For the more pro-Israeli countries within the bloc, a call for de-escalation could be seen as ascribing equivalence to both sides, diplomats said.

Borrell issued a statement Sunday on behalf of the EU, condemning “in the strongest possible terms the multiple and indiscriminate attacks across Israel by Hamas.” | John Thys/AFP via Getty Images

Some diplomats also pointed out the different reactions of the EU institutions over the weekend. The Berlaymont, the headquarters of the European Commission, was illuminated in the colors of the Israeli flag. The building of the European Council, on the other hand, was lit up without visualizing that flag — a sign of a more nuanced approach from member states.

Another EU diplomat said they wouldn’t have made the same choice to display the Israeli flag on the Berlaymont and said the image “surprised” them given the sensitivities.

The conflicts within Israel and the Palestinian territories have long been a divisive issue for the EU, even though it supports a two-state solution, with the bloc struggling to find consensus and, therefore, forced to manage a range of views among its 27 member countries. France, the Nordic states, Belgium and Ireland traditionally support a position that is seen by some other countries as too pro-Palestinian.

Another official from a member state expressed concerns at the wisdom of the Commission’s stance. “Of course, we all condemn the heinous attack on Israel, but Israelis are likely to launch their own offensive in Gaza over the next week, and have already announced a siege, so a broad statement with more nuance would have been better,” said the EU official.

With the world’s spotlight on Israel, EU countries will have to walk a fine line at the foreign affairs ministers’ meeting. Some capitals want to make clear to the European Commission that it can not go too fast too quickly. At the same time, those arguing for some reflection are wary of being cast as pro-Hamas.

Another EU diplomat said it’s one thing to have a foreign policy in the EU’s immediate neighborhood, it’s another to see whether “we can indeed have a common foreign security policy on the global stage.”

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Barbara Moens and Suzanne Lynch

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October 9, 2023
Fed’s Waller says FedNow adoption ‘will grow over time’

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Christopher Waller, governor of the Federal Reserve, said Friday afternoon that there are “well over 100” banks and credit unions currently using the FedNow real-time payment settlement service, and that he expects that number to continue to grow.
Bloomberg News

WASHINGTON — Federal Reserve Gov. Christopher Waller said Friday that the Fed’s real-time payment settlement service FedNow has already grown from a few dozen banks and credit unions as customers to “well over 100” today, and said internal estimates suggest that number could rise up to 350 by year’s end.

Speaking at a payments conference at the Brookings Institution Friday afternoon, Waller pushed back against the suggestion that banks’ uptake of the long-awaited Fed payments settlement service has been lower than expected or a sign of insufficient demand on the part of depository institutions or their customers.

“We never expected that we would launch it and there would be 4,000 banks joining it. That was never the expectation or a reality,” Waller said. “We have a pipeline of banks that want to join. This will grow over time.”

Waller added that from the launch of FedNow in July, when the service had 51 depository institutions signed up, the number is “well over 100” today, and that the service is steadily expanding its reach.

“There are various estimates that we’ll have 250 to 350 by the end of year, and just continue to grow as banks do it,” Waller said. “But banks have to see some value proposition to make the investment to join, and that depends on what the customers want.”

The road to the launch of the FedNow payments service has been circuitous. The central bank began mulling whether to develop its own payment settlement service more than a decade ago and ultimately decided to develop the system in 2019.

FedNow competes with another private instant settlement service: Real Time Payments, or RTP, which is operated by The Clearing House, which is itself owned by the largest banks in the country. While RTP has been available to banks and other institutions since 2017, some smaller banks have been skeptical of using a platform owned by their larger competitors. The rollout of FedNow is seen by many as a necessary step to making instant payment settlement ubiquitous throughout the U.S. banking system.

Waller also reiterated his position that a central bank digital currency would offer little utility for the Fed, banks or consumers, saying that the existing system of intermediation by banks has been equally effective. Even though some other countries have moved forward with developing a CBDC, he said, there remains no clear use case that could justify having the Fed develop one for the United States.

“The basic question I asked is what a typical economist would ask, which is: ‘What is the major market failure in the payment system that requires a CBDC — and only a CBDC — to solve?'” Waller said. “I posed that question two years ago and I have not heard one satisfactory answer to that question yet. It makes me think that a CBDC is something you could do but there’s nothing that makes you need it.”

Waller accounted for the flurry of activity and discussion around developing a CBDC as investigative in nature, rather than reflective of a policy preference for the central bank to embark on a digital currency.

“We always have to be prepared for the fact that if Congress were to in fact tell us: ‘Do this,’ that we would have the technology and know-how to do it,” Waller said. “That’s most of what we do, is just explore how we would do this, how would we manage it, how would we do the record keeping — so it’s just trying to understand the technology so that if one day Congress said ‘You need to do it’, we could do it.”

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John Heltman

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October 6, 2023
On the job with … Citi TTS | Bank Automation News

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Citigroup’s Treasury and Trade Solutions business is looking to hire someone to lead its global instant payments strategy amid the bank’s restructuring and efficiency efforts. The $2.2 trillion bank’s ideal candidate must have experience in the payments industry, be well versed in industry trends and capable of strategic thinking, a Citi spokesperson told Bank Automation […]

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Whitney McDonald

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October 5, 2023
Lloyds taps Visa for virtual card | Bank Automation News

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Lloyds Bank has selected payments behemoth Visa to provide a virtual card offering to its business customers. Visa Commercial Pay will give Lloyds Bank’s business customers access to virtual cards through which they can control spending, reconcile invoices and file expenses, a Sept. 27 Visa release stated. The new solution allows Lloyd’s business customers to […]

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Vaidik Trivedi

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October 4, 2023