The Next Level in Instant Payments Roll Out

Welcome to another episode of Wrestling Payments.

In this episode of Wrestling Payments, host Joe Casali dives into the transformative world of faster payments, focusing on the development and implementation of instant payment systems in the U.S. and globally. Casali discusses the journey from traditional ACH payments to the more advanced Real-Time Payments (RTP) and FedNow systems, highlighting the technological advancements and the growing adoption of these faster payment methods.

Joe explains the benefits and challenges of implementing faster payments, emphasizing the need for financial institutions to educate themselves and their teams about the nuances of these systems. He shares insights into the regulatory environment, technological requirements, and the critical role of understanding standards like ISO 20022 in ensuring seamless payment processing.

The episode also explores the practical implications for consumers and businesses, illustrating how faster payments can enhance liquidity, reduce settlement times, and improve overall financial efficiency. Casali's engaging storytelling and expert insights make this a must-listen for anyone interested in the future of payments.

To hear this episode and many more like it, listen here or subscribe to Wrestling Payments on Apple Podcasts, Google Podcasts, Spotify, or anywhere else you listen to podcasts.

For show notes, transcripts, and other resources visit www.wrestlingpayments.com.

Host: Joe Casali, EVP, NEACH

#wrestlingpayments #wrestlingpaymentspodcast #paymentspodcast

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Transcript

WRESTLING PAYMENTS - The Next Level in Instant Payments Roll Out
episode: 2.14

Joe Casali: [00:00:00] With the UK's faster payments and SEPA those the EU has a pretty robust instant payment system where folks, it's been in production, I think since 2010. So they're being used all over Europe. All right, so let's stop sharing that for a minute and keep going. The other place you can go in, NEACH is your location for that.

Joe Casali: Hello and [00:01:00] welcome to Wrestling Payments. Today I have a really interesting episode and it's interesting because I don't know where we're going to end. I came in, I had a very early podcast scheduled to be recorded. So I rushed in, I set up just in time, I turned on all the machinery that you see or you don't see around you, and they canceled.

So I'm sitting here, and it gives me time to  step back and think about something I want to say. And something I want to say has to do with faster payments, instant payments. And,  as you produce podcasts, you're trying to produce a podcast for the world. Not in this case, it's a really narrowly-focused podcast.

It's going to be focused on implementing faster payments. [00:02:00] We have let me start again. This all started in 2015. The U. S. Central Bank, Federal Reserve looked around and said, Something's going on. We need to make payments better, make them faster. Take a look at how payments flow in the U. S. and see if we're where we're supposed to be.

And they said, nay, we are not where we're supposed to be. to be. And why is that? It's because around the world at the time, other geographies were implementing faster payments. They were implementing alternative payments. So in the Sub Saharan countries, we have traditional banking here.

We have financial institutions, we have systems, we have third-party processors, We have lots of financial institutions. Lots of people, lots of people, and lots of financial institutions. So what we saw is that like in the sub Sahara, they were, the banks [00:03:00] didn't lead the charge, the telephone companies did, and PESA is a payment system based on your cell phone. So they got in the hands of the people and the telephone company said, how can we make things better for them? And what they did is they made payments easier for them. The U. S. looked at that and said, we need to do better. They started a multi-year project.

Involving all different industries, including financial institutions, including consumers. And they decided that, yes, faster payments was something we wanted. Something that would help whether a person was underserved or there was a liquidity need. They needed money faster. They wanted to settle debts faster.

They wanted to just move money around faster. And faster is relative,  Faster is faster than we could today. This is really [00:04:00] going to be more Joe talking than the Wrestling Payments Podcast. So what did that mean?  Complaint. Everyone talks about the ACH and says, ACH, you gotta send it three to four days in front and in advance.

That's not true. Yes, it can take three to four days. It can also take a day. It can also be the same day. So there's lots of payment options around. Checks can be fast. The checks are all imaged right now if you didn't know. The law around it is really the piece of paper that you reproduce from the image of the check is a legal check.

That's the legal, legally surrounded, but technically checks are traveling via image after they get deposited. Cards have all been around. Cards are pretty instant. They have their own drawbacks and advantages. There's debit cards, there's credit cards, all different ways that payments can move faster.

The key to these instant payments are they were [00:05:00] settled immediately. So debit card,  credit card is, you're putting money on a debt, you're a charge account and the account, you're going to pay the account later somewhere, somehow, monthly, you're going to pay that charge account.

So that's a different animal. That is not settled money. You have a debt when you finish using your credit card, debit cards are closer,  So debit cards use the same instant technology, but they do, they, they settle over the ACH. So if you're going to say ACH is three to five days, credit card, debit cards are three to five days because they use the same backbone.

They use the ACH to settle. And if you're a merchant, you know that I know that my son is a merchant and he gets his settlement the next morning. So it's pretty fast,  It's not instant. It's not settled immediately, but it is fast. Emerges two winners,  So the [00:06:00] first winner, the leader of the pack was RTP.

The real time payments system. And let me share for a minute some screenshots for the folks looking, watching the YouTube video. So let's share. And it's of note that RTP just had its first 1. 1 billion transaction day. So 1. 1 billion flowed in a single day. They're pretty new. They're about five years old.

It is a new, brand new payment system. The first one since ACH came along and RTP came out with a solution and that's the clearinghouse. They came up with a solution. They came out with rules. How do you process these things? They came up with all the technology and I think I may be getting a little off track, but they were the first out of the chute.

FedNow followed and I'd like to say [00:07:00] quickly, but it wasn't quickly. It was about five years later. FedNow, last year, last July, happy anniversary launched and they've had some great adoption. Again, everything's relative, but they have reportedly over 800 financial institutions that have signed up. And here's where we get to the point, 

The point is if you're a financial institution innovator, you've looked at real time payments and you've studied it and you've learned the rules and you've learned how they flow. And we are at a point now where you're picking solutions. And if you were, you picked a solution five years ago, you implemented RTP.

If you're picking a solution now, there's a couple of options for you. Point is, you've done the work. You've done the homework. You've sat in a class. You've attended a website. You've watched a video. You've learned how [00:08:00] works. What's the use case? What are we going to use it for? What are the things that we need to be careful about but now you to the point where you're bringing it back to the institution. And this is why it's so this topic so specific you're bringing it back to the institution and you're saying alright everyone, Let's do it and their answer immediately is do what are we doing?

You now have to start again. And you have to teach everyone, bring them all up to speed on what is a faster payment, what is an instant payment, what are the risks, what are the benefits, what are the use cases, all of that information. What's the technology? And  that's where this podcast was formed to address, to really bring everyone up to speed. We've been doing that. I've been doing that. For over 30 years, whether it's a ACH rule change, whether it's a regulation change, whether it's the [00:09:00] RDC turning a check into an image and check 21, the association has been training folks for years on how to do this?

What's important? So that's what this episode really is about. Is geared to it. How do I bring everyone along to bring them all up to speed to what we need to know? And I know that you have a very specific project plan. Your project plan is worked out with the vendor. It's worked out with the provider, 

Whether it's the FedNow or the Clearinghouse. Here's the things you have to have in place in order to use our systems. Beyond that, when you turn around and look at your team, they may not have all the parts of that project plan. They may have not sat through all the presentations you have. So you look for solutions and I love [00:10:00] learning.

I love teaching and people learn in different ways. And this, we're going to show you some different ways to bring everyone on board. So first we showed you the RTP site. I'm going to now show you a different site. The RTP site. Has a lot of resources. So if you have a user base that learns by, by visiting a website and learning about the rules, these are some solutions.

Go to the RTP website, go to the FedNow website. FedNow has a wonderful learning platform, really a lot of content. And not to be judgmental, but maybe a little too much content. So if you're going to use the Fed site, be very specific with your user base on what should they go figure out. This, they've got a nice little animation here and [00:11:00] it's called the Fed Explorer.

Explore the city. Nice, really interesting, interactive, and there's different places. Instant Payment University is going to show you some training produced by the Fed, delivered by the Fed, could be reading, could be a handout, could be a video, could be lots of things. And they're going to talk to you about different pieces of the FedNow solution or in general instant payments.

The Showcase Theater is going to be solution providers. Now, if you're at this point that I think I'm talking to you at, you already have your solution providers. The technology tower is still going to be a list of providers, but they're going to also have, they're going to touch on some technology.

So if you need to know about, one of the things you hear today, everywhere, it does everything,  slices, dices, makes whatever, French tomatoes or whatever that saying used to be with the if you don't know what I'm talking about, I'm sorry. It used to be a late night [00:12:00] commercial on a Ginsu knife. ISO 20022 does it all, but does it? And I am a little controversial with ISO 20022, 20 0 22. It does a lot, but it has to be implemented to do a lot. And you can't start with it all. You gotta start with what is it? How does it work, what do I need to know about it? ISO 20 0 22 is the technology used in Europe.

With the UK's faster payments and SEPA, the EU has a pretty robust instant payment system where folks, it's been in production, I think since 2010. So they're being used all over Europe. All right, so let's stop sharing that for a minute and keep going. The other place you can go in, NEACH is your location for that.

We have, so if [00:13:00] you're a member of NEACH, if you want to be a member of NEACH, NEACH has a ton of solutions as well. Some of them are free, some of them are pretty advanced. Let me show you and then I'll talk about it. Let me show you, this screen is courses. Let's show you that. So we have courses again.

Not pushing the courses. Everyone learns in a different way. The courses are pretty good. The three courses I want to point out here are the building blocks of faster payments. So again, if you're bringing your team along they have, they come to the table with a certain skill set and a certain knowledge set.

Building blocks of faster payments introduces new or newer technologies that they're going to hear about. That course was originally developed because FinTechs were coming into the institution and they were saying we're going to take the ledger and we're going to send it to DLT and the ISO formats will be updated.

Facilitate the [00:14:00] transfer and, and you were you at the time when we were, when faster payments were just rolling out, where can you back up and just use English to say everything you just said? That's why that course was developed. Great course. Really level setting brings everyone up to the same level.

The next one I'm going to talk about is the introduction to instant payments. This was a collaboration with the Fed. So the site I just showed you, we shared those presentations and we need guys, them. We make them maybe a little less sanitary, a little more real examples of how things work and what's really important.

And finally, this last slide, One, this faster payment certificate as the industry grew, not too determined and not to in the faster payments council determined that,  that there probably needs to be a certificate for all of this knowledge. So they're in the process of [00:15:00] developing. A faster payment certification, not a certificate, not a piece of paper that said, Hey, you took the class but a certificate, a certification that says you are a professional in this topic.

There's a whole bunch of courses in there to get people bored. I think that's the last slide I'm going to show you, but the last resource I'm going to show you is brand new. It was brand new to me. It's brand new to me in May. And it is this book,  And if, and I hand the book because when I was a kid and you were doing homework, you went to the book and you said, where is it in the book?

Where can I read about this? And today, and I experienced this with, I'll tell you, get really personal here. I experienced this with, [00:16:00] experience this with my children. I didn't know I became a tutor when I had children, but you became a tutor when you got children. So they would come home and they would say, I don't understand this.

I don't know what they're saying. What does this mean? And my first question, three kids, and my first question would always be where's the book? And I don't know what happened, but there's no books anymore. They don't exist. There's a flyer, there's what the teacher said in class. I don't know how to explain what the teacher said in class because I wasn't there.

So, you end up doing an internet search and you say how do I solve that? They tell you. No, that's not how the teacher said to do it. And,  it was a very frustrating time in my life. But here's the book. We have a session here that we started years ago that's called, Where Does It Say That?

And it brings you to the source document and says, Where Does It Say That? And I've got to be honest with you, I [00:17:00] haven't finished this book, but I can tell you, I got halfway through, see my little bookmark here, I finished the ISO 20022 chapter. Fantastic. I have another podcast in this series.

It's on ISO 20022. Biggest episode we have. I, people love it because it doesn't. What happens when you learn ISO 20022? You sit down at a screen, there's an instructor there, and it's a standard, it's an industry standard developed by an ANSI organization, the organization that decides how far apart the little screw things are on a light bulb standard. The minute they start talking, slide one, slide two, they are in the depths of fields and formats and remembering this is a repeating section or this is a [00:18:00] single section, and I'm pretty technical. I always like technology. That's why I signed up for electronic payments. I get lost.

I still get lost immediately. Even getting to the standards, I think in my opinion, are hard. They are maintained by an organization. You have to sign up for the organization. You have to prove who you are with the organization. Pretty much free access to them, which is great, but there's a lot of overhead to digging into a standard.

This chapter, even if you bought this for the ISO section, this chapter is fantastic. It doesn't tell you. Any code, not a, not one code. It tells you where it came from. It tells you what its purpose is. It tells you who's involved. And it goes down deep enough that it doesn't mention one piece of code or one format or one field.

But it tells you enough to say get it. I get it. I get it. [00:19:00] Alright. Now, what were you saying about ISO 20022? And I'm going to close with this. This entire episode is basically on a conversation with one member and that member was implementing FedNow. FedNow is brand new. There's 800 different institutions implementing FedNow.

And it's that point where the person who's done all the research and the homework and the contracts and the negotiations and the relationships and the vendors, they're turning around to their own institution and they're now saying, Hey, we're doing FedNow. And the institution, the other departments sometimes say, Fed what these resources are available for your users, and they may not need to know the formats.

They may not need to know all the details, but for example, a cash management person, they need to know the use cases. I didn't get the use cases. [00:20:00] If you've watched this podcast or listened to this podcast before, that chapter in this book was written by Kevin Olson, the payments professor.

So I know it's going to be good and it's good for people who don't, haven't been through all the use cases, don't know them. Like the back of their hand. It's going to be explained in human-to-human terms. Why do I care about this as a cash management officer? How do I, why do I care about this as a customer service person?

How am I going to explain to someone you sent to Fed FedNow, it's gone. And I can't, I, we can't take it back. Those, all that's in these books and these classes and these websites, it's all available. Pick your pleasure. How do you learn? I still like to go to the book. I think this will be the textbook for instant payments, at least for the near future.[00:21:00] 

Some of the concepts are actually gathering all the concepts together in this one book. You would have to do an internet search with multiple results and multiple, you know Presentations videos to get what's in this book. We are, NEACH's a non-profit association. We are not retiring on sales of this book, but we are selling it at a discount.

That's what our purpose is. I think our purpose is to get resources into the hands of people. You can certainly buy this online. It's cheap.  It's $29. 99 online. It's 24 at NEACH. Just wanted to give someone a book that says, where does it say that? This is where it says that we are a resource.

For you, for your team, if you're implementing instant payments, whether it's RTP, whether it's FedNow, whether it's the same [00:22:00] day ACH, we're a resource for you. And I just wanted to remind everyone, there are resources out there and we're one of them. I have no wrestling story today. I think the wrestling is that you're wrestling with implementing faster payments and if you could use a crystal ball to look into the future, they're going to be ubiquitous.

I think at some point they're going to be interchangeable. So I literally just read an article today on Cross River. I'll show you the article. I'm very picky. I'm a very picky person. The only problem I had with this article was that it said that the Fed had 600 participants. They don't, they have over 800.

That's my only issue with this article. And it might, sorry, it's over here for me. Really interesting as you think of innovation and you think of solutions. This is Cross River Bank, not a member of NEACH. And this is mass pay. No idea who they are. [00:23:00] But what they say down here is really interesting for me.

On Crossover's part, the new service depends crucially on the ability to funnel transactions through a single API. If you want to know about APIs, take the Building Blocker Faster Payments course. This connection enables so-called intelligent routing, which underlies the ability to speed transaction processing; a crossover spokesman did not immediately respond to this thing.

This is from Digital Transactions Magazine, it's freely available to you, again, one of those resources that you can find online. The idea here, right now, RTP and FedNow are separate, they are, they don't talk to each other, they don't need to change. They both run on a version of ISO 2 0 0 22.

So for the technology folks out there, could they talk to each other? Yes, they could. Do they talk to each other? [00:24:00] No. The other issue here is ubiquity. And what happens with ubiquity is the Fed has 800 financial. There are somewhere around 7, 000 financial institutions in the U. S. So, if every one of those 800 start sending out entries, faster payments, FedNows, I don't even know actually what we call them, but FedNow credits, they're going to hit a lot of dead ends.

They're going to hit a lot of situations where they can't get there from here.  Because that, the receiving institution isn't on FedNow. I think the idea of intelligent routing, lets the financial institution say, Oh, I have an instruction to send the payment. All right. Where does it have to go?

Are they on FedNow? Oh no, they're not on FedNow. Oh, are they on RTP? Yes, they're on RTP. Let's send it RTP. Pretty intelligent. Same [00:25:00] story. Are they on FedNow? Nope. Are they on RTP? Nope. We can send that on the same day as CHN. So I think that idea is coming, I think in the future,  the generation, whatever they call them, then are gonna say, what do you mean that you couldn't send a payment everywhere at once?

All the time. What I don't understand. It's gonna be crazy. Talk to them. But for us, we're building it. We're the, we are the pioneers. We're building this. These networks were building these solutions and it's up to us to  educate ourselves on how it works. , one more story and I'll close the episode.

We had a story of someone who was on one of the solutions, didn't know which solution and their FinTech was taking entries. They were accepting them. Now there's a lot of hurdles you have to get through about what accepting a payment is. It's instant. So if you accept it, it's accepted. Done.

There's no return. She can't send it back. [00:26:00] It's accepted. The other party says, it's accepted. Out of our hands. The FinTech was then saying, Oh, no, oh no we can't accept it after they accepted it. And that's accepting is a term in both payment systems. They were sending the entries back via ACH.

Now that can be done if everyone understands that they were just doing it. So the purpose of that story is that the financial institution didn't know that. And didn't understand that. So knowledge really is important with onboarding faster instant payments. These are final payments. So once they're sent and accepted, they're final.

Again, there are ways to get around it. There are ways to say, Oh, we didn't really want to accept it. Can we negotiate? I really want to send it back. Yes, there are ways to do that, but not if you don't know or understand what's happening with the payments because [00:27:00] there is no automatic ACH in that FinTech case.

They were sending it back to the institution, but they were just sending it back to the institution. It was a very large institution. It was rattling around in a machine somewhere. They didn't know ACH. They came back. They didn't know where to put it. The money was just missing for that consumer for the entire time because they didn't know.

They didn't know. So knowledge is power. Knowledge is power. That's where I'll leave you today. Thanks for listening. I hope this little heart to heart talk provided some value for you and some feedback. Let me know. Thank you very much. 

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