Episode 221 – The Future of Fast Payments in the U.S. with Bernadette Ksepka, Federal Reserve Financial Services and Elena Whisler, The Clearing House

Yvette Bohanan

September 20, 2023

POF Podcast

Last week, we hosted the first Payments on Fire Live Stream event on the future of fast payments in the U.S. This episode highlights the panel conversation with Bernadette Ksepka, Federal Reserve Financial Services, Elena Whisler, The Clearing House, and Bryan Derman, Glenbrook Partners. 

If your organization is looking for guidance in the fast payments landscape, be sure to check out the Fast Tracking Fast Payments workshop on November 15. This four-hour intensive workshop is designed for payments leads at U.S. financial institutions seeking to efficiently evaluate and productize a new real-time payment offering.

 

Episode Transcript

Yvette Bohanan: Hello! I’m Yvette Bohanan, a partner at Glenbrook, and your host for Payments on Fire. On behalf of the entire Glenbrook team, I am delighted to welcome you to our first Payments on Fire Live Stream event.

Yvette Bohanan: So it’s our pleasure now to introduce our panel for today’s conversation. We have Bernadette Ksepka, Director of Product Management for the FedNow, and Elena Whisler, Chief Client Officer at The Clearing House, and Bryan Derman, Managing Partner at Glenbrook, joining me to dig into some of the questions that’s top of mind for everyone. So welcome, everybody. I’ve been looking forward to this discussion.

Elena Whisler: Hello! Welcome!

Yvette Bohanan: Hello, great to see you!

Bernadette Ksepka: You bet, it’s great to be here.

Yvette Bohanan: So shall we dig in? See what’s going on? We’ll start with talking a little bit about when it comes to fast payments, we’re hearing people in the US say that we’ve been slower to adopt these systems than other countries. And yet now we have 2 instant payment rails. Hopefully, I’m getting the terminology that we queued up here so nicely as well. So we have FedNow and RTP. And several networks, such as Zelle and Paypal and Venmo that are leveraging underlying infrastructure. Not just instant payment rails. And I’m curious about how do you differentiate between underlying rails and fast payment networks? Are you thinking of this the way Reed was describing, or is there more nuance to it for you?

Bernadette Ksepka: So I think faster payment options like Paypal, Zelle and Venmo, they’re obviously fundamentally different than FedNow and RTP. They’re consumer facing solutions and they support specific use cases. They have recognizable brands within consumers. Your average American probably knows Venmo, but they likely don’t know FedNow, or they don’t know RTP.

Bernadette Ksepka: FedNow, RTP, we’re payment rails, right. So we operate on the back end. I like to say that we’re the plumbing and we clear and settle payment transactions, we do that immediately, and then any innovative solutions that the industry builds is going to ride on those rails of FedNow and RTP.

Bernadette Ksepka: Whereas Zelle, Paypal, Venmo, the timing of the interbank settlement that happens with these payment networks really depends on the underlying rails that they’re using. It could be a ACH. It could be debit card. It could be RTP. It could be FedNow.

Bernadette Ksepka: But I think that as we see instant payments really become mainstream and they become the norm, you could imagine that these payment solutions are predominantly going to ride the rails of instant payments like FedNow and RTP and they will do that for settling a majority of their transactions instantly, and it’s not just going to be one of the offerings that that they have as an option right now.

Bernadette Ksepka: Because they’re going to want to give Americans what they want, right? And that’s to move money quickly, safely, and efficiently.

Elena Whisler: Yeah, I agree with that. It reminds me of when we look across the world and different terminology they use. And typically, it’s, you know, you’re talking about the platforms. And then you’re talking about overlays, right? Of solving specific use cases as Bernadette mentioned.

Elena Whisler: I think what is maybe going to start to happen, more interesting, and maybe this goes to some of the polls that we saw earlier is, I think, the expectation that the rail or the product or the service does more, and there’s more of that feeling of a complete ecosystem within that, rather than it being separated by segment, or by use case or by platform. And I don’t think there’s a, this is me talking, I don’t think there’s a right or wrong. I just find it more and more interesting that people say, Well, what’s the difference between Zelle and RTP or FedNow. And for some people, it solves their problem without needing to understand the underlying mechanisms that are triggered. It’s really the complete package. Right?

Elena Whisler: It’s the problem they’re solving includes 5 different components. Well, it might be later in our conversation. Some, either the product or service or the rail needs to solve some of those. And so where that sits, I think will evolve and I think that’s in part because technology has changed. And so it allows us to do that. I think roles and responsibilities might be changing. And the way our ecosystem is being here in the US. A market driven solution, not a government driven mandate that will kind of poke at who’s doing what right and how are we solving real time payments in the US.

Yvette Bohanan: It’s interesting, one of the things that you’re starting to touch on, and I’m going to kind of double click into, is that with 2 instant rails going here and an evolution in front of us, right, of where do you draw the line on some of these things? Do they stay as infrastructure? Do they carry forward? Do you go into overlay territory? We’ll get into all of that in a second.

Yvette Bohanan: But let’s start with the one that seems to come up a lot in conversations, at least that we have. FedNow is live. We have a lot of industry participants who want to know about technical interoperability between FedNow and RTP. So I’m wanting to just pose it out there to both of you. Whoever’s going to bravely take this up first. How are you thinking about interoperability, technical interoperability?

Elena Whisler: Yeah, it’s always a question. And I think it’s always something we as an industry need to get our arms around. And I could pose it, Why are we not interoperable with other payment types? It’s very similar. I think I will say that the Federal Reserve and The Clearing House across multiple networks have solved for interoperability differently. So wires is different than ACH, which is different than checks, images. And RTP and FedNow are different as well. And so I just wanted to bring that to the fold.

Elena Whisler: I think a lot of people have maybe ACH as their definition of interoperability. And there are other flavors of that. And so you talk about technical, and I think both organizations have worked towards aligning standards as much as possible, understanding we went live in different time periods, and so being exactly in sync is always technically tricky. Right? We all know formats update, they change. And so people learn and adjust but we’ve done that sort of work, and Bernadette obviously can share from her perspective to share not only the messages, but the intent behind some of the business fields, the focus of that, and then determine the right 80/20 rule related to that technical operability.

Elena Whisler: We are fundamentally 2 very different organizations. So when you look at a central bank, and how they settle with reserve accounts, The Clearing House cannot, we don’t have that ability or function, and so we use a joint account similar to our high value wire system, our chip system at the Federal Reserve, and we can manage the real time settlement differently than the Federal Reserve.

Elena Whisler: And that’ll never, right, we’re never going to be another central bank. There’s only one. And so the way we have to operate is different and always will be. But there will be different ways in which we can manage operability in the future if the market deems it so. So maybe I’ll pause there and see.

Bryan Derman: It’s funny though, Elena – we have 2 of everything else. So if there’s going to be a country that would have 2 central banks, it would probably happen here.

Yvette Bohanan: Not that we’re advocating for that. Bernadette, what do you think?

Bernadette Ksepka: I agree, as you said, we’ve spent a lot of time trying to align on our message specs. I think despite some of the fundamental differences that you outlined around settlement for example, I think we’re probably around 90% aligned on our message specs. And I think that really lays a good foundation for allowing interoperability through routing and removing some of those barriers for institutions like banks and service providers who are choosing to participate on both networks and are going to route between the 2. But I think this is an area where we need some more experience. So I think the question is still out there, if there’s additional things that we need to do as operators to support interoperability, and as we get that experience, we’ll continue to monitor that and have those conversations.

Yvette Bohanan: Yeah, you’re kind of getting to our next question here in a way which is around public private partnerships and their role in new fast payment networks and the rails in particular. But you’re touching on the fact that there’s room for other people to participate and add value one way or another.

Yvette Bohanan: You can look at Brazil’s Pix that was discussed a little bit between Reed and Elizabeth. You can look at UPI in India and observe a lot of success that they’ve achieved with partnerships to spur adoption to enable use cases. And both of those national payment systems are very, very integrated into Payment Service Provider offerings. We were talking with Carlos Brandt earlier this year on a podcast and he really highlighted the fact that those public private partnerships were critical to their success with Pix.

Yvette Bohanan: How are you approaching the partnerships, and which partnerships are proving most successful right now for you?

Bernadette Ksepka: So I can start. We’ve been working really closely with the industry on trying to catalyze the service. And we’ve been doing this even before we went live to help drive adoption and volume. Now that we are live, given that a majority of the nation’s financial institutions are relying on a service provider and we know how critical they are to the ecosystem, we’ve been closely working with the service providers right now. We have 19 service providers who are certified, and they’re ready to support payment processing for banks and credit unions and have been really active in enabling those downstream customers.

Bernadette Ksepka: Beyond that, we know that it’s only financial institutions that can directly participate in the service. But we’ve been really intentional on incorporating the broader ecosystem. So, having conversations with corporates and merchants and other stakeholders to encourage growth in particular, use cases, and to really help those ecosystem players understand where the opportunities and benefits are in instant payments, obviously through their financial institutions.

Bernadette Ksepka: I definitely see that the growth of instant payments is going to be spurred by the solutions and the experiences that are built out by the ecosystem, and that are built on top of the rails.

Bernadette Ksepka: I joke around that when someone comes to your house, they don’t admire the copper pipes that are under your sink. But what they’re going to talk about is that new faucet that you have, if it’s voice activated and touchless and has led lighting, that’s what’s going to get their attention. And I think that’s going to be the same in the payments industry.

Bernadette Ksepka: Fintechs. They can’t obviously directly participate like they can in other in other countries. But I think they are in unique positions to work with the financial institutions and service providers to build out those customer experiences whether it’s building out front end user experiences or seamlessly integrating into instant payments suites that financial institutions are offering. So they’re going to have a big role in in driving adoption of instant payments.

Elena Whisler: Yeah, maybe I could add a little bit. What we’ve seen over the last 5-6 years is, similar to Bernadette, having the ecosystem and the service providers on board and offering it to their financial institutions, the critical part to get on the network and to join. What we are working on now in particular, and maybe this is similar to what I understand in Pix and UPI as well, is there is a need to really drive different volume. And I would say more go to market packaging opportunities that involve multiple players. And that includes economic changes. That happened in Pix. And that happened in India with UPI to drive certain goals. So I think a big part of UPI is to have less cash, right, in in the systems, and there was economic incentives that were part of the package, for lack of a better term, of the overlays, the service providers that offered a better electronic experience, because it was better, faster, cheaper, less risky, less costly to do that.

Elena Whisler: And so what we’re, since we focus so hard on getting vendors and service providers and our ecosystem partners to join RTP and have products and services, and they all have that and we’re really excited about how they can join the network. Now, it’s how do we work on those use cases that need a bit uniqueness and differentiation, such that volume actually is evolved. There’s volume on the use cases. It just isn’t transformative yet. And you know, Elizabeth used that word earlier, and I really find it important for us in the real time payment conversation. One thing is to solve tactical problems and fix friction, the other is to transform how payments are done such that it’s better, more efficient, and it really moves the US economic and payment system forward.

Bryan Derman: Yeah, I think I think it was Reed who mentioned during the prior session that there are a number of companies using instant payments as kind of a value added service. And as he said, charging a lot for it. So it sort of feels like it’s an exception item today, especially premium priced. You might imagine over time as faster payments become more the norm that that pricing could become compressed, as it’s a little more of a commodity. Widely available to a range of players, and more of a consumer and business expectation.

Elena Whisler: And I know we generally don’t talk about pricing all that much as it’s unique depending on the organization and the offering that you give, but I think we might see a little creativity on economics in the sense that you don’t necessarily need to price transactions. You can price by experience, you price by value add, you price…You know, earlier, the conversation was really great with the polling on QR codes and confirmation of payment, and those nuances. Well, depending on use case those are that’s going to be the value.

Elena Whisler: It’s not how fast the money moves. It’s the experience. Did I get confirmation of receipt? It’s irrevocable. We can close an invoice and move on. Someone might pay for that differently than an actual underlying transaction.

Yvette Bohanan: That’s a great point. That’s a great point.

Yvette Bohanan: So, Elena, you, you brought up the word risky. And so I’m going to jump on that for a moment. And because we saw in the polling questions earlier, there is a lot of focus and attention now. And maybe that’s a sign of the evolution of the thought process, or where people are in implementing things and where you’re seeing adoption going right? But it’s natural payments. Risk management and fraud are always big topics with every system out there in every country of the world. So maybe we can dive in for a moment here on a few themes and see what’s happening. Let’s talk about the one that seems a bit ambiguous, controversial, unclear but definitely prolific. Authorized push payment fraud or APP. Right? It’s getting a tremendous amount of press. And we want to kind of ask you about solutions that you’re seeing, that you’re contemplating, or that you would like to see out in the market to curb APP, whether it’s businesses or consumers being tricked into sending funds to fraudsters. What’s your point of view on that? Because that definitely plays into safety and soundness, security of the transactions, confidence, adoption, volume, everything else.

Elena Whisler: I can start. And I think, obviously my personal view, but with technology moving at the speed that it is, and the offerings that we have, there is an inherent white space that fraud is ripe for. Fraud always captures that white space. It captures the instability or the immaturity. Or you know, when things shift and move, and that’s regardless of payment type, that’s regardless of activity.

Elena Whisler: It could be in an account opening process at a financial institution, that could be me at the checkout. So I think it’s the world we live in. And I think I’ll say, maybe controversial or not, people fear money leaving faster, right, and not being able to get it back like an authorized credit, like it’s leaving. It’s no different than a wire leaving, in different respects. So I think it’s really the environment that we’re in, with all the digital applications that we live and breathe and use. And how many apps we have on our phone and different methods of a digital identity. Now, that doesn’t mean it’s not important, for faster payments and real time payments to be a part of the solution. So I just say that, I think, at every layer of the process of a flow of someone buying or selling or transacting, fraud is top of mind, right? So we authenticate. You authorize at every point in time. And then from a network perspective, I think we have a responsibility to understand payment trends, activities and to be able to educate and supplement data for the ecosystem. And that’s something that we’re focusing really hard on now, is what is our right role. And, earlier, I talked about how the roles of the different layers of utilities and overlays might evolve. This is a great example where this is not something we’ve done at a network level. We’ve always provided information, reporting, activity, like that. But maybe it’s time that we do something different, knowing that it is an evolving faster ecosystem that should transform across all layers. Right? We’re not just responsible for the back end. We are responsible, I think, for the whole end to end experience. Because if we’re not, then we haven’t done our job.

Yvette Bohanan: Bernadette, what would you add to that? Or what were you thinking about it?

Bernadette Ksepka: So I agree with your points, Elena, there. I think when it comes to scams, I think it’s about figuring out how the industry can work together. And earlier, we were talking about the need to collaborate across broad. And I think that’s really going to be important. And it’s figuring out how the industry can work together on information sharing and education.

Bernadette Ksepka: The Fed’s been working with the industry on a couple of points here. Specifically, the payments improvement team. So this is broader than just instant payments, but has been working with the industry on how to define scams. I think it’s really important to promote the consistency on how we report scams and just using the same taxonomy across the industry so that we can work together on solving the problem. And then they’re also exploring possibilities of information sharing when it comes to scams.

Bernadette Ksepka:  Specifically on the FedNow side, we’ve spent a considerable amount of time this year talking about scams, and authorized push payments and tied to request for payments and enhancing our existing rules and procedures. To really position FIs here to have trust in the network and to continue building out their request for payment solutions. And then in this space, I think it’s also really important to have a solid dispute resolution framework.

Bernadette Ksepka: Because it’s not a question of if fraud is going to happen, it’s going to happen right? And we need to have just a solid framework for when it happens, and also an easy way to operationalize against that that framework. So I think that’s critical as well.

Elena Whisler: I think also, maybe I can add a little. I don’t know if this is controversial or not, but I wonder also about the expectations that we place on our, you know consumers and businesses when they move money right? So, depending on the network they use, and particularly the difference between debit and credit cards and then non-card accounts, such as ACH or wires, or faster, real time payments. The different, their rights, their obligations, their responsibilities is different.

Elena Whisler: But do we expect them to know that difference? If they get a fraudulent transaction, what’s the recourse in what they do? I think it’s front and center in the request for payment conversations. And it’s also front and center on what do we, as The Clearing House, for example, do about that difference? Either advocating for regulatory changes, for example, or creating dispute resolution rules within the RTP network. We can solve it in many different ways. What is top of mind always is, how burdensome is that going to be to the consumers experiencing that? And how different is it going to be? And is that acceptable, right? So we always have to talk about that balance in terms of protecting the consumers and businesses at what level of difficulty and challenge.

Bryan Derman: You know, interoperability aside, this strikes me as a place where alignment could be really important. Because if consumers and other end users are not always going to know exactly which underlying plumbing is enabling a particular payment scheme, getting them trained up in what their protections and risks are with real time systems in a more unified way, could really be valuable toward adoption.

Elena Whisler: Yeah, I agree with that.

Yvette Bohanan: It sounds like something beyond what’s in place today for a dispute resolution framework is on both roadmaps. Is that the right takeaway here?

Elena Whisler: Yeah, it’s definitely something, we haven’t finalized what that might look like, or how that might play out, or who owns that, right? It might not even be a Clearing House function per se. But the fact that the gap is there and we are looking at how do we enable that as an industry and ecosystem, for sure. Yeah.

Bernadette Ksepka: Yeah, and on the FedNow side, later this month, we plan to publish additional information on our dispute framework which I think will give additional guidance to FIs. And we’re trying to lay out as much as we can in our operating procedures to take out some of the grey for financial institutions so they can easily apply it.

Yvette Bohanan: I think that’ll be super helpful, so yeah, we’ll stay tuned for that one, that’s great to know.

Yvette Bohanan: One of the things that the card networks are focused on is tokenization. And you know EMVCo has a tokenization standard that they’re working on implementing all over the globe. And it’s a big counter measure to fraud.  Is tokenization a topic for you. Are you working on it? And if you are, how’s it going?

Elena Whisler: Yeah, so we have a tokenization. We have a vault, and we have the ability to tokenize accounts, both on our ACH network which is called EPN, but on our ACH network and the RTP network. So both. From a receiving accounts perspective, financial institutions can choose to tokenize those accounts and still store those in the vault, or from an originating perspective. So we have both available and, exactly as you said, as we continue to grow our volume and the usage, the different usages of the RTP network and the similarities between the accounts and the routing numbers between ACH and RTP, it became increasingly apparent and obvious that we need to enable that safety even more related to those accounts.

Elena Whisler: Because this is what I always remember, that we are in the business of helping financial institutions move money, right, between accounts. So the more we can enable them with tools such as tokenization to secure and create that safety to those accounts, the better off we feel like the network will be as a whole. And we can minimize fraud at that level. So yeah, absolutely, it’s something that we have live today, when we’re piloting with a few financial institutions on what their use cases are.

Bernadette Ksepka: Yeah, same for FedNow. We are looking at tokenization. And I think the importance of that grows even more so as we start thinking about things like alias based payments and being able to support that.

Bernadette Ksepka: Other areas in terms of fraud, we’re looking at operational controls so kind of risk based controls where financial institutions can set, whether either aggregate velocity or cumulative value over specific time.

Bernadette Ksepka: We’re also looking at being able to identify abnormal behaviors to using AI and machine learning and then things like confirmation of payee, which I think could also help with mitigating fraud.

Yvette Bohanan: Yeah, that would be huge. That would be huge if you can tackle that one. That’s important with those scammers out there.

Yvette Bohanan: Let’s switch gears a little bit here and talk about those financial institutions. The direct participants. We had 35 institutions taking part in the FedNow launch in July. I think you’re up. I think Elizabeth mentioned it’s a bit higher now, it’s close to 70-75. And then 6 years in with RTP in The Clearing House, you have 375 FI’s participating in the network, and in that case, most of them can receive payments. A smaller number can send them. And a few or a handful few are starting to implement requests for payment.

Yvette Bohanan: When you’re talking with financial institutions, what do you say that helps them see that this is really compelling, that this is something they really need to do? What are the key value propositions you’re highlighting to them?

Elena Whisler: I mean for us, maybe a way to start is they get to see, on day one, transactions that might have come in different ways or stayed outside of their financial institution via a wallet or via a card, a debit card because they don’t have that real time receipt of funds. And so then, seeing it in a different way to their account brings them more awareness of what their customers do outside of their financial institution related to moving money. And, we talk about it enables them to view their financial institution as not only a vault, right, where you store your funds, but also how you move them in and out. And that’s a big piece on the receive side that we’ve shown that value as they join the RTP network because of the volume activity that we have on the sending side.

Elena Whisler: And it also enables them to, I think we talked about this earlier, but it’s not like a one on one shift, right? A lot of people say, are we cannibalizing a wire over to RTP or cannibalizing ACH over to RTP? It’s actually a different set of funds and money movement activity. So you might have one wire or ACH activity that happens. You might have 10 on the RTP side related to a particular thing. So they understand the pattern of what maybe that buyer or seller persona is really after. We were talking about real estate, and we’re talking to an association. And they were reminding me that for every real estate transaction, there’s 20, at least behind the scenes, right, 20 to 30, and this is residential. So commercial’s significantly more complicated. Right? So and they’re not tied together, right? They’re all unique, that magically need to synchronize with each other in order for that last one to hit, and for the whole closing to take place.

Elena Whisler: And so showing, having the opportunity of real time payments to help with that friction and help with that combination, it shows the whole experience a little bit better to the financial institution. And that’s where some of the value is starting to come.

Bernadette Ksepka: So on the FedNow side, we’ve been live for almost 2 months and we’ve more than doubled our participation. So we’re really excited about that, and are over 70 participants right now, and have a few hundred in our onboarding pipeline. So adding participants daily. I think it’s really exciting for us, and I think we hear a lot from financial institutions that they hear from their customers that they’re not asking for FedNow and RTP. And I think our response here is, they probably didn’t ask for check imaging years ago. Right? They didn’t ask for online shopping, yet we all do it today, right? And everybody wants those fast, reliable ways of doing things or being able to send money.

Bernadette Ksepka: The value proposition here is that the technology has changed drastically in the last 50 years, right? And instant payments is about modernizing our payment system to keep up with those changes. And really, I think the value that instant payments brings, it’s in the application, right? And it’s in those value added services that are going to ride those rails. So we had a town hall a couple of weeks ago, and one of our early adopters called out that they transferred over a million dollars over FedNow, and they’ve had over 900 transactions. And they did this by embedding this into their existing online platform.

Bernadette Ksepka: And they had all this traffic, just naturally right? They didn’t publicize it. They didn’t market it. And it’s people coming in using their online platform. And they’re making the decision on whether they want to move their money quickly. Whether they would benefit from instant payments for just regular payments they’re making, whether it’s paying the daycare or sending funds to their kids and so forth. And then we’re seeing other participants who are taking more of a targeted approach. So we have one service provider, who’s working with, for example, the State government to provide rapid access to disaster recovery funds.

Bernadette Ksepka: So you can imagine, right, if a place has been struck by natural disaster, right, that individual might not have access to their mailbox. Whether it’s a hurricane or fire, or so forth. So this is an alternative, one of the solutions that is on the network right now, which is really exciting. So I think there’s just lots of use cases here that benefit from being able to send money quickly.

Yvette Bohanan: Yeah.

Yvette Bohanan: How important is ubiquity? I mean we have 11,500 FIs here in the US. When you think about banks, credit unions, we have at least 11,500. I’m not counting a lot of other places that might be considered sort of FI-like.

Yvette Bohanan: How do you, how do we think about ubiquity? Is it critical to have everyone participating? From your comments, Bernadette, it sounds like maybe a gradual legging into this over time with FIs offering it as an alternative ramps sufficiently. Or are you thinking we need ubiquity fast, quickly, to get this thing going?

Bernadette Ksepka: So ubiquity is the goal, right? We want to give access to everyone in America to instant payments. But I don’t think that means that all financial institutions need to participate in both networks. Right? So today, for account based payment types, so ACH, wire, checks, we have multiple competing networks. And in no cases there do we have financial institutions that join all of the networks and I don’t think that’s going to be the case for instant payments either. I think FIs may choose, for different reasons, to join both whether it’s redundancy or in the early days, maybe it’s to get to reach. But it’s going to depend, I think, on their needs and their strategy.

Bernadette Ksepka: But I think we’re confident that over time, we’re going to achieve that broad reach with FedNow and like we’ve had with FedACH and FedWire services. And I think as I mentioned earlier, I think there’s still a question around interoperability. Right? And if there’s additional steps we need to take there and we’ll continue to monitor that.

Elena Whisler: Yeah, I think for us, we want all financial institutions to have that ability to join. And depending on their footprint, their strategy, their customer base, they might choose different segments and different providers and different networks.

Elena Whisler: There’s very unique financial institutions that work in certain segments and not others, and some might make sense to join both, or one.

Elena Whisler: What I would say is that for the originators, we continue to have hundreds of thousands of originators on our network using our service every month and for them to grow their portfolio, they naturally want real time payments to solve the majority of their payments right? So they don’t want to have to flip between virtual card, to flip between same day ACH, when needed depending on the time of day. They want that, I don’t want to say ubiquity, but for their portfolio, they want ubiquity for their payment activity. And so that might be 80% of the market. 90% of the market. That might be 50% of the market. Right? It just depends on that originator’s use case, that originator’s buyer or seller, and footprint. And so I think it is going to depend on what type of volume grows more and more, what problems are really being solved, and then if we can saturate that ubiquity for those segments, that to me is where the real win is.

Bryan Derman: You know I’d observe that ubiquity is great, and it’s probably always the right goal, but ideally you can make progress in the meantime, because it takes a long time in a country like the US. And there’s probably good object lesson to be taken from Zelle, who’s still very far from ubiquitous, but has ramped very nicely in terms of volume. When you hit a use case that isn’t well served, you can grow pretty quickly along your journey to ubiquity.

Elena Whisler: Yeah. And a stat that we use that we’re increasingly growing is on the origination side, our sending financial institutions equal over 80% of the ACH origination activity on our RTP, right? So the ones that are originating ACH, activity today, regardless of the network they use ACH for, they’re on RTP and they’re send enabled and they’re working on send use cases. So you need to be able to send and have the customers to originate in order to put volume on the network. So we’re excited about that for sure. Demand and supply. Right? They both have to happen at the same time.

Bryan Derman: The chicken and the egg in payments. Right? The poultry problem.

Bryan Derman: I wanted to ask each of you about some developments we’ve read about the space recently, and I’ll start with Bernadette. We were very intrigued to see that the US Treasury had signed on, I guess to be a use of FedNow. And that caught our eye because if you’ve been around the payments industry for a while like we have, we remember the role that the government played in the uptake of the ACH, particularly around the direct deposit use case, and I think to a lesser degree shaped the market for purchasing cards as an accounts payable technique.

Bryan Derman: Can you tell us anything about what the Treasury might have in mind, or what the significance of that enrollment is?

Bernadette Ksepka: Sure. So the US. Treasury was part of our pilot program. And the pilot program was a really important part of our development process. And they provided feedback every step of the way leading to go live. So that was exciting. And now the Treasury is a FedNow participant. They’ve transacted on the network. I can’t speak for the Treasury or agency specific plans here, but there’s a lot of potential Treasury and agency use cases both on the disbursement side and the collection side. And we will continue to work with the Bureau of Fiscal Service here to explore those use cases and grow them over time. And I think what’s exciting here is that the FedNow service, it’s a platform for innovation, as I’ve said. But I think the Treasury is going to be able to build out solutions that solve pain points that exist today. Right? It’s about sending and receiving money fast, simply, safely. And I will note that I think even more than other end users, the Treasury’s ability to leverage the instant payments infrastructure here is significantly dependent on having that strong network reach because of the use cases that they want to solve for here.

Bryan Derman: They need to transact with everybody. So Elena, we were interested to read that RTP, I think hit its first one million transaction day a couple of weeks ago, which sounds like it’s getting to be real numbers.

Elena Whisler: Yeah, yeah, we did. And we almost we actually almost did on June 30th.

Elena Whisler: If you think end of quarter, end of month, magical days here. Friday. It was a lot. So we were close on June 30th, and then we definitely surpassed it. I think it was September 1st. One, it shows that there are shifts in payments. So because I mentioned end of month, end of quarter,  payroll hits, activity hits. I think there’s a lot to be said for just in time payments. So not necessarily moving faster, but just in time. So yeah, we have hit that. We expect to hit it again. So we get peaks every week and so it is exciting to see new originators on every month. We kind of keep track of unique sending numbers and making sure those join every month. Because every week we have more financial institutions, every day. So we also have it on the send side.

Bryan Derman: If you look out longer term, I guess both of you could comment here. In terms of volumes, what do you think success would look like a year or a couple of years out from here in terms of volumes?

Elena Whisler: Yeah, I would say for us, our success metrics is what we’re focusing on, solving problems and reducing friction. And enabling that transformation that we talked about. I think we also published that we hit 500 $1 million transactions, and we hope to double that, actually within next year.

Elena Whisler: And so the hockey stick effect of those originators that are using it, they learn ad now they can funnel new payments, new activities, double triple fold. So we’ll look to see that volume to be significant within the next year. 2024 is a good year.

Bryan Derman: Fingers crossed.

Bernadette Ksepka: So we’re 2 months in, so it’s hard for me to kind of say what success looks like in terms of numbers. But, if I look back about our ACH experience, I think we see that it’s going to be an endurance activity, right? It’s definitely not a sprint to the finish here, and we’re expecting that similar experience with FedNow. So again, I don’t know what success looks like in terms of numbers. But I think that if we get to the point where we are referring to instant payments just as payments, and the expectation and the norm is that they’re all instant, I think that would be success.

Yvette Bohanan: That’s a great way to put it. And talking about sprinting here, too. We’re surprisingly, we have 10 minutes left, and we promised folks that we would try to get to some of their questions and field them. So if it’s okay with you, I’d love to bring Reed and Elizabeth back in. And Elizabeth has been monitoring the questions.

Yvette Bohanan: Okay, Elizabeth, what questions do you have from everyone listening out there?

Elizabeth McQuerry: Well, let’s move into some new areas or slightly different areas. And one of them, I think, is about accelerating adoption. Right? I mean, we’re not talking about what sort of channels, etc., to add. But the question was really about what can be done to accelerate consumer enrollment and at the same time, the authentication of these consumers, that we don’t have that maybe other systems have as an advantage. Brazil, you sign up for your Pix account, using some form of national ID and the same in India. That sort of biometric authentication is available. But what could we do, or each of your services do to work with your financial institutions to sort of have a big leap forward in consumer enrollment of these services or usage?

Elena Whisler: Oh, that’s a good question. So when I look at other countries, and you know we mentioned Brazil and India and Australia is actually a good one that comes to my mind. They usually have one consumer alias directory app. One main one. Right? That’s, I don’t know if it’s always market driven or government driven, but that doesn’t exist here. And so we have multiple, closed loop, consumer originated options that I don’t think any one of us can just consolidate or, you know, motivate to share a database right? Or share like a digital ID database or something. That’s so, I just, I don’t have an answer, maybe, is like a blunt way to phrase it. Just because of the way that the consumer experience has been shaped from P2P. But then, at ecommerce, or the consumer experience is just so driven, based upon  the multitude of options that we have here in the US, and I, to me the consumers are almost at the mercy of what we offer them, consolidated or independent from a closed loop perspective.

Elizabeth McQuerry: Well, I hear you about the directory point, and that’s a foundational challenge. But we all love our apps right. We love the options to send money, but on average, people may not like their banks, but they trust them. So there’s something there, right? I’m interested to hear Bernadette’s perspective.

Bernadette Ksepka: Yeah. So I think 2 things come to mind. And one is as operators, we need to make being able to send payments easy, right? And that might mean QR codes, or alias based payments. And I think there’s things we can do in those realms to make that easier.

Bernadette Ksepka: And I think there’s also room for us to maybe also establish standards right? So we’ve been doing some work around request for payment, and the customer experience, and so forth, to unify what that customer experience looks like for the consumer.

Bernadette Ksepka: And there might be other areas where standards might be helpful. Authentication comes to mind as well as an area where there’s lots of different players in the market. They’re doing it differently. Financial institutions are doing it differently. So I think we could help build trust in the network, if we do standardize some of that.

Bernadette Ksepka: And then, I think another area where I think we could help with consumer adoption is just around education and working through the financial institutions and maybe organizations and so forth, payment organizations, to spread additional knowledge around instant payments. And what does it mean when I do send an instant payment? Right? How’s it different from other payment options? And fraud concerns, just bringing some of that to light and greater awareness.

Elizabeth McQuerry: Thank you both. I want to just underline some of the points that were raised in the questions similar to what we have talked about. There’s a number of questions about not only standards for interoperability and dispute resolution. But one person phrased it as, how can we unify the different services that we have? What are the, finding the commonalities that we have? But a lot of interest in dispute resolution and that is another one of the, at least initially, surprising findings from even first barometer a few years ago that the market really feels that we need something here in order to really be able to have mass adoption.

Elizabeth McQuerry: I think we only have time for one more question. And we had a couple around, a favorite topic for all of us in the future is cross border. And questions specifically about what are each of you thinking? And then specifically, linking to other systems that are already prospering, such as UPI or Pix in Brazil.

Elizabeth McQuerry: I will give that one to Elena, I think she’s got something in pocket on that one.

Elena Whisler: Yeah, but I’ll be quick knowing our timer’s up in a minute. So we did a pilot proof of concept technical connections with EVA Clearing and us, a few years ago, 2 years ago now. So we proved that technical bit out. We did the mapping. We did instant settlement within 10 seconds between different accounts, and that was awesome. Our next movement, as everyone can imagine, is governance, is regulatory, is trying to unify, I love unify, so I’m going to use that, unify some of the differences that make cross border so full of friction. And there’s global work related to that roadmap and The Clearing House and the Fed is also part of that. We are working very hard, trying to advocate for more of a unified standard way that different sanctions are managed, different governance activities, different liabilities are managed, that are outside of a domestic network so to connect. So, as we talked to Singapore, as we talked to India, as we talked to Australia and Canada, and getting that kind of legal framework involved is what we’re working on now.

Bernadette Ksepka: Yeah, I agree Elena, it’s not a question of technically if we can do this, right. I think the pieces that are going to take the further evaluation, it’s legal, the policy, the operational complexities that exist here with cross border.

Bernadette Ksepka: And our immediate focus right now, being 2 months old, is obviously driving adoption on the domestic side. But we are continuing to explore the demand here, and the possibilities because I do think that cross border is on the horizon in the future.

Yvette Bohanan: Wonderful! So I can’t believe I’m about to say this, but our time is up. It has absolutely flown by talking about fast payments with you all today, and I just want to say, thank you, Bernadette,  Elena, Reed.

Yvette Bohanan: It’s been great. We really appreciate you sharing your time and your insights with us and being our first brave panelists on Payments on Fire Live. This has been a lot of fun to put together. For all of those, all of you joining us, thank you for joining us today. And thanks for all the innovation and work you do every day in the industry. You all play a critical role in our economy.

Yvette Bohanan: So keep up the good work and know that there are people out here that appreciate it very much. If you’d like help answering any of the tough questions around payments, whether it’s fast payments or any other of the systems, or if you’re looking for payments education, Glenbrook is here to help. We have over 20 years of experience helping clients around the world with our consulting practice. We’ve educated over 30,000 payments professionals, and we are constantly updating our course materials because people like Bernadette, Elena, and everybody else out there is changing this industry all the time, including our regulators. So

Yvette Bohanan: So we’ve just announced new fast payments 4-hour intensive workshop. If you’d like to learn more about that or our consulting practice or other workshops, please visit our website at Glenbrook.com. Thanks very much for spending time with us today. Elizabeth, Bryan, thank you for joining me on this and many thanks to our amazing producer, Jill Wurst and the entire team. We hope you turn in for future podcasts, bye for now.

 

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