March Top 3

Episode Summary

In this episode of Wrestling Payments, host Joseph Casali breaks down three timely developments in the payments world. First, he tackles the slow adoption of faster payments among smaller financial institutions. Despite strong growth in RTP and FedNow, integration costs and a lack of clear pricing models continue to hold many back.

Next, Joe explores Square’s move to offer consumer loans through Cash App. With FDIC approval in hand, Square—under its parent company Block—is entering the credit space with small, short-term loans. Joe weighs the pros and cons of fintechs stepping into traditional banking roles, especially as regulators start paying closer attention.

Finally, the discussion shifts to stablecoins. The OCC has relaxed its stance, making it easier for banks to engage in crypto-related activities. Joe walks through proposed legislation and asks the big question: who should regulate stablecoins, and what does that mean for banks and consumers?

KEY INSIGHTS

Small Banks Lag in Real-Time Payment Adoption

Despite the growing infrastructure behind faster payments like RTP and FedNow, smaller financial institutions continue to trail their larger peers. Joe points out that big banks are six times more likely to offer real-time payments. The reasons? Integration complexity, unclear pricing strategies, and rising deposit costs. About 30% of hesitant institutions lack a pricing model, and 35% cite tech integration as a barrier. While over 70% of regional and national banks allow consumers to send real-time payments, only 44% of credit unions do the same. The opportunity is there—but hesitation remains.

Square’s Cash App Loans Signal Fintech’s Banking Ambitions

Square, now operating under parent company Block, has secured FDIC approval to offer small-dollar loans through Cash App. Joe unpacks how these short-term, low-cost loans are aimed at underbanked consumers facing steep fees from payday lenders or overdrafts. The average loan is under $100, repaid within a month, and has a default rate below 3%. With nearly $9 billion originated already, this product has clear demand. Joe raises important questions around regulation, noting that while fintechs offer convenience, they aren’t held to the same standards as banks—yet.

OCC Opens the Door to Crypto Activity in Banking

The Office of the Comptroller of the Currency (OCC) has issued new guidance making it easier for banks to engage in crypto-related services like stablecoin issuance and blockchain verification. This removes the previous requirement for individual “non-objection” letters, streamlining the process. Joe explains how this policy shift reflects growing acceptance of crypto in financial systems and reduces compliance hurdles for banks. But he also warns: without consistent regulation across fintechs and banks, consumer trust and financial stability could be tested.
 
 Stablecoin Legislation Could Reshape the Payments Landscape

Congress is actively working on several stablecoin bills, including the Stable Act and Genius Act. Joe reviews draft proposals that would require stablecoin issuers to hold liquid reserves—like short-term Treasuries—and submit to state or Federal Reserve oversight. One provision caps stablecoin issuance at $10 billion per entity, which Joe questions as being too low to make real market impact. With PayPal and other major players eyeing this space, the legislation could set the tone for how digital currencies coexist with traditional money movement.

Transcript

NEACH - Wrestling Payments – March Top 3
 Season 3 episode 4

Joe Casali: [00:00:00] There was a cryptocurrency firm and they were, they were cooking the books. Nothing to do with the cryptocurrency, nothing to do with the blockchain. They just borrowed from places they shouldn't have been borrowed from and used people's money and that wasn't okay.

Joe: Hello and welcome to Wrestling Payments. Today we have a special episode for you. We are looking at, uh, each, each month we publish at least two top three news articles, and today we're gonna dive into those a little bit. So this is [00:01:00] the, uh. The listing from March 17th. So of our, it's on our website. It's a member's benefit, but, uh, it had three great articles.

So the three articles are, uh, let's see. First we're gonna talk about faster payments and, uh, adoption. By financial institutions and what are the, what are some of the factors prohibiting that adoption? The next one is really interesting. The next two are really interesting. They're all really interesting.

So the next one is Square Financial. So if you've ever, uh, maybe gone to a, a local dining spot, you may have seen a square tablet there. You know, that, the company was using that as their register. Uh, they do a lot of that. They have, you know, they started with the little swipe where you could anywhere attach the dongle.

Yes. It's called the dongle to a, to a iPhone and take orders wherever you were Really, really innovative. Um, they've, uh, expanded into lots of [00:02:00] things and. This news is that the FDIC has approved, uh, the square to offer small, easy to repay consumer loans through Cash App. We're gonna talk about that and finally, the OCC.

And, and we've, we've announced this previously, but again, we're gonna. Reinforce it, it's coming. Uh, the OCC has taken a clear stance on cryptocurrency by reaffirming the, the permissibility of various cryptocurrency, uh, stable, uh, stable coins. Uh, the OCC is paving the way. It's making it easier for Congress to say, yeah, let's have some stable coins.

So first, let's dive into all about faster payments. Instant payments, uh, using. The networks, uh, which is RTP and the Fed Now service to offer instant payment Services. Um, and I'm gonna jump right into [00:03:00] this is an article from, uh, payments, PY mtss.com. Their news organization puts out a lot of studies in this.

Particular study is under the real time payment tracker, and the report is entitled, catching the Rails, the Real Time Payments Opportunity for Small fis. And then the, the, the, it's a good read. Uh, you know, sometimes we get, uh, bombarded by things to read. Uh, this one's a good read 'cause it, it has some results.

Uh, so, uh, what's going on? Uh, the, the clearinghouse recently crossed the 1 billion daily payment mark, and they've upped their limit to $10 million a transaction, separately. The Federal Reserve, which has gathered, uh, several hundred banks into its platform. So they're really having a, a large, we'll call it a large adoption.

There are over a thousand participant financial institutions, but the real, the real information here is, um. [00:04:00] The data. So let's look at the data. Um,  as to the, the divide, and I'm gonna, I'm reading as to the divide, uh, that exists between financial institutions. Consider the fact that large fis are six times more likely than smaller, uh, their smaller brethren to deploy real time payments.

That's really interesting. Um, will the, will the, um. Uh, the, the changes in these platforms have an effect. Uh, let's see what the data says. Um, we have nearly three quarters, 74% of fis with regional and national footprints allow individual consumers to send instant payments. Only 44% of credit unions allow individuals.

That's interesting. Uh. Smaller, midterm, midterm, uh, midterm, mid-tier banks are coming around to the need to offer realtime payment functionality. And again, lots of the Fed now has lots and lots of participants and lots and lots of receivers. Making that [00:05:00] move to send is, uh, a, a bigger move. And what is causing the hesitation?

Let's see. Um, and you know, you may say they're scared. I wouldn't say that, but you may say they're scared. Someone, someone may say they're scared. Maybe not you, not, maybe not me. But here are the, here are the answers to why they're not se sending real-time payments. 30% say that they do not have a pricing plan in place.

35% say that integration complexities are, uh, are an impediment. 23% of these banks cite costs of implementation as concern. Um, money, so to speak, is becoming more expensive. More, more, more data. A full 80% of respondents report that inflation has had an extreme or moderate impact on deposit costs, which steer money away from the ability to reinvest.[00:06:00] 

In the business, the rising costs, running a bank shows that the data, uh, from, from the FDIC as rising deposit costs have been significant. that's most of the information here. I, uh, encourage you to go read that, uh, yourself and. Look at your, you know, look at your institution if you, are a participant in either RTP or Fed.

Now, are you offering the send option? Are you Rece? Have you just started as receive only? Um, interesting, interesting, interesting Square. So I think this is, this is significant. I think, I think the, the idea that a non-bank is getting into banking activity. Is, let's call it interesting, right? It could be, uh, a crazy idea, right?

'cause they're not regulated like banks. It could be an innovative idea because they're, they're, they're where they need to be to offer [00:07:00] loan products to consumers. You know, what are the deciding factors? So in this news article, and we'll, we'll jump to the news article. Uh. Uh, block. So Block is the owner of, uh, of Square of Cash App.

Uh, so it's the parent. It used to be, it used to be, uh, it used to be, uh, sorry, square, but now it became Block. Uh, their symbol is X, Y, Z. It's not an investment report. We are not giving investment advice. Uh. But the, the federal, the FDIC is, uh, they've gotten permission from the FDIC to offer consumer loans via Cash app.

So if you're familiar, if you're not familiar with Cash App, it is an app. It allows you to put, build a wallet, and then it allows you to send money to other Cash App participants. The funds can't stay in Cash App or. You can withdraw them to [00:08:00] your financial institution, uh, if you want, that instantaneously cost a little bit.

If you take it as a an a CH and, and wait the, the couple days, then it, then it's a free, uh, transfer. I, I use cash app to send money to my, my son, uh, sometimes to, to my sister. Um. But they're saying they, they keep reciting the words easy to repay consumer loans. I'm not sure what, what makes it easy to repay cash?

App customers will continue to empower consumer economically. Oh, cash app. Cash app. Borrow is designed to provide short term cash flow. In a simple and accessible way when alternatives are notoriously expensive. So they, they must be, um, talking about payday loans. Payday loans, uh, allows people to lend a short amount of money, uh, a little bit of money, add a fee over, uh, you know, technically until the next payday.

Uh, let's [00:09:00] see what more we have in the full article from that, that, uh. Article, sorry. Uh, sorry for overusing the word article. Uh, Uh, okay. Here it is, the expansion, um, of, of Square Financial to, to offer small easy to easy to repay loans to cash. App customers will continue to thro drive the economic empower to consumers Cash.

App Borrow is designed to provide short term cash flow to, in a simple and accessible way. When. Oh, we're back to alternatives are notoriously expensive and difficult for consumers to navigate. The average cash app borrow loan was less than a hundred dollars and approximately one month in duration, um, at a fraction of the cost of a payday loan or overdraft fees.

So it's an alternative for folks who are afraid of paying the overdraft fees or even the the payday lenders. The short term credit product is available to eligible consumers who utilize Cash app and has seen strong product market fit. with nearly, oh my goodness, 9 [00:10:00] billion in origination in 2024, offered by Block Inc.

Through, uh, external bank partner. Interesting. So they're already doing this through an external bank partner and they're just taking it in-house. Um, additionally, the vast majority of borrow revenue comes from, uh, customers who pay on time as the product maintains historic loss rate of less than 3%. Uh, customers eligibility and maximum borrow offer a based on a number of factors, including customer, state of residence, cash, app, product usage and activity, and on time repayment.

So it's really interesting, uh, this has come up in the past as, um, I don't know if you know, the, uh, a large amount of the population could not come up with $400 for an emergency payment. Uh, people are living payday to payday. And NEACH is a NEACH who offers wrestling payments is a financial institution based membership.

So we are pro financial institution. We've seen a [00:11:00] financial institution in our area, new England, uh, take, take this challenge up. And for their, uh, employees, they've offered that emergency loan. Via payroll deduction, so they understand that this is a problem. Folks not having the cash to pay their bills is a problem and.

Cash app is, is suggesting that only a small amount may get them through to the next payday. Uh, I know with the local institution, um, I will, I will call them out because it's a very public, uh, thing they've done. It's Redding Cooperative, uh, right here in Redding, Massachusetts. They have seen the problem and said.

We're gonna develop a solution, and I know they've made the solution, uh, the information about it available to any, any community bank interested in learning about it. So could the financial institutions match the might and the power of the Cash app, [00:12:00] uh, you know, cash app borrowing interesting. Uh,  sounds like it could set up a world where.

It's even more complicated with money movement, with these private FinTech companies, banks holding deposits for people. There are unbanked people out there. Um, I think this is a really interesting article and I think you should share this story with folks at the institution to see if there's something, uh, banks can offer.

And I know banks are regulated. It's harder for, uh, banks to. Get through the regulation to make these sorts of solutions easy, easily available to consumers. Like for example, I don't know who regulates Cash app, is it now the FDIC? Because now the FDIC has had said you can offer these services. Uh, interesting.

Uh, interesting, interesting. Alright. In our final story today, [00:13:00] we are gonna talk about stable coins. Stable coins, I think stable coins. We are going to see a new stable coin in the US in this year. I could be wrong, it may be early next year, but I think we're gonna see 'em. There's, there's lots of legislation moving.

There's three different bills in Congress right now, a senate bill, a house bill, and a and a. We brought up from last year Stablecoin bill, all a little different, uh, all, uh, saying regulation would be on stable coins and limits on stable coins. But let's see, uh, the OCC jumped in and they said, I guess I, I don't recall reading this guidance, but previously they had said, Hmm, uh, we don't, if you're gonna offer stable coins.

You can, but you gotta have risks and risk, uh, policies in place. You gotta have this in place. You have this in place. They've changed their [00:14:00] mind, if you will. Um, I went right to the OCC website. This is, uh, March 7th release. OCC clarifies bank authority to engage in certain types of crypto currency activity.

Um, and what they do, you know, the, if it, this is a really short article, but, uh, you'll see. And let me, let me get through this, this article. Uh, so Washington, the office of controller of the currency. Today took action to reaffirm, uh, that a range of cryptocurrency activities are permissible. In the federal banking system, the OCC published interpretive letter 1183, to confirm that the crypto asset custody, certain stable coin activity and participation in independent dependent node verification network su, such as distributed ledger are permissible.

For National Banks and Federal Savings Association, the letter also rescinds the requirement that OC supervised institutions [00:15:00] receive supervisory noob Objection. That's a funny, funny way to uh, say it. And demonstrate that they have adequate controls in place before that they engage in this cryptocurrency activity.

So prior to this, their guidance was, you gotta ask us. If you wanna do this activity, you gotta bring it to us and we will nonobject to it. O okay. Uh, no longer required. Uh, if, if, if that's something the institution wants to do, if that's something the institution wants to do at a FinTech, uh, they, they are saying You should progress, you should pursue that.

Uh, because we are, we are not non gonna object. Uh, they do, you know, the second article, I think I remember this. Uh, you know, they, they reaffirm. The fact that OCC expects banks to have str the same strong risk management controls in place to support novel bank activity as they do for traditional ones. Uh, today's action will reduce the burden on banks to engage in cri [00:16:00] cryptocurrency related activities to ensure that these bank activities are treated consistently by the OCC, regardless of the underlying technology.

So what they're doing, I think. You know, not to get political. There is a, there is a, uh, emphasis in this administration on cryptocurrency and making it easier for cryptocurrency firms to, to do business. Uh, there was, I watched a whole, uh, hearing on how unfair banking was, and regulators, sorry, not banking regulators were to cryptocurrency companies because they were, they were on the bad list.

Um. So they got beat up, the regulators got beat up. I don't, they didn't get beat up in person, but, uh, the, the panel was a panel of cryptocurrency companies, uh, outspoken, uh, agencies saying that, uh, they're not bad guys and you should allow this to happen. The question is, uh. How will you participate in this?

That's one question. The other question is, what do you think, [00:17:00] what kind of effect, uh, will it have on it? Because just like I cited in the square, um, segment, who regulates the cryptocurrency firms? Who, what, what banking authority regulates the cryptocurrency firms? Uh, we've seen, we've seen crypto, we'll call it challenges.

We've seen crypto challenges and. Most of those weren't about the cryptocurrency, they weren't about blockchain technology. It was about business problems. You know, we saw Silicon Valley Bank go under, wasn't because the crypto, it was because they, they made some bad business decisions in my opinion. And this is not Nietzsche's opinion, uh, but they went, they, they were over invested in, uh, low yield, uh, funds.

They got a run on the bank. They ran into problems. The other one, I, you know, I, I say it wrong all the time. There was a cryptocurrency firm and they were, they were cooking the books. Nothing to do with the cryptocurrency, nothing to do with the [00:18:00] blockchain. They just borrowed from places they shouldn't have been borrowed from and used people's money and that wasn't okay.

Uh, the, the thing I saw, and it was just a draft bill, but I think it was the House bill on cryptocurrency and the, the idea, and it was just an idea because it didn't even have a number yet. Um, it was called the geno. It's either called the Genius Act or the Stable Act. Uh, a little play on words. I don't know if you recall at one point Mr.

Trump called himself a stable genius. So now we have the Stable Act and the Genius Act. Both are, both are geared to cryptocurrency. Um, the one I was looking at was the house bill, and what it does is it puts the regulation of stable coins. On the state, the state has to, uh, supervise. The crypto, the stable coin issuers.

The stable coins must be in a very liquid [00:19:00] investment. Uh, it has to be in, in short term treasuries, cash, uh, easily liquid. If someone's looking for their funds, uh, has to be available to them. The, they were supposed to, again, this is the draft legislation, they were supposed to examine them every month to make sure that the funds in those accounts.

Uh, we're more valid, ready to use liquid. Uh, all all of those things, the backup regulator, I guess if a state said we're not doing that, the backup regulator is the Federal Reserve, and it puts a cap on a stable coin that, that, uh, an organization can issue of $10 billion. And, you know, me personally, again, I, I'd love your feedback on this.

I don't think that's a lot. I think that's, um, I don't think, um, that, not that I'm encouraging stablecoin or discouraging stablecoin. I don't think that's enough to, um, move the needle. I think, [00:20:00] uh, I think, uh, for example, just talking off, off the top of my head up, PayPal. Could be in a position to have a bigger issue of a stable coin.

A Capital One could have a bigger, um, issue of stable coin that could work. Uh, but not my, I'm not a legislator. I, I'm not a lawyer. Uh, these are just thoughts running through my head. Uh, the final part of that 10 billion stable coin, sorry, 10 billion regulated every month to make sure they had enough money.

Um, oh, if it's a financial institution, it can't be the financial institution. It has to be a, a, a separate company to my read of that legislation. So the bank itself could not issue the stablecoin, a subsidiary could, a partner could. I think this opens the doors for a lot of activity in specifically stablecoin.

And the stablecoin is intended to be a dollar, right? It's supposed to be. Stable. [00:21:00] It's in the name right? Uh, it's supposed to be stable. It's supposed to be. Um, one of the challenges we've run into, even talking about Fed Now and RTP, they use an international standard to transfer money, but you cannot send an RTP International or um, a Fed Now International.

If, if someone on on in Europe had a wallet that, uh, could exchange this stable coin, and when I say a wallet, you know, cash app, for example, cash app, if there was an app that folks could exchange, uh, stable coins on, this would easily be an international payment, easily. Uh, so it's really interesting. It's really interesting from an, uh, a, uh.

Academic perspective, you know, will we see a stable coin this year? Uh, how will it work? How will it, how will it, you know, gain traction? Will it be a, you know, in unique little way, like someone who, uh, you know, sends gold to someone? Like why you're not gonna see a lot of [00:22:00] that? Um, or will it be a cash app or a, um, PayPal app that uses this stable coin as a new, uh.

I don't want currency. Currency. I can use the word currency. It's a cryptocurrency. I can use the word currency. Uh, it is still backed by US dollars. It is not its own, you know, it didn't spring out into existence as its own currency. It is backed by US dollars. So with all that, uh, I think that that's a little bit of a, what's in the news, uh, what could affect our jobs in the the next.

You know, couple of years, all of these things, um, have feet and have, uh, a little bit of a life of their own. So where they end up, uh, will be very interesting. Uh, with that, always open to your ideas. If you have any questions, please feel free, free to reach out and please subscribe. Please, uh, leave a little note.

All of those things help the channel. Uh, thank you very much. 

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