About 1,900 payments executives and practitioners gathered in Nashville last week for more than three days of content extending far beyond Nacha’s traditional Automated Clearing House (ACH) territory.
The 2022 Smarter Faster Payment conference shed light on the fast transfer of money on existing and nascent rails.
“We want it to be everyone’s one-stop-shop for everything payments, not just ACH,” says Jane Larimer, CEO of Nacha. During a keynote on the main stage, she announced record ACH growth of over two billion transactions for 2021, an increase of 9%.
Larimer also pointed to the 20% growth in business-to-business transactions, long a strategic focus for the network.
In March, Nacha decreed a tenfold increase to $1 million for the limit of one same-day ACH transaction, up from $25,000 when the service was first created on the same day in 2016. The value of day-to-day ACH transactions even doubled in 2021, even before the $1 million limit kicked in.
For those who feel an even greater need for speed, the notion of real-time payments was at the heart of the Smarter Faster Payments program, covering both RTP rails from The Clearing House and the FedNow service for which the Federal Reserve has confirmed its launch plans for 2023.
During the conference, the Fed also announced that it had begun onboarding the first of its 120 FedNow pilot attendees and showcased a series of these solution providers at its booth.
The instantaneous and irrevocable nature of real-time payments, along with its 24/7 operating schedule, is an understandable source of concern for risk management.
Andrew Gomez of Lipis Advisors shared lessons learned from overseas markets with extensive experience in real-time payments. Gomez cites “authorized fraud” as the current soft target of choice, just as US credit unions are already experiencing via P2P membership scams.
“High-level information sharing to fight fraud shouldn’t be a competitive issue – fraud hurts us all,” Gomez says, defending “beneficiary confirmation” features as an effective line of defense (though far from infallible). It also advocates technology and rules-based mechanisms.
As an example, Gomez claims that while 99% of fastest payments in the UK are posted in 15-20 seconds, the rules in the system allow a two-hour window if needed to check for suspicious transactions.
In a later session, a representative from the Federal Reserve indicated that FedNow’s draft rules include a similar provision.
Another market apprehension has been the uncertain prospects for interoperability between RTP and FedNow systems. Elizabeth McQuerry of Glenbrook Partners suggests that this concern may be overstated and that “harmonizing” systems may be sufficient, particularly since most credit unions are likely to access these systems through middleware.
“Technically, Visa and MasterCard are not interoperable, but there is a practical solution that makes the interaction seamless,” she explains, before adding that compatibility factors such as alignment between rule sets services are yet to be determined.
Another hot topic, Central Bank Digital Currencies (CBDCs), has generated a lot of interest. Boston Fed Senior Vice President Jim Cunha quickly identified a fundamental challenge impeding constructive dialogue: “There is a lot of confusion around what a CBDC is and what it is not. .”
Peter Tapling, board member of the US Faster Payments Council, adds that “98% of money today is already digital,” citing the wide gap between cash in circulation and assets on financial institutions’ balance sheets.
The Fed has an outstanding request for information of 22 questions regarding CBDCs (responses are expected by May 20), and Cunha thinks the dialogue will likely be a protracted process.
He points to the fact that the launch of FedNow will take four years from its initial decision, “and that’s for a traditional network.”
Cunha also cites Fed Chairman Jerome Powell’s recent comment on CBDCs: “We don’t have to be first. We must be right.
“Coming out of the pandemic, consumer expectations have changed, and the payments industry has changed with it,” says Tynika Wilson, senior vice president at Navy Federal Credit Union in Vienna, Va., and president of the conference planning committee. . “As a credit union, we are continually looking for ways to improve our members’ experience. We are thrilled with everything Nacha Payments has brought to the table.
GLEN SARVADY is managing partner at 154 Advisors.