Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.
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December 3, 2018
Building Blocks for the Sandbox
I just returned from a leave of absence to welcome my third child to this world. As I catch up on payments news, one theme emerging is the large number of state and federal regulatory bodies launching their own fintech sandboxes. Typically, these testing grounds allow businesses to experiment with various "building blocks" while they innovate. Some businesses are even allowed regulatory relief as they work out the kinks. As I've researched, I've found myself daydreaming about how my new little human also needs to work with the right building blocks, or core principles, to ensure he develops properly and "plays nice" in the sandbox.
But—back to work. What guidance do fintechs have available to them to grow and prosper?.
On July 31 of this year, the U.S. Department of the Treasury released a report suggesting regulatory reform to promote financial technology and innovation among both traditional financial institutions and nonbanks. The report in its entirety is worth a review, but I'll highlight some of it here.
The blueprint for a unified regulatory sandbox is still up for discussion, but the Treasury suggests a hierarchical structure, either overseen by a single regulator or by an entirely new regulator. The Treasury suggests that Congress will likely have to assist by passing legislation with the necessary preemptions to grant authority to the newly created agency or a newly named authoritative agency.
The report outlines these core principles of a unified regulatory sandbox:
- Promote the adoption and growth of innovation and technological transformation in financial services.
- Provide equal access to companies in various stages of the business lifecycle (e.g., startups and incumbents). [The regulator should define when a business could or should participate.]
- Delineate clear and public processes and procedures, including a process by which firms enter and exit.
- Provide targeted relief across multiple regulatory frameworks.
- Offer the ability to achieve international regulatory cooperation or appropriate deference where applicable.
- Maintain financial integrity, consumer protections, and investor protections commensurate with the scope of the project, not be based on the organization type (whether it's a bank or nonbank).
- Increase the timeliness of regulator feedback offered throughout the product or service development lifecycle. [Slow regulator feedback is typically a deterrent for start-up participation.]
Clearly, the overarching intent of these principles is to help align guidance, standards, and regulation to meet the needs of a diverse group of participants. Should entities offering the same financial services be regulated similarly? More importantly, is such a mission readily achievable?
People have long recognized the fragmentation of the U.S. financial regulatory system. The number of agencies at the federal and state levels with a hand in financial services oversight creates inconsistencies and overlaps of powers. Fintech innovations even sometimes invite attention from regulators outside of the financial umbrella, regulators like the Federal Communications Commission or the Federal Trade Commission.
In the domain of financial services are kingdoms of industry. Take the payments kingdom, for example. Payments are interstate, global, and multi-schemed (each scheme with its own rules framework). And let's be honest, in the big picture of financial services innovations and in the minds of fintechs, payments are an afterthought, and they aren't front and center in business plans. Consumers want products or services; payments connect the dots. (In fact, the concept of invisible payments is only growing stronger.)
What is more, a fintech, even though it may have a payments component in its technology, might not identify itself as a fintech. And a business that doesn't see itself as a fintech is not going to get in line for a unified financial services regulator sandbox (though it might want to play in a payments regulator sandbox).
When regulatory restructuring takes place, I hope it will build a dedicated infrastructure to nurture the payments piece of fintech, so that all can play nice in the payments sandbox. (Insert crying baby.)
By Jessica Washington, AAP, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
September 10, 2018
The Case of the Disappearing ATM
The longtime distribution goal of a major soft drink company is to have their product "within an arm's reach of desire." This goal might also be applied to ATMs—the United States has one of the highest concentration of ATMs per adult. In a recent post, I highlighted some of the findings from an ATM locational study conducted by a team of economics professors from the University of North Florida. Among their findings, for example, was that of the approximately 470,000 ATMs and cash dispensers in the United States, about 59 percent have been placed and are operated by independent entrepreneurs. Further, these independently owned ATMs "tend to be located in areas with less population, lower population density, lower median and average income (household and disposable), lower labor force participation rate, less college-educated population, higher unemployment rate, and lower home values."
This finding directly relates to the issue of financial inclusion, an issue that is a concern of the Federal Reserve's. A 2016 study by Accenture pointed "to the ATM as one of the most important channels, which can be leveraged for the provision of basic financial services to the underserved." I think most would agree that the majority of the unbanked and underbanked population is likely to reside in the demographic areas described above. One could conclude that the independent ATM operators are fulfilling a demand of people in these areas for access to cash, their primary method of payment.
Unfortunately for these communities, a number of independent operators are having to shut down and remove their ATMs because their banking relationships are being terminated. These closures started in late 2014, but a larger wave of account closures has been occurring over the last several months. In many cases, the operators are given no reason for the sudden termination. Some operators believe their settlement bank views them as a high-risk business related to money laundering, since the primary product of the ATM is cash. Financial institutions may incorrectly group these operators with money service businesses (MSB), even though state regulators do not consider them to be MSBs. Earlier this year, the U.S. House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing over concerns that this de-risking could be blocking consumers' (and small businesses') access to financial products and services. You can watch the hearing on video (the hearing actually begins at 16:40).
While a financial institution should certainly monitor its customer accounts to ensure compliance with its risk tolerance and compliance policies, we have to ask if the independent ATM operators are being painted with a risk brush that is too broad. The reality is that it is extremely difficult for an ATM operator to funnel "dirty money" through an ATM. First, to gain access to the various ATM networks, the operator has to be sponsored by a financial institution (FI). In the sponsorship process, the FI rigorously reviews the operator's financial stability and other business operations as well as compliance with BSA/AML because the FI sponsor is ultimately responsible for any network violations. Second, the networks handling the transaction are completely independent from the ATM owners. They produce financial reports that show the amount of funds that an ATM dispenses in any given period and generate the settlement transactions. These networks maintain controls that clearly document the funds flowing through the ATM, and a review of the settlement account activity would quickly identify any suspicious activity.
The industry groups representing the independent ATM operators appear to have gained a sympathetic ear from legislators and, to some degree, regulators. But the sympathy hasn't extended to those financial institutions that are accelerating account closures in some areas. We will continue to monitor this issue and report any major developments. Please let us know your thoughts.
By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
August 27, 2018
Who Owns Your ATM?
Counting the number of ATMs in the United States has been a challenge since 1996, when independent operators (nonfinancial institutions) started deploying ATMs/cash dispensers. That was when Visa and MasterCard dropped their prohibition against surcharges. But a recent study sponsored by the National ATM Council largely overcame that challenge while also gathering some interesting results about the locational aspects of the independently owned ATMs compared to machines owned by financial institutions (FI).
The study was conducted earlier this year by a team of economics professors from the Department of Economics and Geography in the University of North Florida's Coggin School of Business. The study's primary objective was to determine whether the locations of independently owned ATMs and FI-owned ATMs were different in terms of demographics and socioeconomic status.
Using a database from Infogroup, the team identified 470,135 ATMs operating in 2016. About 41 percent of these were FI-owned, and the rest were independently owned. The majority of the independent ATMs are in retail establishments, with heavy concentrations in convenience stores, pharmacies, and casual dining locations.
The research team plotted the locations of all the ATMs, overlaying demographic and socioeconomic data they obtained from the U.S. Census Bureau and its American Community Survey. Among the 10 main elements the researchers used were median age, unemployment rate, education level, household income, disposable income, and average home values.
They concluded that the independent ATMs "tend to be located in areas with less population, lower population density, lower median and average income (household and disposable), lower labor force participation rate, less college-educated population, higher unemployment rate and lower home values."
So what does this mean?
Well, it means that the independently owned ATMs are providing a vital service in rural and inner-city areas. Other studies—such as the Federal Reserve's Diary of Consumer Payment Choice—have shown that lower-income households (those earning less than $50,000) use cash as their primary method of payment. Therefore, these independent ATM owners are giving these households access to financial services that would otherwise be limited.
A post from December 2014 highlighted some of the challenges the independent operators were facing. Stand by for a future post that will provide an update on this part of our country's payment ecosystem.
By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
December 18, 2017
Training Workers for Payments Jobs
Do you boast, or at least talk, about your work in payments at social events? When I tell someone in a social setting that I work in payments, they either move on, after a polite pause, to meet the next person, or they take a deep breath and ask, “What does that entail?” What is most humbling is when I overhear my husband trying to explain my job. And what has been the most entertaining was when a four-year old asked me to perform an interpretive dance representing my occupation—a payments Nutcracker, if you will. Whatever the circumstance, you have to be ready to engage and convey excitement about all things payments to keep our workforce thriving. The industry is growing so rapidly that many employers are struggling to fill positions.
Many people I meet assume I am a mathematician when I talk about my work in payments. While I do own a calculator, I tell them, people in the payments workforce have diverse skill sets that go above and beyond using calculators. This diversity becomes more important every day, as technology keeps growing and changing. Ultimately, the majority of the population may not care how payments work, and they may not care to see an interpretive dance about payments. But there are dedicated, skilled professionals who, thankfully, perform their payments-related jobs safely and efficiently. And we need more of them.
The payments industry is growing. Fintechs alone account for a good portion of this growth. According to an industry research firm, venture capital-backed fintech companies globally raised a total of $5.2 billion in the second quarter of this year—–a 19 percent increase from last year. U.S. fintech funding saw a 58 percent rise, to $1.9 billion in the second quarter this year compared to $1.2 billion in the first quarter.
We need a more robust pipeline of available workers to support the growth in the industry. We need to both cultivate new talent and attract available skilled talent. This task can be daunting given the range of jobs available in the industry that transcend traditional educational curriculums.
Here are just a very few of many inspiring workforce training initiatives supporting industry growth today:
- FinTech Atlanta, along with the University System of Georgia and other colleges and universities in Georgia, launched a FinTech Degree and Certificate Programs to create needed talent to fuel the fintech workforce.
- NACHA, with the regional payments associations, has launched a Payments Risk Professional accreditation program. The program brings together skills for managing risk combined with knowledge in payment services, whether for financial institutions, solution providers, processors, businesses, or other end users.
- Workforce Innovation Hub, sponsored by Accenture and affiliated with Atlanta's City of Refuge, provides nonprofit technical education options to lift the underemployed and underprivileged. The IT training program teaches software and application development, IT support, web development, graphic design, and more—all skills that can be put to use in payments and fintechs.
- Some professional development programs work with military veterans, offering career opportunities and education resources that can help prepare them for careers in the payments industry. One example is First Data Salutes; another is Syracuse University's Institute for Veterans and Military Families (IVMF) and its affiliated program Entrepreneurs Bootcamp for Veterans with Disabilities.
Be a payments ambassador at your next social event and talk about your favorite payments initiative. It is up to you to decide if you want to perform an interpretive dance of your payments job—but it's up to all of us to keep our workforce growing at pace with the industry.
By Jessica Washington, AAP, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
December 11, 2017
Fintechs and the Psychology of Trust
In the 14th century, Chaucer used the word trust to mean "virtual certainty and well-grounded hope." Since then, psychologists have described trust as an essential ingredient for social functioning, which, in turn, affects many economic variables. So how do we define trust in the 21st century, in the age of the internet? In particular, how do fintechs, relative newcomers in the financial services industry and not yet coalesced into an industry, gain the trust of the public? Would they more effectively gain that trust by relying on banks to hold them to certain standards, or by coming together to create their own?
In 2004, social psychologists Hans-Werver Bierhoff and Bernd Vornefeld, in "The Social Psychology of Trust with Applications in the Internet," wrote about trust in relation to technology and systems. They observed that "trust and risk are complementary terms. Risk is generally based on mistrust, whereas trust is associated with less doubts about security." They further explained that trust in technology and systems is based on whether an individual believes the system's security is guaranteed. Psychologically speaking, when companies show customers they care about the security of their information, customers have increased confidence in the company and the overall system. Understanding this provides insight into the development of certification authorities, third-party verification processes, and standardized levels of security.
To understand how fintechs might gain the trust of consumers and the financial industry, it's worth taking a step back, to look at how traditional financial services, before the internet and fintechs, used principles similar to those outlined by Bierhoff and Vornefeld. Take, for example, the following list of efforts the industry has taken to garner trust (this list is by no means comprehensive):
- FDIC-insured depository institutions must advertise FDIC membership.
- All financial institutions (FI) must undergo regulator supervision and examination.
- FIs must get U.S. Patriot Act Certifications from any foreign banks that they maintain a correspondent account with.
- Organizations with payment card data must comply with the PCI Standards Council's security standards and audit requirements.
- Organizations processing ACH can have NACHA membership but must follow NACHA Operating Rules and undergo annual audits and risk assessments.
- The Accredited Standards Committee X9 Financial Industry Standards Inc. has developed international as well as domestic standards for FIs.
- The International Organization for Standardization has also developed international standards for financial services.
- The American National Standards Institute provides membership options and develops standards and accreditation for financial services.
FIs have often been an integral part of the standards creation process. To the extent that these standards and requirements also affect fintechs, shouldn't fintechs also have a seat at the table? In addition, regulatory agencies have given us an additional overarching "virtual certainty' that FIs are adhering to the agreed-upon standards. Who will provide that oversight—and virtual certainty—for the fintechs?
The issue of privacy further adds to the confusion surrounding fintechs. The Gramm-Leach-Bliley Act (GLBA) of 1999 requires companies defined under the law as "financial institutions" to ensure the security and confidentiality of customer information. Further, the Federal Trade Commission's (FTC) Safeguards Rule requires FIs to have measures in place to keep customer information secure, and to comply with certain limitations on disclosure of nonpublic personal information. It's not clear that the GLBA's and FTC's definition of "financial institution" includes fintechs.
So, how will new entrants to financial services build trust? Will fintechs adopt the same standards, certifications, and verifications so they can influence assessments of risk versus security? What oversight will provide overarching virtual certainty that new systems are secure? And in the case of privacy, will fintechs identify themselves as FIs under the law? Or will it be up to a fintech's partnering financial institution to supervise compliance? As fintechs continue to blaze new trails, we will need clear directives as to which existing trust guarantees (certifications, verifications, and standards) apply to them and who will enforce those expectations.
As Bierhoff and Vornefeld conclude, "it is an empirical question how the balance between trust and distrust relates to successful use of the Internet." Although Chaucer was born a little too soon for internet access, he might agree.
By Jessica Washington, AAP, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
December 4, 2017
What Will the Fintech Regulatory Environment Look Like in 2018?
As we prepare to put a bow on 2017 and begin to look forward to 2018, I can’t help but observe that fintech was one of the bigger topics in the banking and payments communities this year. (Be sure to sign up for our December 14 Talk About Payments webinar to see if fintech made our top 10 newsworthy list for 2017.) Many industry observers would likely agree that it will continue to garner a lot of attention in the upcoming year, as financial institutions (FI) will continue to partner with fintech companies to deliver client-friendly solutions.
No doubt, fintech solutions are making our daily lives easier, whether they are helping us deposit a check with our mobile phones or activating fund transfers with a voice command in a mobile banking application. But at what cost to consumers? To date, the direct costs, such as fees, have been minimal. However, are there hidden costs such as the loss of data privacy that could potentially have negative consequences for not only consumers but also FIs? And what, from a regulatory perspective, is being done to mitigate these potential negative consequences?
Early in the year, there was a splash in the regulatory environment for fintechs. The Office of the Comptroller of the Currency (OCC) began offering limited-purpose bank charters to fintech companies. This charter became the subject of heated debates and discussions—and even lawsuits, by the Conference of State Bank Supervisors and the New York Department of Financial Services. To date, the OCC has not formally begun accepting applications for this charter.
So where will the fintech regulatory environment take us in 2018?
Will it continue to be up to the FIs to perform due diligence on fintech companies, much as they do for third-party service providers? Will regulatory agencies offer FIs additional guidance or due diligence frameworks for fintechs, over and above what they do for traditional third-party service providers? Will one of the regulatory agencies decide that the role of fintech companies in financial services is becoming so important that the companies should be subject to examinations like financial institutions get? Finally, will U.S. regulatory agencies create sandboxes to allow fintechs and FIs to launch products on a limited scale, such as has taken place in the United Kingdom and Australia?
The Risk Forum will continue to closely monitor the fintech industry in 2018. We would enjoy hearing from our readers about how they see the regulatory environment for fintechs evolving.
By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
October 23, 2017
ACH and Consumer-Only Payments: Will the Twain Ever Meet?
For many years, person-to-person (P2P) payment providers have touted the emergence of compelling P2P mobile-based products that exploit some combination of financial institutions (FIs) and fintech providers. Several players have made notable inroads into P2P with certain demographics and use cases, but the overall results in terms of absolute numbers are far from ubiquitous. This post uses hard numbers to explore what progress ACH has made with P2P payments.
During a payments conference earlier this year that showcased findings from the Fed's triennial payments study (here and here), the table below was presented showing the number and value shares of domestic network ACH payments in 2015. The table is complicated because it shows both debit pull and credit push payments by consumer and business counterparties. Despite the complexity, the table distills ACH to its essence by removing details associated with the 14 transaction payment types (known as Standard Entry Class codes) that carry value for domestic payments. Many of these individual codes reflect similar types of payments (for example, three codes are used for converting first presentment checks to ACH). As expected, virtually all payments involve at least one business party to each payment. Consumer-only payments are negligible.
In a typical use case for consumer-only ACH, a consumer transfers funds from one account to another account across financial institutions. As shown in the solid red oval, 0.04 percent of all domestic payments were consumer-to-consumer payments, where the payee initiated a debit to the payer's bank account. For consumer credit push payments, the figure is 0.3 percent. The combined figure rounds to 0.3 percent. On the value side for consumer-only payments (in the dashed red oval), debit pulls, credit pushes, and the combined figure were 0.02 percent, 0.2 percent, and 0.2 percent, respectively. These types of payments typically reflect P2P payments1, when one consumer pushes funds to another consumer.
The next table shows the figures that prevailed in 2012. Given the modest share by both number and value across both years, it is apparent—and interesting—that ACH has made little progress in garnering consumer-only payments. Although ACH is ubiquitous on the receipt side across all financial institutions, it is not so for consumers, given the lack of widely promoted and compelling service offerings from FIs and no standardized form factor like there is for card payments. Additionally, many small FIs do not offer ACH origination services.
This lack of adoption is not unique to ACH. Although some of the electronic P2P entrants are experiencing significant growth, it will be some time before they supplant the billions of P2P cash and check payments. P2P players on the FI-centric side include Zelle, which a large consortium of banks owns. Non-FI providers include PayPal and its associated Venmo service. Given the lack of ubiquity with the new offerings, the fallback option for consumer-only payments is cash and checks. As the payments study reports, check use is still declining, though the most recent trend shows that this decline has slowed. ACH or other electronic options still seem a good bet to continue to erode paper options, but perhaps the market is signaling that paper options have ongoing utility and are still preferred if not optimal for some users in some instances.
So what would it take for ACH to gain some traction in the consumer payments space? Perhaps the presence of same-day ACH, in which credits were mandated in September of 2016 and debits followed in September 2017, offers some opportunity for compelling service offerings coupled with a user-friendly way to send an emergency payment to your ne'er-do-well son.
What are your views on the viability of ACH garnering more P2P payments?
By Steven Cordray, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
1 Sometimes account-to-account (A2A) transfers are lumped in with P2P payments.
June 26, 2017
Responsible Innovation, Part 2: Do Community Financial Institutions Need Faster Payments?
In my last post, I introduced themes from a summit that the Retail Payments Risk Forum cohosted with the United Kingdom's Department for International Trade. The summit gathered payments industry participants to discuss faster payments and their effects on community financial institutions (FIs). This post, the second of three in a series, tackles the question of whether community FIs and their customers actually have an appetite for increasing the speed of payments.
A summit attendee from WesPay, a membership-based payments association in the United States, presented the findings of a survey of 430 U.S. FIs about current payments initiatives. An important discovery was that awareness and adoption of faster payments solutions remains low, as the responses to two survey questions indicate:
- For same-day ACH, a majority (57 percent) indicated that the first phase—faster credits—"has had no measurable impact on our customers'/members' transactions."
- When asked about the Federal Reserve Faster Payment Task Force, 34 percent of respondents indicated they were unaware of the initiative, and 46 percent indicated they had only high-level knowledge.
Responses to another of WesPay's survey questions suggest that, although there may be low awareness of many current initiatives, many financial institutions are recognizing that faster payments are inevitable. A majority (60 percent) agreed that faster payments initiatives are "an important development in the industry. However, our institution will be watching to see which platform becomes the standard."
NACHA's representative presented statistics from phase one of same-day ACH, with reminders about the phases to come.
- Same-day ACH reached a total of 13 million transactions in the first three months (launched September 23, 2016).
- Phase 2 will allow for direct debits to clear on the same day (to launch September 15, 2017).
- Phase 3 will mandate funds availability for same-day items by 5 p.m. local time (to launch March 16, 2018).
- The current transaction limit is $25,000, and international ACH is not eligible.
Results of a study by ACI Worldwide, a global payments processor, look a little different from WesPay's survey results. The study looked at small to medium-size enterprises to gauge real-time payments demand. For the U.S. respondents, the research revealed that:
- Fifty-one percent are frustrated by delays in receiving payments.
- Forty-two percent are frustrated by outgoing payments-delivery timeframes.
- Sixty-five percent would consider switching banks for real-time payments.
We don't know yet what U.S. adoption rates will be, but Faster Payments Scheme Ltd. (FPS) in the United Kingdom already has a story to tell. U.K. panelists attending the summit at the Atlanta Fed stated that FPS has had constant adoption growth due to cultural change and customer expectations.
- FPS reached a total of 19 million transactions in the first three months (launched May 27, 2008).
- The FPS transaction limit increased in 2010 from £10k to £100k, and then to £250k in 2015.
- On April 2014, Paym, a mobile payments service provider, launched, using FPS. Paym handles person-to-person and small business payments, similar to Zelle in the United States, which started up in June 2017, using ACH.
- FPS had a total volume of 1.4 billion items in 2016.
For payment networks offering new solutions, community FIs are the critical mass that ensures adoption. Their participation will require practical benefits with a lot of support before they are willing to commit. Some community FIs might be forced to adopt new systems because everyone else has. Will new networks in the United States contest same-day ACH, which already has the advantage of ubiquity? Likely, as options develop, so will customer culture and expectations.
In the final installment of this "Responsible Innovation" series, I will look at future impacts of faster payments.
June 5, 2017
Responsible Innovation Part 1: Can Community Banks Remain Competitive?
The Atlanta Fed's Retail Payments Risk Forum recently co-hosted a summit with the United Kingdom's Department for International Trade to discuss faster payments and their effects on community financial institutions (FIs). In a series of three posts, I will share summaries of the lessons and implications that payments industry stakeholders discussed at the summit. A major theme of these discussions was whether community FIs can remain competitive independent of how they access a faster payments network. This post tackles this theme.
|United States||United Kingdom|
|ACH (NACHA)||ACH (Bacs)|
|Real-Time Payments (The Clearing House)||Faster Payments (Faster Payments Scheme Ltd.)|
The Faster Payments Scheme, or FPS, opened in the United Kingdom in 2008. The summit was a good opportunity to hear first-hand from one community banker's experience with the still-new system. A panelist from the first retail community bank to join the FPS discussed how access options played a role in the bank's ability to compete with large FIs.
- In the beginning, the only way a community bank could access the FPS was through a sponsoring bank.
- This option was expensive, hindering, and much like a newborn baby who needed attention all day and night (even on weekends), according to the panelist.
- The FPS sends messages 24/7, in near-real time, but her bank's access model often caused a delay of 15 to 30 minutes, making the bank less than competitive.
- Last year, the bank was able to join as a "Direct Participant" under the New Access Model,, an experience that the panelist compared to parenting a toddler who allows her to sleep through the night, even as it runs 24/7/365. The new model was also much more affordable and provided her community bank the near-real time model larger banks received. (The New Access Model that gives payment service providers and community FIs direct connection began in 2014, six years after the FPS began.)
- The panelist did note a serious obstacle to this access model for the smaller banks: the onerous 12-month certification process to become a Direct Participant is tailored to large banks. The process required significant resources and strained other areas of her bank. She suggested that the certification take a risk-based approach.
Two developments on the way may affect future access options: (1) plans are set to consolidate Bacs, FPS, and Cheque; and (2) the Bank of England plans to grant settlement services to nonbank payment service providers.
The United States is facing a similar challenge: community FIs will have to choose how to access faster payment systems. Some community FIs have begun to offer same-day ACH and will likely consider real-time payments later this year.
Representatives from the Clearing House's Real-Time Payments initiative shared some details on their access model:
- FIs of all sizes will be able to connect directly or through third-party service providers.
- Regional payments associations will play an important role as they collectively represent all U.S. financial institutions plus third-party processors.
- The speed will be the same for all participants.
- Indirect participation will not be available.
- Payments can be made 24/7/365.
While direct access is available for both same-day ACH and Real-Time Payments, some FIs may choose to use a sponsor or correspondent access model. To remain competitive, community FIs will have to understand the advantages and limitations that each access model provides.
The next installment in this series will discuss the U.S. market appetite for faster payments; the one after that will look at the impacts of adoption.
September 19, 2016
Mobile Banking and Payments—What's Changed?
This week, the Federal Reserve Banks of Atlanta, Boston, Cleveland, Dallas, Kansas City, Minneapolis, and Richmond are launching an online mobile banking and payments survey to financial institutions based in their respective districts. The purpose of the survey is to achieve better understanding of the status of mobile banking and payments initiatives, products, and services that financial institutions offer in the various regions of the country. The results of the survey at the individual district level should be available to participants by mid-December; a consolidated report for all the districts will be published in early 2017.
The last survey, which had 625 participants, was conducted in the fall of 2014. That was before the launch of the various major mobile wallets operating today, so it will be interesting to see what level of impact these wallets have had on the mobile payments activity of financial institutions. You can find the results of the 2014 Sixth District survey on our website. This survey effort complements the 2016 Consumer and Mobile Financial Services survey conducted by the Federal Reserve Board's Division of Consumer and Community Affairs.
First designed by the Federal Reserve Bank of Boston in 2008, the survey has been updated over the years to reflect the many changes that have taken place in the mobile landscape in the United States. Similar to past surveys, the 2016 survey looks to capture:
- Number of banks and credit unions offering mobile banking and payment services
- Types of mobile services offered or planned
- Mobile technology platforms supported
- Features of mobile services offered or planned
- Benefits and business drivers associated with mobile services
- Consumer and business adoption/usage of mobile services
- Barriers to providing mobile services
- Future plans related to mobile payment services
If your financial institution is based in one of the participating districts and has not received an invitation to participate in this year's survey, please contact your district's Federal Reserve Bank. For the Sixth District, you can contact me via email or at 404-498-7529. You can also contact me if you need assistance in locating your district's lead survey coordinator.
By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
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