Alijah Poindexter 00:02
Welcome to the buzz, a Bank Automation News podcast. I’m associate editor Alijah Poindexter. Recently I spoke with Vinay Prabhakar, vp of global marketing at Volante Technologies. Vinay and I spoke about the implications of FedNow adoption on both large and community banks, discussing what this adoption will look like and what role core providers will play.

Vinay Prabhakar 00:37
When it comes to fed now, indeed, any new payment type, there are few separate factors that play into readiness. And some banks are quite far ahead or others behind. And I’ll give you a sense of what those factors are, right? So one factor is, well, how dependent is the bank on their core provider. So if you look at smaller banks, and when I say smaller, I would say less than a billion dollars in assets. So community banks, and so forth, and credit unions are often very dependent on their core providers. So really, it’s not a question of them being ready for fed now. It’s a question of their core provider being ready for that now. And what we’ve seen with RTP is that it can take the poor providers time to get on board, there are core providers who don’t support RTP. Today, even four years after that network, launched, and or who have only done so, so recently. So those organs that that’s one category, another category organization, more on the advanced side is if a bank has already invested in real time payments, modernization, for example, if already connected to RTP, they’ve already 24/7 enabled their operation. They already, for example, have familiarity of how to deal with ISO 2002 messages, then I think those banks will actually find it quite straightforward to go live with fed now on day one. But there’s really a very wide spectrum in terms of readiness.

Alijah Poindexter 02:17
So for those banks that are on the sort of on the negative end of that spectrum, maybe you can take a deeper dive and maybe sort of walk me and by extension, the audience through you know, what are some what are some of the biggest pain points again, you mentioned, being hyper dependent on the core provider? What are some of the, you know, maybe a little bit of deeper insight into that, and maybe anything else you’ve seen?

Vinay Prabhakar 02:35
Sure, yeah. So let me start with one of the one of the biggest challenges for banks and financial institutions when they are getting into real time payments, right, whether it’s RTP, whether it’s fed now SEPA instant payments in Europe. And we’ve seen this pattern repeat really everywhere. There, there are instant things happening. And one is 24 by seven operation, right? So it’s not just about moving or receiving money in near real time, right, the funds actually have to make their way from one account to another in a few seconds. But it’s actually being able to do that 24 By seven, right. So we can, evenings and so on. And many organizations are not appropriately resource for that. So they’re not resource for that in the business side. In other words, they literally don’t have operators who are available to support these systems 24 by seven, and they are not ready on the technology side, meaning they don’t have systems that are 24 by seven capable. So for example, if a bank is has a core provider that doesn’t have a 24 by seven real time DDA, then they’re going to be quite challenged with getting on to fitna or TP for that matter. Now, there are workarounds, right? There’s there are things called Shadow balances and standing operation. There are technologies for that, which we do provide to organizations who don’t have a real time DBAs. But that can certainly be a challenge, right? Bigger than actually moving the money. Another challenge is real time liquidity management, right? So liquidity management, exposure management is really important part of a bank’s payments business. And as the limits for these networks go larger. So same day, Ach, for example, is up to a million or will be very shortly, that increases the pressure on intraday or real time liquidity management. And and that’s not a straightforward thing, right? It’s not really, it can be solved by technology, but it’s also about operations and compliance. The other challenge and you know, I could go on but I’ll stop at a third maybe is visibility across multiple payment types, right. So you as payment types get added by a bank and get, and a bank makes these main types available to its customers. That creates a lot of operational complexity because money’s moving in different ways, sometimes unpredictable unpredictably. Right? It’s harder to predict the flows. And the volumes from real time payments from RTP are fed now than it is for Ach, which is the workhorse payment type that’s used for payroll and vendor payments, and many other standard types of payments. Because we’re in a situation where, today, compared to 10 years ago, there are twice as many payment types available to consumers and businesses, as they were a decade ago, not just because of RTP, but also because of digital wallets, different types of card payment types, and so on. So there’s a lot of complexity, when it comes to fed now that has less to do with fed now itself, and more to do with the components of what it means to be truly real time enabled. And then actually, the final one I mentioned is ISO 2002. Two, where you have a lot of data that can travel with a payment. And if you don’t make use of that data, or you’re not able to actually take that data through end to end, right from when the customer submits a transaction to when it gets to the recipient, then you’re really losing out an opportunity. And in fact, you’re losing pieces of payments, which could lead to compliance problems. So there are a lot of challenges that things can have if they don’t have the right approach to each of these components.

Alijah Poindexter 06:43
You know that that leads me to a to another interesting sort of question that I that a lot of people I feel like don’t ask, you know, a lot of the conversation surrounding fed now is just that it surrounds fed now it’s around what is fed now bringing to the table for us as a bank, and for our consumers. But I think a question that a lot of people hesitate or forget to ask is, well, what else will this bring to the marketplace in terms of the dynamics of the of the combined sort of banking, finance and payments marketplace? What new, you know, technologies or automations? Will it bring? What sort of trends? will it create? What sort of trends will it sort of put a halt on and so I think that’s an interesting question for us to move into is, you know, what are some of the new dynamics that fed now will bring to the combined sort of Banking Finance payments sort of integrated digital marketplace?

Vinay Prabhakar 07:31
Yeah, that’s, that’s certainly an exciting thing to talk about. And it is going to bring new dynamics, right, not necessarily some of the dynamics that we might think. So I’ll start with something that I don’t think fed now will change, which is, I don’t think fed now is going to eliminate the payment types that we already have, right? So whether it’s check, Ach, wire, card, and so on, these are going to remain part of the mix even checks, you know, people have been predicting the demise of checks for years. And while they are decreasing considerably, check volumes have decreased over 30%. Over the past five years, they’re still there, there are 10 times as many checks being written every month, as there are RTPs. Right? The same with wire payments. That’s pretty much the only way you can move hundreds of millions or billions of dollars in value, securely and without repudiation. And ACH will continue to be to be used for payroll and so on certain cards. So we don’t see we see the volume mix changing, but not the entire disappearance of payment types or payment workflows. And then the reason is that that’s what we’ve seen in other markets. So we look at, for example, the United Kingdom, which has had their Faster Payments service for now, I think 14 years. All the other payment types are still around, right? What what fitnah will bring to the marketplace is a final acknowledgement, I think that real time payments, instant payments, whatever we call them, are here to stay. And that more and more of the innovation on payments will have to do with the immediacy of the payment, the immediacy of receipt, the immediacy of send. And as I mentioned earlier, that acceptance of 24 by seven operation. But ultimately, you know, the, the big change that we see happening moving forward is that the focus will change from the way you make a payment, or receive a payment to the experience around that payment. And this is worth dwelling on because we see this as a fundamental direction of change. Here’s what I mean by the experience around the payment, right? So I’ll use the rideshare example, which many of us are of course familiar with. Now that we’re back in cars and Ubers and Lyfts and so on. That experience is one where the payment happens as a result of the customer experience, meaning you get into the car driven somewhere you get out, and you don’t make a payment. Right? You it happens, the technology of your phone, which is connected to GPS, which is connected to a payment API makes it possible for there to be an automatic charge, based on a price that you already agreed, and a destination that you already agreed on. That’s, that’s a much better experience, right? than actually having to make a payment, take out your card or take out cash or whatever. And what fed now will do, as our TPS are ready done is make it possible to translate that kind of consumer experience into business to business payments. For example, the delivery of goods, right, particularly with the pandemic hands free, hands off delivery of goods is much more than norm. Wouldn’t it be nice if as a result of the delivery or receipt of a package, whether it’s a commercial packages, shipping container, or packages that we receive on our doorstep, that the payment is automatically made at that point, because the technology knows that the package was delivered. And that’s just a small example. Right? These are things that can really speed up digital commerce in the US and globally. And fed now with its 24 by seven capabilities, its ability to have a lot of data, for example, invoice purchase order data, travel with the payment, request for pay, and other messages like that, I think is going to give our economy a really strong push in that direction. And that’s very exciting. Because what we’re focused on is trying to make sure that our customers are Financial Institution Customers can focus on building value added customer experiences, once they are connected to the network’s

Alijah Poindexter 11:57
you know, on the business to business point, I think something interesting to maybe talk about for a little bit is is you know, there’s a big difference, I would say for a business paying doing a real time Venmo or Zelle, or some type of you know, real time transaction through a bank to like a plumber or to somebody who’s going to come work on the electricity or you know, something in that matter. But when it comes to like these large scale business to business payments, I think the limit on that now is 25,000. Is that correct?

Vinay Prabhakar 12:26
I believe that’s the initial limit, although I wouldn’t be surprised if that changes in the upward direction pretty quickly. Because remember, that’s what we’ve seen with RTP. I think RTP started at 25k moved up to 100. And what RTB has done is they’ve tried to stay roughly aligned with the same day ACH limit. So I wouldn’t be surprised if that fed now moves to 50 100 and million as well, as network evolves,

Alijah Poindexter 12:56
even so yeah, and that’s perfect. Because even so I mean, even with the sort of backing of Fed now and all these other systems that we talk about, you know, is there going to be some hesitancy on the side of like a business to business payments to, okay, like I’m still I’m so used to the ACH I’m so used to just writing a check. I’m so used to the sort of, to these established, let’s call it payment methods for these large scale business to business and business to government business to bank payments, am I going to be comfortable with sending eventually, you know, them down the line, a million dollars on a real time rail? You know, our businesses excited about that. Well, do you foresee any sort of hesitancy or any sort of delay and uptake there? Or is it mostly positive? And you know, businesses are ready to see this get off the ground?

Vinay Prabhakar 13:42
No, you’re quite right. Actually, I would say there. There’s definitely hesitancy in the large business, the large corporate treasurer areas, because like banks, right. Corporate treasuries have built their organizations around legacy payment systems and legacy workflows, ACH works. Buyers work, right. The vendor payments work, these are ways of paying getting paid, that are proven, they’re cost effective and cost efficient. And they they there isn’t necessarily a burning reason to move away for them from them, for many corporations, so it comes back down to the customer experience side, right? I think the financial services industry has some selling here to do in that it has to sell businesses on the fact that it’s not really just about being able to send and receive in real time or even 24 by seven, right because an organization can always make a time payment using some other method. But if the payment is connected to the commercial customer experience, if there’s data around the payment so that it massively reduces reconciliation effort, reckons Relations a huge problem for corporate treasuries, right? Because the information that travels and comes with a bank statement or account analysis is very limited as an amount, you know, credit, debit, positive, negative currency, not a whole lot else. And if you want to know exactly which invoices for which vendor and so forth, then it has to be connected to other aspects of their ERP system. And and that creates a complexity that businesses don’t want, right. The other area where I think the financial services industry can and should make a difference is, you know, we haven’t talked about the F word fraud, right? With new payment types come new methods of fraud. That’s been consistently proven through history, right? Are those checks with check fraud, wires, wire fraud, ACH fraud, and so forth. So there’s going to be real time fraud as well. But the nature of the real time networks where the data travels with the payment, and there’s a lot more transparency around it, actually, in many ways, I think is going to make it harder for the traditional approaches to fraud to work, because it’s going to be harder to impersonate senders the type of CEO fraud that happens with invoicing or with email payments. I think that could be reduced considerably. But it comes back down to yeah, there’s some selling to be done. It’s large corporations are going to change their payments behaviors. But what we have seen is that these corporations are very focused on the bottom line. And if there is a more efficient way to send and receive money, particularly across borders, as real time networks in different countries get connected, then we will see up to uptake on the on the b2b side. And we’re seeing that with RTP, for example, with the requested pay, where you have large telecoms companies, for example, using request to pay as a billing method, so that the actual payment is and connected to the bill in a much more seamless way. So there are exciting times ahead, but some sellings

Alijah Poindexter 17:09
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