For all the powerful organizations around the world spreading the gospel of real-time payments, this week’s NACHA conference has uncovered what could be an awareness problem. The problem is not general awareness. After all, the format is in use by nearly 40 percent of corporates, and that number is expected to go to 66 percent by 2023. And a Mercator Advisory Group Viewpoint found that 60% of respondents surveyed by the Association for Financial Professionals (AFPs) in its 2019 payments study said B2B payments will eventually benefit the most from its usage.
The awareness problem centers more around education. Specific topics, judging from the NACHA event, include use cases, fraud potential, and ISO 20022 messaging. To that end, the Federal Reserve has launched a new education site for its planned FedNow faster payments service, which was supplemented by a huge presence from the organization at the conference.
“We understand there's a lot of enthusiasm and excitement in the industry,” Stephanie Miracle head of Product Management at Federal Reserve Bank of Boston told the conference. “However, there's a lot of different levels about knowledge and potential focus areas. Banks want to know how to start and even whether or not they want to be involved. As you look at the FedNow service, we've really been focused on educating the industry, not just about FedNow, but also broadly about instant payments.”
Miracle’s presentation showed that the Fed will stress the messaging capabilities of real-time payments as well as the potential differences between FedNow, NACHA and The Clearing House’s services. According to Miracle, FedNow will be aligned with other service offerings on the most important tactical issues such as speed and messaging. The Fed endorsed the ISO 20022 standard in March. Other potential differences: a user interface for banks to manage controls, run reports and interact with end-user customers. She was adamant that all types of accounts will be supported.
Miracle’s comments are important in the context of interoperability. Support for ISO, as it is international, is important. But the Fed has been clear that they are not the only organization responsible for interoperability. Payment routing, for example, includes a choice of service based on price and features. Bilateral exchange, in which FIs connecting to their choice of service operator, has been another example called out by the Fed that will need more coordination.
“What we thought was really important to kind of highlight here, as we looked at the payment flow for FedNow is the interaction between the sender financial institution and the receiver financial institution, and the number of messages that are going to go back and forth,” Miracle said. “It’s important that a bank (or corporate) can confirm that these are legitimate payments so that everybody within the transaction flow has the exact same information that really allows a better user experience for your customers.”
All of which the Fed believes needs more amplification. The interoperability issue becomes even more important when the possibility of cross-border payments is considered. The FedNow service is not currently slated for cross-border payments when it launches in two years. But it is another area of education that it addressed during the NACHA event.
The Fed has been frustrated by a lack of progress in cross-border payment issues. The term it uses on its website is “challenging.” The areas it is most concerned with: high costs, low speed, limited access and transparency. It has identified five focus areas that roughly cover private-sector coordination, oversight, infrastructure, data and cryptocurrency.
“This work is coming at a time when we see central banks modernizing their payment systems,” Fed assistant director Jennifer Lucier told the conference. “We're seeing innovations on the rise, and it might give us the push that we need to affect meaningful change. This time around, our targets are meant to be achievable, and so that's going to keep us really on track as we advance through the next several years and implement the roadmap to ultimately achieve I think the outcomes that we haven't achieved in the past.”
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