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Roughly 1,900 payments executives and practitioners convened in Nashville last week for more than three days of content extending well beyond Nacha's traditional automated clearinghouse (ACH) turf.
The 2022 Smarter Faster Payment conference shone a light on moving money rapidly across both existing and nascent rails.
“We want this to be everyone’s one-stop shop for everything in payments, not just ACH,” explains Nacha CEO Jane Larimer. During a main stage address she announced record ACH growth of more than two billion transactions for 2021, a 9% increase.
Larimer also highlighted the 20% growth in business-to-business transactions, long a strategic focus for the network.
In March, Nacha enacted a tenfold increase to $1 million for the limit of a same-day ACH transaction, up from $25,000 at the same-day service’s 2016 inception. The value of same-day ACH transactions doubled in 2021, even before the $1 million limit took effect.
For those feeling an even greater need for speed, the notion of real-time payments was central to the Smarter Faster Payments agenda, covering both The Clearing House’s RTP rails and the FedNow service for which the Federal Reserve affirmed its 2023 launch plans.
During the conference, the Fed also announced it had begun onboarding the first of its 120 FedNow pilot participants and showcased a series of these solution providers at its booth.
The instantaneous and irrevocable nature of real-time payments, as well as its 24/7 operating schedule, is a source of understandable concern for risk departments.
Andrew Gomez of Lipis Advisors shared lessons learned from overseas markets with extensive real-time payments experience. Gomez cites “authorized fraud” as the current soft target of choice, much as U.S. credit unions are already experiencing via P2P scams on members.
“Sharing high-level information to combat fraud shouldn’t be a competitive issue—fraud hurts all of us,” Gomez says, championing “confirmation of payee” features as an effective (although far from foolproof) line of defense. He also advocates technology and rules-based mechanisms.
As a prime example, Gomez says that while 99% of U.K. faster payments post in 15 to 20 seconds, system rules allow a two-hour window when needed to research suspicious transactions.
In a later session, a Federal Reserve representative indicated preliminary FedNow rules include a similar provision.
Another market apprehension has been the uncertain prospects for interoperability between the RTP and FedNow systems. Glenbrook Partners’ Elizabeth McQuerry suggests this concern may be overblown, and that “harmonization” of the systems may be sufficient, especially because most credit unions are likely to access these systems through middleware.
“Visa and MasterCard technically are not interoperable, but there’s a practical solution that makes interaction seamless,” she explains, before adding that compatibility factors such as alignment between the services’ rule sets remain to be worked out.
Another hot topic, central bank digital currencies (CBDCs), drew strong interest. Boston Fed Senior Vice President Jim Cunha quickly identified a fundamental challenge hampering constructive dialogue: “There’s a lot of confusion around what a CBDC is and what it isn’t.”
Peter Tapling, U.S. Faster Payments Council board member, adds “98% of money today is already digital,” citing the wide differential between cash in circulation and assets on financial institution balance sheets.
The Fed has an outstanding 22-question request for information regarding CBDCs (responses are due by May 20), and Cunha believes the dialogue is likely to be an extended process.
He points to the fact that FedNow’s launch will take four years from its initial go decision, “and that’s for a traditional network.”
Cunha also cites Fed Chairman Jerome Powell’s recent comment on CBDCs: “We don’t have to be first. We have to be right.”
“Coming out of the pandemic, consumer expectations have changed, and the payments industry has changed along with it,” says Tynika Wilson, senior vice president at $145 billion asset Navy Federal Credit Union in Vienna, Va. and chairwoman of the conference's planning committee. “As a credit union we continuously look for ways to improve our members’ experience. We're thrilled with everything Nacha Payments brought to the table.”
GLEN SARVADY is managing partner at 154 Advisors.