How can US banks win at instant payments?

Transcript:

Kellie Johnson:
Hello, and thank you for joining us today as we discuss how U.S. banks can win at Instant Payments. While there are over 80 instant payment schemes already live around the world, where many have become the new normal in their markets, adoption in the US has been somewhat slow.

I know it’s hard to compare the US to jurisdictions like Brazil and India, but we’re also seeing exponential growth in other markets like Europe and Australia. In part, due to regulatory drivers, but also because of client demand.

Today, we’re going to explore some of the findings from a survey RedCompass Labs published this spring called Leave Legacy Behind?, where we heard from 300 senior payment professionals at US banks, indicating a clear and growing demand for instant payments by corporate clients. The benefits are understood and growing, but there are significant challenges banks need to overcome.

I’m joined by Jim Collassano, Senior Vice President, Real-Time Payments Business Product Management at The Clearing House; Irfan Ahmed, Managing Director, Head of U.S. Payments, Global Payment Solutions at Bank of America; and Amber Faedtke, Senior Product Manager, VP, Treasury Solutions at Citizens Bank.

They will be discussing their own journeys, the challenges they’ve overcome, and how they are seizing the opportunity for instant payments. Let’s jump right in.

I’d like to start by asking each of you to tell us more about your role and share your view on the current state of instant payments in the US.

Irfan Ahmed:
Sure. I lead US payments and our global real-time strategy for Bank of America. We’ve been at the forefront of real-time payments, being one of the first two banks to join the network. It’s an exciting time—we’re learning and growing a lot as our customers adopt and grow their businesses. I think we’re at an inflection point where we’ll see more real-time payments in the US market.

Kellie Johnson:
Thank you. Jim, you’ve got an interesting role at The Clearing House. Over to you next.

Jim Collassano:
Good morning, everyone. My name is Jim Collassano. I’m the Business Product Executive for the RTP Network at The Clearing House. My role is primarily market-facing, engaging with banks that participate in our network, as well as corporate and consumer users. I focus on understanding use cases and market demand, which informs the expansion of capabilities and functionality on the network.

I’ve been in banking for over 30 years and was previously the global product head for HSBC’s payments business. In 2017, I joined The Clearing House to help launch the RTP Network, the first new payment rail introduced in the US in nearly 50 years. When considering the state of play, I’d ask everyone to think about how digital engagement and on-demand services have changed our lives. Bank rails based on 50-year-old technology just don’t fit anymore. That’s why we built the RTP Network to align with this digital evolution.

Kellie Johnson:
Thank you, Jim. Amber, over to you.

Amber Faedtke:
I’m Amber Faedtke, product manager at Citizens Bank, focusing on RTP products. My role involves talking to commercial clients to understand their needs, and then working with our back-office teams to build products they can actually use. We work closely with The Clearing House to ensure our solutions align with the demands of modern payments.

Like Jim said, older legacy payment systems just don’t meet today’s needs. We’re working to bridge that gap and offer real-time services that our clients rely on.

Kellie Johnson:
Thanks, Amber. Let’s stay with you for our first question. Some view instant payments as having the potential to transform lives, creating value for individuals and businesses. Yet in the U.S., 86% of banks and 73% of credit unions are signed up as receive-only. What are your thoughts on the disparity between receive versus send capabilities, and what’s been the biggest hurdle to full adoption so far?

Amber Faedtke:
It makes sense to start with receive-only, but institutions should see that as a stepping stone to sending capabilities. We need sending institutions to fully adopt real-time payments. There are infrastructure changes required, and some institutions think they need 24/7 staffing, which isn’t always true. Fraud concerns also play a role, but these issues can be addressed. Not participating isn’t a solution—if you’re not offering it, your customers will go to a competitor. We haven’t seen the fraud concerns materialize for us so far.

Kellie Johnson:
Great point, Amber. Irfan?

Irfan:
Sure. So, I mean, I think Amber is right. So you’ve got to be in it to win it as the New Jersey Lottery says. What I would say is, if you start with receiving only, you know, if it’s a transition, if you look at the network, not all banks are senders. So it’s okay to have folks that are not sending. You know, even after 50 years of ACH, we’ve got some players that, you know, just their business model doesn’t require it.

If you look at real-time, I think you’re going to see a little bit of change on that front. I think one of the big hurdles is a lot of financial institutions are also dependent upon vendors and folks to offer different solutions. And if you start going to, you know, regional banks, credit unions, and other banks, sometimes they have multiple vendors that they’re working with. So now you’re dependent on two or three vendors to pull together a mobile solution, or maybe a workstation solution, maybe a back-office processing.

So I think there’s a lot of things that have to come together.

I think, to Jim’s point earlier, you know, I think we’re starting to see because of the way our lives are changing, folks realize, and even in the vendor space, that, you know, providing those services is going to become table stakes at some point. So I think you’re going to see some of that start to pick up. And we’ve seen a lot of growth in the industry by some of those core providers and vendor partners, certainly with The Clearing House and others working with them to start offering those services.

So I think, you know, between the influx of use cases and the business need, the availability of solutions, I think you’re going to start seeing more and more folks come in to join the plan capability as well.

Kellie:
And that’s a good point on the use case, is driving the urgency or the need with that service providers. And so, Jim, on that one, because I know The Clearing House is doing quite a bit for engagement on the vendor side as well. Do you want to add any comments to this question?

Jim:
Thank you. Yes. We are working with a number of vendors, actually, all of the bank’s core providers. And we have integrated all of those core platforms. And what I call a platform for those who might not be familiar is the actual DDA platforms that are run for the banks. So, we have vendors like Jack Henry, Fiserv, FIS, Alacriti that we have integrated the RTP network into their core platform so that when a bank does want to sign up, it’s much easier for a bank to sign up. It’s a bit more plug-and-play than it was in the earlier days.

So we’ve done a lot of work to make it easier for banks to integrate. And we’ve also been working with vendors with technology companies who are necessary to enable that capability on the part of banks. So to the point that everyone was making a few minutes ago, you need to have more vendors involved when you are dealing with originating a transaction than when you are simply receiving a transaction.

The other point I would make, just to go back in history that you mentioned the fact that pitchers and catchers: we started with a blank sheet of paper building a two-sided market. So, absolutely, we wanted everybody to come on originating transactions. But if you have no one to send them to, you’re not going to get a lot of uptake. So early on, we actually made a concerted effort to make sure the banks were coming on as receive-only because that was the fastest way to get them on board, with an intent to move them over to send and receive and then start to build out those capabilities. And we actually see that in place. Now we have more and more banks that are receive-only starting to flip over and start to originate transactions. And we also see many new banks who are actually coming on board as both send and receive, as opposed to receive-only. So it does become a bit of a state of maturity that you’re dealing with that will change the dynamic as everyone was talking to.

Kellie:
Yeah. And that state of maturity, that makes sense, that you’re seeing that with the newer banks that are coming on board and being able to look back at some of the early adopters there and take some of those lessons learned. And I would encourage, if anybody wants to jump in on anybody else’s answers, please feel free to do so.

I do want to go back just for a minute on the complexity of the vendors, because you’re right. Right. Like when you look at the send side effect for banking, you’ve got fraud, you’ve got, you know, exceptions, investigations, you’ve got like credit, you’ve got like there’s so many other areas, financial institutions that are implicated on the same side. So definitely, makes sense when we look at the complexity around sunburst versus received. I like that plan that, Jim, that you guys took to just get on as many as possible and then move from received to send.

So, let’s go on to the next one because I think, you know, the US is a bit unique in that there seems to be more competing options in the instant payments space in the US than a lot of other markets. Is it possible that there’s too many options slowing adoption or well, use cases that we’ve already started talking about, like earn wait, wage access, driving efficiencies for corporates such as customer refunds, employee expenses, things like that went out and pressured the industry to evolve faster naturally.

Irfan, I’m going to ask you to take a stab at this one first, and then we’ll go over to you, Amber, to add any additional thoughts that she has.

Irfan
Sure. I mean, as far as the industry goes, there’s, you know, I mean, first and foremost, a lot of talk and confusion. And I think we’re starting to get over that between faster payments and instant payments, you know, and what networks you can kind of count on to be an instant payment or a faster payment. So I think we’re kind of through that journey, but there’s still a lot of options for faster payments in the US between same-day ACH, the card networks, we’ve got our TCP Fed now.

So it really comes down to everything from use case to feature function and need, you know, not all networks are the same. The value proposition they provide is not the same. So it really comes down to, you know, as Jim was saying, do I need something where it’s integrated into the workflow? Right. What’s the easiest way to put something into a digital workflow, where a payment is a part of that user experience? In some cases, you may be able to hold off on the payment and same-day is good enough. And that’s you need the reach aspect of the network.

In other instances, you may need to digitally integrate it into your user workflow, and you prefer using ISO 20022 because of the data that’s available. And you can use APIs to integrate that into your end-user workflows that might lead you towards, you know, an RTP or FedNow type of solution. As far as multiple instant payment networks, you know, that’s not something that’s new to the US. On the wire side, we have CHIPS, which is run by The Clearing House. We’ve got FedWire, which is run by the Fed—same thing on the network. I think the interoperability between the ACH network is nice. But, you know, as the banks have done, between CHIPS and FedWire, we’ve built the interoperability so it’s seamless to our customers in a wire-to-wire transaction, and they don’t really know which network we’re using. And I think, ultimately, that’s the way things are going in the US as well.

Kellie:
Amber, do you want to add anything to this one?

Amber:
Well, I would definitely agree with the instant payments. At the end of the day, the clients and the end users, they don’t really have a strong preference. They just really need to make the payment. So to them, it’s about the user experience. And their choice is going to be based on the attributes of the payment and how they’re able to facilitate the payment, and not so much the backend systems being used. They’re focused on the speed of the payment, the amount of the payment, whether it’s domestic or not, and those key attributes of getting that payment done when they need it, and in the manner they need it completed. And they’re looking to the banks to make some of those routing decisions or help them facilitate the backend pieces. So, they’re really just looking for our guidance in a lot of those cases. The rest is just gravy to them. That’s really their key driver when I’m talking to them, mostly.

Kellie:
Yeah. We’ve been talking, even years ago when I was in product and payments, we discussed that FedEx model, right? We don’t want our customers to have to be payment experts. And so it’s great that there’s lots of tools and options in the background. But the focus should always be on the client experience. You know, they come in and say, “I just need this to go here, and it needs to be done by this time.” We figure out in the background which pipe it needs to go through. So, still on this, that’s consistent from ten-plus years ago.

Kellie:
Now we’re going to talk a little bit about the RedCompass Lab survey that shows banks are definitely experiencing pressure from corporate clients for real-time or instant payment services. The survey listed five main perceived benefits, with the top marks going to increased payment certainty, improved customer experience, and working capital management. So, again, focusing on the corporate side here. Amber, let’s start with you on this one. And then we’ll move over to Irfan. What’s your view on this? Is it aligned with what you’re seeing in the market? Are there any other benefits you’d add? I know this is evolving, and we’re starting to see more use cases in this space, which is great. But I’d love for you to weigh in on this one.

Amber:
Well, I think what I’d add that you can’t see outright on this is some of the value-added services with the confirmed nature of, you know, using instant payments. So, getting a positive confirmation back that a payment has been received on the other end. There’s some value-added services that don’t come out right in something like this, but this definitely aligns clearly with what the clients say when we talk to them. The benefits they gain when they convert from a legacy payment to an instant payment—they definitely have more control, including when they’re debited and when the credit is pushed. That’s definitely helpful. Depending on what they’re converting from, they can see fee reductions, and owning the experience, especially if they go with an API-based real-time solution. If they’re looking for a true real-time solution, they can definitely do that. And then they can add in some highly customized value-added services if they key off some of the different messaging options available through these solutions. So I think that’s one of the things that’s not necessarily out here on the slide.

Kellie:
Yeah. And the ability to be able to create their own customer user experience through using instant payments. In the end, APIs, I think, is something that’s a huge benefit for businesses.

Amber:
And they can choose to do it. Sometimes they don’t have to do it 100% of the time. So they can also control that. They use it in certain instances, and then they don’t use it in other instances, depending on how savvy they may be.

Kellie:
Yeah. It’s a real differentiator potentially.

Amber:
Right.

Irfan:
And Amber touched on, I think one of the key ones that’s, I’ll say, it’s kind of hidden in here. And touched on it briefly, but I know Jim, and I’ve certainly heard Jim speak to it on numerous occasions: just putting control back in the hands of the originator. So, Jim coined the term—not to steal your thunder, Jim—but, you know, calling RTP a precision payment, where you decide precisely when you want the payment to go out, and you send it out then, so you’re fully in control versus other networks where you don’t necessarily have that control. And in a lot of cases, where we run into it often is, you know, you’re talking to an API and they don’t want to pay anybody faster, right?

And it’s kind of flipping the framework a little bit to say you’re not paying them fast, or you’re paying them when you want to pay them. So you can hold on to that payment for the last second before you let it go. So we’re seeing some use cases even within the network now, where we’ve got folks taking advantage of that. So, for example, folks funding payroll on a Wednesday or Thursday instead of a Monday, right? And hanging on to that cash flow for a few more days. And having those funds.

So there’s a lot of ways where some time is hidden and folks are reluctant because they think all of a sudden I’m going to lose money quicker, or it’s going to go out the door quicker. And it’s really changing that framework to say, no, it’s going to go out when you want it to go out.

Jim:
But so Kellie, I’ll add one additional point, saying it all kind of revolves around – we have a tendency just to look at speed, right? When we call them real-time, when we call them instant, we zoom in on the speed. There is so much more functionality that exists within the network that adds an incredible amount of value.

The confirmation, the transparency of the payment, knowing that the payment’s being made, or even knowing that the payment failed instantaneously because there’s been bad information on that account number. The 24/7 processing, all of those are attributes of the network that are the pieces that add value.

And when you speak to corporate customers, when you speak to business customers, it’s really those components of it that make the moments come a lot faster than it was yesterday, or it’s faster than the other rail. It’s really all the other things that go around it. It is the finality of the payment. You know, if you’re the one receiving it, all of those things are really important and they tend to get kind of tangentially mentioned, but they’re really valuable when you start to give in to intelligent design and customer.

Irfan:
I 100% agree. And when we talk to customers, those features and functions that allow them to differentiate their business and build a value proposition to their customers, so you can, you know, they’re able to then set up, either distinguish themselves amongst the competition and, or set up a premium product because of those particular things.

Kellie:
Yeah, there’s almost a shift, right? Like I think back to, you know, the view on payments up until kind of recently, and it’s almost like it was a utility to get funds to a recipient. So it was always focused on what the experience would be at the recipient’s end. Whereas now, we’re starting to shift and really focus on the entire life cycle of a payment. You’re looking at that sender or originator being able to differentiate themselves and control. I like that term “precision payment” because it’s exactly what it is. It allows for the originator as well to get value out of the payment ecosystem as part of this flow, versus again, only focusing on what it looks like at the receiving end.

Irfan:
And I think that’s the maturity. Not only where we’re going with how we live our lives, but if you look at 30, 40 years ago and compare that to today, there’s been a shift. Payments used to be the real utility. To your point, now it’s the ecosystem. So, do I have the right feature functionality? Do I have the right liability framework to protect customers around those payment schemes? Do I have value-added services like tokenization and alias directory? All these types of things are becoming part of the payment network holistically, rather than payments being just a push or pull from one account to another.

Kellie:
Yeah, yeah. Jim, you were quoted recently in an interview that I read back in June, just articulating that you’re a big proponent of the benefits of instant payments and the use cases that come along with that. How does The Clearing House engage with the corporate space? Is there anything looking ahead at your roadmap that you can share, especially for this segment? I know you guys are coming out with version five soon, and there’s some interesting developments. You guys are continuing to evolve, of course.

Jim:
Let me start with the interaction that we have with the corporate community. Since the inception of the network six years ago, we’ve had a corporate advisory group that has helped us with product design and development, giving us an end-user review of exactly what corporates are looking for. As we started to build out the network, we had that group in place, and we use them pretty regularly to get voice of the client and voice of the market. We also do webinars like these, client events, and attend all the major events, talking to end users and really understanding what the need and demand in the marketplace is because this is a brand new payment system. This is not just another rail; it provides a great deal of capabilities that are unique to a payment rail or infrastructure.

Many times, when you’re talking to customers, they’re typically not talking to you about whether the payment failed. They’re talking to you about how the legacy networks operate. You’ve got to get them to understand that there are other services that allow you to manage your payments much more efficiently. And that’s where we get most of our ideas from. We are very market-focused, which is interesting for an infrastructure like ours. We are owned by banks and sell to banks, but typically it is their bank customers, the buyers, who are the ones that drive demand.

So, we realized when we launched the RTP network that we needed to get more engaged with the corporate community, consumer community, and retail community to really understand what the buyers were looking for and make sure when we’re talking about the network, we’re speaking in a language that resonates with those listening.

Some of the things we’ve heard about and have on the roadmap include the introduction of a capability called Request for Payment, which we started last July. It allows someone to request money from another party and have them respond with a credit transfer without exposing account details. This is a very efficient way of a biller sending an invoice for services or materials to a buyer and having the buyer send an electronic payment, all while keeping the necessary invoice details for accounts receivable posting. We are in the second phase of this rollout, and we’re going to be launching our third phase in early 2025. It’s a phased rollout because it’s new functionality, and we want to manage it in a controlled, risk-managed way, starting with low-risk use cases.

Another thing I would mention is that we’re seeing more business-to-business activity on the network as we see more supply chain business-to-business types of payments. The requests we get from the marketplace are for increased dollar limits. Currently, the maximum dollar limit on the network is $1 million, and we are looking to increase that as we see more demand and expansion of use cases. Finally, I mentioned that we are doing some work in cross-border instant payments. I refer to that as the “holy grail” of payments—being able to make instant cross-border payments with finality and full transparency in seconds. We’re starting to see some of that with testing and proof-of-concept work that we’re doing.

Kellie: That’s great. And we’re going to come back to that one, especially because that’s an important one for sure to look at. Just back to your mention of going to the buyer. And so that’s so important. That’s kind of like product management 101, right? We’re not building these new payment schemes for banks and technology platform vendors. We’re building them for customers. We’re building them for users.

The bill payment one I think is especially interesting because that’s not even specific to the US. You know, we’re looking at that and I’m in Canada, we’re looking at Europe, etc. Request to pay, a request for payment, has become one of the probably the number one use cases that has been cited as really having the ability to transform the entire payment lifecycle or payment space. Right?

Is really that because everybody’s got, you know, old legacy. It’s, you know, three, four days to apply a payment to a bill, paper-based, just getting out of that. So that’s a really interesting one. Thank you.

So if we go back to the challenges, we talked a little bit about that, but we said we’re going to come back to it. So the survey. Red Compass Labs said also revealed top of mind are technology or architecture changes, operationalization of 24/7 which Amber mentioned as well. That’s a big one, and too much choice and cannibalizing of other revenue streams, potentially being a barrier for this.

Irfan, we’re going to go… let’s start with you. Please, based on your experience, as you’ve implemented an instant payment solution for the market successfully, is there anything that you would add here? And how have you overcome these challenges yourselves?

Irfan: Yeah, so, again, I think it comes down to, you know, in the US market, we’re a very small market of banks of only 9,000 or so, financial institutions. Right. And no one financial institution is the same. So everybody’s going to have a different set of capabilities and challenges.

You know, I would argue those financial institutions that are retail-focused or may only have a retail presence, the 24/7 isn’t as big of a hurdle for them, right? We’ve been dealing with ATMs since the 70s. And, the concept of always being up and servicing our customers. And then came kind of online banking, and the ability to kind of have that 24/7. So I don’t think those concepts are new.

I think where you see a little bit of variance is moving across the street to if your bank also supports corporate customers, and frankly, in a lot of cases, corporate customers didn’t need or want weekend services because, you know, they like going home.

You know, I think the world has changed, you know, and now we’re all living our lives on our iPhones or on our devices. And we’re available 24/7. And that expectation has changed.

I think one of the benefits we’ve had as a financial institution is our wholesale bank and our retail bank work very closely together. So a lot of the learnings that they’ve had, we’ve taken, we’ve, you know, from a technology perspective, implemented some of those. So I think that piece is definitely addressable. It’s one that, you know, depending on, you know, what your customer base was, you may be further along than another financial institution or another part of your own business.

Reachability certainly becomes an issue. But it becomes an issue to Jim’s point on, you know, who are the banks selling to, right? The financial institutions are building products for customers. And if you have a customer and you tell them, hey, you can only get 5% of people, and for everybody else, you’ve got to do something else, or even 30% of your population, and for 70%, you’ve got to have the second process, folks may not be willing to move over to something where there may be a clear business benefit, but they’ve got to maintain two processes, or overwhelming part of their client base can’t take advantage of those processes.

So I do think reachability is something that is key. I think Jim touched on part of the reason The Clearing House really pushed the receiving angle is because you need somebody to send for somebody to send you need that reach. So I think, you know, those two are depending on, the financial institution and who you’re selling to become really key pieces of challenges banks can face.

But I would argue it’s really challenges. And, and Jim made this point, right. Often everybody looks at things through other products. So if you’re looking at it from an ACH lens or a wire lens or perspective on real time, for instance, going to be different than somebody who’s truly focused on looking at the value proposition of instant payments and how that translates to your customers. So I think some of that also comes into play. And I think with that shift, all of this becomes manageable and maintainable. And again, different financial institutions will have different challenges across the board.

Kellie: Yeah, it’s really not a one-size-fits-all right, based on the profile of a bank. And you’re talking about that shift, right. Bringing together, not looking at it from the lens of like wire, traditional wires or ACH, that sort of thing. I think what I’ve seen too is the bringing together or the collaboration between or creation of enterprise payments type functions within financial institutions.

So it almost brings together the, you know, clunky what was clunkier, batch. You know, legacy payment rails or systems with retail, which tended to be based off card more or just quicker. And so I think you’re getting a lot of benefit in those enterprise payment type views, bringing together kind of a new refreshed look at payments, is what we’re seeing, as well.

Amber, would you like to share anything regarding your own journey?

Amber: Well, I think obviously we overcame all the obstacles that there may have been out there, and I think some of them are more perceived than reality, but the ones that are more reality, there are obviously solutions. You do need to talk to your partners, but, you know, you don’t have to necessarily staff 24/7. I know a lot of smaller institutions. That’s what their feedback is.

And you know, the architecture that is just one you have to work with your IT teams. You can’t really get around that one. You do have to integrate quite a bit in on that receive, especially on the receipt side and take that really consider the details on the receive side. I do think some of that gets overlooked. You have to think about, you know, making sure you really integrate fully. When you sign on as a receive bank and give all of the information, you know, unstructured details in reporting and things of that nature.

Kellie:
Yeah. Operationalization for sure. Yeah, absolutely. And you’re right. Right. Collaborating with your partners internally, I.T. operations, digital channels, you know, it’s just it’s more important than ever now.

Amber:
Yeah. I mean, I think I think the other thing.

Irfan:
And the other thing we had learned or took away the learning was, you know, really talking about the end customer and the use case becomes helpful, particularly from on the IP side where they’re not necessarily dealing with the business end. Moving away from batch processing and instant processing and kind of making the use cases real really helps. And reframing how technology is and thinks about implementing or delivering on the solution. So we’ve found that to be a very helpful exercise as well.

Amber:

That’s actually a really good example. And I’ve done that in my own. Just take an actual real-life example and walk them through it. And a lot of light bulbs go off. Because the concept of just why are we doing this seems to be, you know, a mental roadblock for some folks, both internal and external. Quite honestly. But, that definitely helped with the not just I.T., but I would say risk and some of the other internal partners as well.

Kellie:
And so, so I’m going to shift over to Jim, you know, you talked about you’re doing a lot at The Clearing House to rally the industry around instant payments, remove barriers for adoption. I understand the number of FIs joining is increasing month to month. You’re expecting about 1000 by the end of 2024. Is there anything else that you’re doing? I mean, it sounds like you’re doing a lot, you’ve got this corporate advisory group you’re behind, right? To the buyers. You’ve gone a lot with the vendors. Is there anything else that you wanted to add there that potentially you guys are working on to help support financial institutions, remove some more of these barriers?

Jim:
Well, what just generally we are doing as much communication as we possibly can in education, the entire ecosystem of everybody who it touches. We talk to compliance groups, we talk to risk managers, we talk to treasury executives, we talk to technology companies. But I’ll bring in kind of back to what it is we’re saying to them, right? We have over six years, almost seven years of experience with instant payments as Irfan and Amber can tell you, when we first opened up the network, we had weekly meetings with the banks to understand how messages were flowing, how processes were working to really get underneath the covers and understand the impacts at the banks. And right now, what we are doing with every bank that comes on board. I can tell you there is now a question that we haven’t heard. There’s not an issue that we haven’t helped the bank work through. And while we put together resources and tools on our websites and communicate it out, we are also in client offices, in banks, offices, working with them every day to share that experience and that knowledge. Experience matters, especially in a space where you haven’t seen a new infrastructure, launched in 50 years. We don’t do this regularly, so it’s really important for us to share those experiences and to just, you know, to get rid of some of the mystique around it.

So to dispel some of the mist that people think about when they think about instant payments, and that’s a lot of what we do, on a day-to-day basis. We’re out there every day talking to all of the players in the infrastructure and all of the banks sharing all learnings. And that is one thing I’m very, very proud of as far as this organization is, we have a depth of experience that can’t be matched anywhere.

Kellie:
You heard it here first, folks. If Jim hasn’t been to your office, give him a call.

Jim:
I’ll go anywhere.

Kellie:
And there you go. There you go.

So that’s awesome. Thank you.

So we’re going to shift a little bit, because I think we would be remiss if we don’t talk about fraud, at least a little bit. And so every market with an instant payment scheme has seen a rise in account-to-account payment fraud. There’s a lot of countries that have implemented different solutions, confirmation or verification of payee. We really need to standardize some of these terms. Right. So confirmation or verification of payee seems to become table stakes. And, and we’re starting to see a liability shift in some markets like the UK around APP fraud. Amber, I’m gonna ask you, first and then we’ll, we’ll go to Irfan: what’s happening in the US around mitigating fraud for instant payments at an industry level? And how does this topic fit into your own approach and strategy?

Amber:
Well, it’s been part of the rule set since the RTP network was stood up. That fraud had to be baked into the process. So we have that covered in a sense, and we have it covered in a couple of different layered approaches. Especially on the origination side. You know, multifactor, we offer some, you know, verification tools, things of that nature. So it’s always top of mind to be, you know, looking for it, aware of it. There’s always the other, you know, more broad, fraud education efforts and things of that nature. So far we haven’t had, specific RTP instant payment type fraud hasn’t actually become a real problem for us. We haven’t actually seen that become losses. So, hopefully it’s, you know, prevention is the best tool that we have in most cases. But you do have to talk to the fraud partners and make sure that they do understand they’re irrevocable payments, so that it’s critical to make sure that you are looking at, especially if you’re looking at it on the origination, you know, on the origination side specifically that you’re looking to see before any kind of money has actually moved, and that your rules are set up with that kind of lens and that your tools, that are able to handle the instant scanning kind of nature of an instant payment. So, it’s a little different on the receive side, you need to feed that data. You need to look at that data. It needs to be fed into models. You have to make some decisions on how you want to use that data a little differently on the receive-side. But from a network perspective, it’s always been considered part of our overall architecture on the instant payments that we needed to keep right top of mind.

Kellie:
Yeah, yeah, that makes sense. And your fan obviously, Bank of America Global really large global organizations. So again, where some of these other markets have really mature, industry-type tools, that you can either, you know, learn from or look at as you build out in the US, how does that fit into your strategy?

Irfan:
I mean, I thought I talked a little bit about kind of a payment rule is more than just the actual real right. And liability frameworks and how the network looks at liability becomes. We’ve got tools, whether it’s fraud monitoring every transaction that originated goes through, monitoring before it gets entered into the network. You’ve got certain rules around how senders can originate a transaction. So, on the RTP network, a consumer or retail customer cannot send the payment without being played back the name of the entity that they’re sending a payment to. There’s another network where that rule is prominent and really helps reduce fraud. We’re seeing that pop up all over the place in Europe, another place with confirmation of payee. So, this concept of knowing who you’re paying comes back to how you build the network and the rules, and what’s the liability framework to help mitigate and decrease as much as you can.

Obviously, going to zero is always going to have some issues. But if you look at the network as a whole, and Jim can talk to this again because of the way that The Clearing House has rolled out RTP, because of the rules that are in place, look at request for payment. It’s been a very controlled, specific rollout of specific use cases with a very robust liability framework, all geared at the same thing, which is how do we grow responsibly and do this safely and soundly, and gain learnings before we really start opening things up? And I think that’s going to be a differentiator for the RTP network as well.

Kellie:
Yeah. And, and obviously The Clearing House doing lots around safety for participants, enhanced security, things like tokenization, being introduced. I’m going to shift though to interoperability, because I know this one is top of mind for a lot of people. I’ve heard this asked many, many, many times. And while there’s no plans yet to make RTP and FedNow interoperable, if we focus in on globally… Right?

So globally, we’re seeing a lot of linking of cross-border domestic schemes, which Jim, you mentioned this is really, really important. And I heard you earlier, cross-border is going to be the real power of the network. So is this something that The Clearing House is currently working on?

Jim:
So yes, we are doing work in this space. We’ve got a program called IXP. And the IXP program, we actually did a proof of concept, I think it was two years ago, with EBA Clearing to test the technical capability of interlinking through instant payment networks.

So originating a transaction on one instant payment network in the US and settling it on the second instant payment network, in the EU. And we were able to successfully do that in less than 30 seconds with finality and transparency and all of the screening that needed to go along with it. That was a technical undertaking. And the reason that we could do that is because we’ve established an international standard for instant payments, the ISO 20022 standard. So we have many of the instant payment operators globally using that same standard. And the idea behind using the same standard globally is that it would make it easier for us to technically connect those instant payment networks that are on that standard.

At the point in time when we were ready. So we were able to do the work to connect it technically, we were able to make sure it was able to operate end to end with transparency and finality. So we know technically it can work. Now, there’s quite a bit of work that needs to be done from a regulatory standpoint, to make sure we’ve got the screening, the money laundering attributes, all of those business processes that need to accompany the transaction in place.

And that’s the work that we’re doing right now. The nice part about doing the proof of concept the way we did is, it was irrespective of reading. So once you create the technical ability to interlink instant payment systems on the same framework, you can rinse and repeat everywhere around the globe for any operator who’s operating along that same framework. So that was the real power of being able to do that technical test and proof of concept.

But the devil is going to be in the details. There’s no small amount of work that needs to be done to make sure you’ve got overarching rules that cover both regions, right? So that you’re making sure that you meet all of the compliance obligations for the various regions that you’re in. So that’s a body of work that needs to be done.

And to make sure you’ve got business processes. That’s a body of work that’s currently underway. And that will progress. And once we start to get a little bit further along on that business process and those rules type, we’ll be able to bring together the technical and the raw side, and have a framework for us to be able to interlink these payment capabilities going forward. And this is really exciting because you have foreign exchange involved. You’ve got interlinking of systems, you’ve got screening involved and message transparency involved. But to be able to send a cross-border transaction within 30 seconds, with finality and transparency, is something that I think everyone would benefit from, from consumers all the way up to the largest corporations. So it’s something we’re very excited about. And again, it’s on our roadmap. But because of the amount of regulatory work that needs to be done, I wish I could give you a target date for that, but it is a work in progress right now is what we’re driving towards.

Kellie:
Yeah. Watch this space.

You’re right. The business process stuff is always… You can’t underestimate that. It’s all the…technically we could do it, but business process, everything around that, is super hard. But what an amazing opportunity for multinational corporate clients, right?

So Irfan, what are your thoughts on this? Like, your customers must be talking about this type of utopia of payments that’s so far in the future that they would love to have. And it looks like or sounds like this is something that actually might come to fruition.

Irfan:
Yeah. No, it certainly is. You know, it’s… It will be interesting to see what corridors open up, what the use cases are, what the dollar limits are going to be. You know, multinational corporates typically send rather large dollar amounts, cross-border, you know, there’s certainly an opportunity for other corporates. There is opportunity for consumers around remittances, I think, which is a big market. So it’ll be interesting to see. I mean, we see multiple quarters that have already opened up with bilateral agreements, particularly in a pact. And we’re seeing that starting to spread. So I think it’s a start and a very exciting area to watch.

Kellie:
Yeah. So I think we’re almost out of time. This has been a very interesting discussion. So I want to thank you all. Obviously, this is an exciting time in payments with significant opportunities for the market. But what I would love for you to do is hand it over to you for any final thoughts, words of wisdom, to close things out.
And Jim, why don’t we start with you, and then we can hear from Amber and Irfan.

Jim:
Absolutely. And thank you, Kellie. It’s been a great session. The one thing I would say is, as an operator who’s been in the market for the last seven years, we’ve seen slow growth for a period of time. We are starting to see a real steepening of that demand curve. We’re starting to see more banks joining in that work. That number or pipeline is increasing every week. As you mentioned, we’re seeing more originators, more bank lending, more corporate originators lending and volume really starting to steepen. So I would encourage anybody who’s out there who is sitting on the sidelines right now and waiting for a stronger business case. There is no better time to get into the game than now. And the risk that you run is that in this current pace of change, you stand still and you get passed by. So this is something that is growing and expanding. The business cases are there. The use cases are there. The examples are there. If you’re still having trouble making a decision to get in the game, talk to one of us, all of us, and get in the game and get started, because this is going to be the payment system of the future.

Kellie:
Thank you.
And, Jim will get on a plane anytime.

Jim:
Anytime, anywhere.

Kellie:
And, Amber?

Amber:
Jim does get on a plane all the time. And then this is the payments ecosystem of the future, now the present and the future, I would say. So, I think, my remarks are pretty similar to Jim’s is, you know, it’s… if you have been waiting on the sidelines, it’s no longer a wait and see time. It’s time to move onto the platform. And otherwise, you’re probably running the risk of getting left behind in a very scary way. And, you know, if you’re, if you’re living somewhere where you’re kind of saying you’re not getting asked or your customers are not asking you, right? Which I find hard to believe. It’s probably because they don’t know that they need to be asking. So, you know, I wouldn’t wait for that either, if that’s somehow your reality. And, yeah, the future is now, so it’s just time to do it. I’ll just leave it there.

Irfan:
A great conversation. Thanks for having me.

You know, as far as real-time goes, if you look internationally or globally, whether it, you know, governments pushing real-time payments, natural adoption of real-time payments, a lot of portions of the world can’t believe that we don’t have in the US market, the depth and breadth of instant payments that they do. I think we’re a little bit different. I think we’re starting to see the transition to get there. And I think it’s an exciting time to be kind of in payments and certainly on the RTP front and instant payment fronts, if you look at what’s coming down the pipeline in the US, whether it’s 1033, whether it’s pay by bank, everything’s kind of pointing out this is where payments is going. So again, I think it’s the start of an exciting time for us and, and how not only we but our customers are going to continue to grow and change their business.

Kellie:
And to quote Amber, the future is now. So thank you again, everybody. Thanks for everybody who joined us. We are going to share a QR code. If anybody’s interested in downloading the full report from RedCompass Labs, Leave legacy behind?, or you can access directly from our website. Have a great day.

Thank you.

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