NEACH brought together banking, payments, and FinTech professionals for its annual Future of Payments Symposium, held virtually Nov. 2-3, to address the evolution of the payments landscape and its impact on financial institutions. The conference opened with “The FedNow® Early Adopters Panel,” featuring Michael O’Brien Assistant Vice President of Payment Strategies at Eastern Corporate Federal Credit Union (Eascorp), and subsidiary, Vertifi Software, and Robert Ames, head of digital delivery at Salem Five Bank, with Joe Casali, Executive Vice President at NEACH serving as moderator. What follows are highlights from this roundtable discussion.
Casali: Let’s start with a level-setting question. A recent NEACH survey indicated that 50 percent of the respondents in New England were unsure if their institution had a payments strategy. Would you comment on that as it relates to FedNow?
Ames: When I joined the bank about five years ago, one of the things that we started to look at on the digital front was payments as a broader category but with an eye towards faster payments. A lot was happening with The Clearing House and RTP® and what the Fed was talking about at the time, which ultimately became FedNow. That reality forced us to think more holistically about payments and be forward-thinking about what we knew was coming.
O’Brien: Eascorp and Vertifi were part of the FedNow pilot program from the start. So, this has been a multi-year process for us.
Casali: There’s a question in the chat for Salem Five: How are you participating in send and receive?
Ames: Working closely with our provider, our goal as an organization was to go live with receive first. Through the journey, we spent and continue to spend time with our partners around products. We'll be able to use these rails as part of the offering to our customers, whether the consumer or corporate side. So, as we look ahead, we are working on extending our existing digital product to offer faster payment options.
Casali: Let's catch up with Mike. If I'm a credit union and want only to receive, is that okay?
O’Brien: We push that receiving can still be an experience for your end users. We often hear about Uber drivers. It could be a weekend, but they can get those payments in real-time as long as their institutions are on the network. In some ways, it's easier because you don't need a product for the receive side. For your end users to send payments, there needs to be a product offering.
Casali: You mentioned something important—a product offering for the send side. Would you say more about that?
O’Brien: An institution may want to add a revenue source, say, send this instantly for a percentage or flat fee. That will vary by institution, but it's what we call the product side. It offers both an experience to your members and a potential revenue stream.
Ames: When we look at the product side with our provider, we’re looking at things like bill payment and external transfers. Based on what we've seen with our customers, there is a real demand for instant payment options in a bill payment solution. Over time, we've lost transactions from our traditional bill pay solutions to where our customers go directly to American Express or Bank of America to make their car payment or loan payment or what have you. We want customers to make payments using our bill pay solution. To bring those transactions back, we need to offer an option that gives our customers instant payments for billers.
Casali: At the beginning of the year, the story was that there was a lot of fraud in instant payments. But since FedNow went live, I still don't have any examples of fraud. How worried are you about fraud?
O’Brien: So, fraud is everyone’s first and last question. But that’s where some of those risk tools come into place. Individual institutions can set a maximum dollar value per transaction. And more extensive rules can come into play through the service providers that institutions use. This is the first new payment rail in decades. With checks and ACH, there's still fraud. So, it's not like fraud is new, and no one knows how to handle it. There's been fraud for the entirety of payments. It’s something we'll get the hang of.
Ames: Let me piggyback on that. Payments go back hundreds of years, and fraud has been in every channel and every application of payments. In this case, I liken FedNow more to wire than to ACH. Once you've received the credit, not much can happen to get that credit reversed, unlike ACH, where you can pull it back within 60 days. I say the fraud piece will have to be at the product level on origination because if you don't have it there, you won't have it on the other end. So, the real focus needs to be on the origination side and the products that sit around that origination.
Casali: I'd like to discuss one more piece—the negative list. If you share something and say this is a bad account, does the whole network know?
Ames: I believe it’s the whole network. It is part of the agreement you sign before participating. That’s one of the conditions. You can’t keep it just to yourself.
O’Brien: Signing up, there's paperwork with the Fed agreeing to the service and that you will share the bad actors because it will be very useful over time if shared globally. Those bad accounts mean the transaction is rejected immediately, so your internal or external receive and send accounts aren't impacted.
Casali: Before we leave the topic, how is volume?
O’Brien: Volume is low. I read somewhere in October that there are 120-plus institutions on the network, but it's growing at about one or two new institutions daily. The growth is there, but it will take time. For now, volumes are low.
Ames: We've seen production transactions that we've been participating with others on, but we've yet to see any volume. Part of this is a chicken and egg scenario. Because if you have a few endpoints to get the originating files into, who will create the originating files? We strongly advocate for our community and industry to at least sign up to receive so the bigger origination files and players can start to move.
While instant payments are in their infancy, study after study has shown the demand is there. As instant payments continue to ramp up, NEACH will be a strong resource for FIs and their partners in determining next steps. In the short term, consider exploring three pivotal sessions from the Future of Payments symposium in on-demand sessions, including this what’s-really-happening-with-FedNow discussion. For more information or to register, visit NEACH’s Online Learning Center.
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