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Faster Pay ments: The Good, The Bad and The Ugly

Logo. Faster Pay ments: The Good, The Bad and The Ugly. Sims Propst, SVP South State Bank Gary B. Nesbitt, AAP GNesbitt Consulting. SOUTH STATE BANK OVERVIEW . South State Corporation is the largest bank holding company headquartered in South Carolina

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Faster Pay ments: The Good, The Bad and The Ugly

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  1. Logo Faster Payments: The Good, The Bad and The Ugly Sims Propst, SVP South State Bank Gary B. Nesbitt, AAP GNesbitt Consulting

  2. SOUTH STATE BANK OVERVIEW • South State Corporation is the largest bank holding company headquartered in South Carolina • Recognized by Forbes as #14 in List of Top 100 Largest Banks in America • Serving the financial needs of customers and communities since 1934 • $14.5 Billion in asset • 2800 employees • 165 Locations, 200 ATMs • States • North Carolina • South Carolina • Georgia • Virginia • Rank 4th in deposit market share within footprint

  3. GNesbitt Consulting • Independent consulting firm specializing in banking and payment activities and issues. • Our goal is to help financial institutions and companies understand and comply with the myriad payment rules and regulations that govern the payments landscape. • We help organizations understand and mitigate the risks associated with participating in the various payment systems. • We help organizations establish payment programs that are efficient, effective and compliant with all appropriate rules and regulations.

  4. Agenda • A Definition of FASTER payments • Real-time or near real-time options • What came out of the Faster Payments Task Force • RTP • Zelle • Card Network Options • Same-day ACH • Where we are now • Phase IV • Other ACH changes • The RTGS (Real Time Gross Settlement) RFP from the Fed • Where do we go from here??

  5. Definition of Faster Payments • Does it mean Real-Time? • Sometimes – but then what is real time? 5 seconds, 30 seconds, a minute, five minutes, etc. • In the end the question is, what’s fast enough for you and your company’s needs? • Same-day ACH is a “Faster Payment” but it’s not real-time, just faster than it used to be • Check image is MUCH faster than paper delivery, so you can call check a faster payment as well

  6. What Came Out of Faster Payments Task Force? Sixteen possible “solutions’ were submitted that met, or at least partially met the “Effectiveness Criteria” the Task Force developed No individual vendor was picked, that’s up to the market Final Report listed 10 objectives – the first was to form a group to foster faster payments the second to begin the development of Rules GFFT was formed – Governance Framework Formation Team – Represented FI’s, business, processors, etc. US Faster Payments Council JUST formed to move this along

  7. Who Were the Sixteen? NABC/ICBA Nanopay Ripple Swapstech Thought Matrix Token University Bank World Currency • RTP by the Clearing House • Dwolla • SHAZAM • WingCash • Hub Culture • Intercomputer • Kalypton/ECCHO • Momo

  8. Real Time Payments RTP is a payment rail, not a product. • Started in 2013, supported by Vocalink (UK) • First LIVE transaction happened in Nov. 2017, focusing on B-to-B • Growth is slow, only a few big banks are connected • FIS and Jack Henry have signed agreements to offer the service • Goal: 95% of F.I.’s by the end of 2019

  9. Real Time Payments • Key Features: • Credit push - irrevocable • Request for Credit • ISO 20022 – global compatibility • Robust messaging • Immediate Transaction acknowledgement • Real-time payments • 24/7/365 processing and settlement • Integrated tokenization and directory services (use of alias’s supported) • FI’s can be receive only or send & receive

  10. Zelle • Owned by Early Warning Systems (AWS) • EWS owned by 7 large Banks • Rolled out last year by a number (about 50) of large banks and credit unions • Primary focus – Person to person (P-to-P), plan on more business cases this year • Key features: • Near real-time if the two F.I.’s signed up with Zelle • Use phone number or email rather than R/T # and Account Number • Will use the debit card rails for outside of network entries • Credit push network

  11. VISA and Mastercard • The networks are working together, somewhat • “VISA Direct” & “Mastercard Send” are the products • Deposit based products – so credit push like RTP • Sold as a P-to-P solution or a funds disbursement solution (corporate – for reimbursements, refunds, rebates, payouts, etc.) • Near real-time – instant payments to all eligible US debit cards or prepaid cards • Leverages Visa/Mastercard payment security systems

  12. Other Faster Payment Options • Primary focus is on P-2-P Solutions • PayPal • FI owned (Chase QuickPay) • Popmoney • Venmo • Social media affiliated platforms (Mostly P-2-P via mobile) Are any of these truly real-time or even same-day?

  13. 1Q 2019 Same Day ACH Activity

  14. Same-Day ACH – Phase 4 • Quick Review of Same-Day ACH… • Phase 1 – Credits Only with a $25,000 per transaction cap – All SEC codes but IAT and a few specialty ones • Effective Entry date was key • There was a fee to use the two same-day windows • Posting by the receiving FI was at their “close of business” • Returns & NOC’s could also be run same-day (without a fee) • Phase 2 – Both credits and debits – same limits, same issues • Phase 3 – Receiving institutions were required to make funds available by 5:00 P.M. local time for consumer credits – everything else was the same

  15. Phase 4 - Upgrades!! • Three major changes: • Expanding access to Same-Day ACH • Increasing the Same-Day ACH dollar limit • Providing Faster Funds Availability What do these mean to the users of Same-Day ACH?

  16. NAVIGATING PAYMENTS 2018: PASSPORT TO PAYMENTS * Indicates new changes

  17. Expanding Access • This is GREAT the further west you go, or for those that can’t deliver files until later, BUT: • The Fed has to move back settlement times by at least 30 minutes to allow this to happen – in phase 1 this “ASK” was a tough one with the Fed agreeing to the change on the last day they could based on NACHA’s ballot • RDFI’s would not be required to make funds available for this window until the close of business – this varies significantly!

  18. Increasing the Dollar Limit • Current Dollar limit - $25,000 • NEW Dollar limit - $100,000 • Positives: • Can run balanced files with the offset up to $100,000 • Can process larger transactions, generally good for the business to business market • More transactions can run same-day when needed • Negatives: • COULD have large dollar transactions hitting your account late in the day when funding is an issue

  19. Faster Funds Availability • Transactions delivered in the first Same-Day window would be available by 1:30 P.M. local time • Today these are by 5:00 P.M. local time • Funds from ALL non-Same-Day credits would be available by 9 A.M. local time regardless of when they entered the network or whether they are consumer or business payments • Today some are not required to be made available until the end of settlement day These are incremental, but positive changes!

  20. Timing • Expanding Same-Day ACH – September 18, 2020 • Delayed until March 19, 2021 due to Federal Reserve Bank time required to make necessary changes. • Increasing the Dollar limit – March 20, 2020 • Providing faster funds availability – September 20, 2019

  21. Other Rule Changes Coming • ACH Quality and Risk Management Topics: • Return for Questionable Transaction • Supplementing Fraud Detection Standards for WEB Debits • Supplementing Data Security Requirements • Minor Rules Topics: • Updating some ACH operator edits • Clarification of TEL Authorization Requirements • Clarification of RDFI obligation to return a credit entry declined by the receiver • Editorial clarification on Reinitiation of Return Entries • Editorial clarification on RDFI liability upon receipt of a written demand for payment

  22. RTGS • Stands for Real Time Gross Settlement • Gross settlement is settling each and every transaction individually, • Wire Transfer is a gross settlement network • ACH is a net settlement network • The Federal Reserve issued a Request for Comment on November 15th, 2018 • The comment period closed on December 14th • They requested feedback on two general topics: • Should the fed build a 24x7x365 real-time gross settlement system for faster payments? • Should the Fed build a liquidity management tool that would enable transfers between Fed accounts to support 24x7x365 processing?

  23. RTGS • The Fed has stated that no decisions have been made when it comes to development of either service • The feedback so far: • The larger banks and RTP users have suggested that since there is already an operating network in place the Fed does not need to build new settlement system • Community banks and large merchants have encouraged the Fed to play a part and develop a network

  24. RTGA Issues • Interoperability • It’s hard to switch transactions between two competing networks in real-time with all the security and integrity issues with payments • Speed to market • RTP is up and running, how long would it take the Fed to design and develop a 277x365 system? And if they do, would that slow down the implementation of faster payments as much of the market might wait for the Fed to build their network • There is no timeline! • And a side issue….ubiquity

  25. NACHA’s API Standardization Efforts • Efforts began in 2017 • Group includes banks, credit unions, processors and software developers • Identified first 5 APIs • Account Validation* • Account Balance/History • Get Bank Contact Information* • Interoperability • Transaction Status • Work continues to build out APIs

  26. Where Do We Go From Here • For most of us, we monitor, read, talk to our peers, and watch • Ask our customers about their expectations when it comes to payments – not just faster payments • Review internal business cases, whether FI or Company, to determine where a faster payment makes sense • Cost/benefit will be part of the equation Real-time payments WILL be a reality – the REAL question is when!

  27. Questions? Contact Information sims.propst@southstatebank.com (864) 751-9029 gary.nesbitt@gmail.com (704) 609-4309 LinkedIn: http://www.linkedin.com/in/garynesbitt/

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