There’s rarely a dull moment in the payments world. Even before the ball dropped on 2022, several key developments on the horizon offer headline writers an early start on their to-do lists.
Let’s preview some of the stories payments professionals will be monitoring in the coming months.
Stories of growing “credit push” fraud and its impact on consumers has extended beyond the trade press into the mainstream media, and the Zelle brand of P2P payments has become the lightning rod.
Congress has taken notice, with Sen. Elizabeth Warren, D-Mass., calling on the Consumer Financial Protection Bureau to address the matter.
The Wall Street Journal reports that Early Warning Services, the operators of Zelle, is formulating network rules to help resolve disputes and compensate consumers defrauded by these scams. While it’s possible such proactive measures may stave off formal regulatory action, they raise a host of other questions.
Although more than 500 credit unions and 1,200 financial institutions overall participate in the Zelle network, seven of the nation’s largest banks own Early Warning Services. Will the proposed solution be financially and operationally amenable to such a diverse group of financial institutions? Will it be sufficient to deter regulators from further action?
And does it create a slippery slope of a precedent that some consider a moral hazard? Financial institutions typically make customers whole for unauthorized transactions. The uncomfortable truth about credit push fraud is that the customer did authorize the transaction, albeit under false pretenses.
The answers to these questions will take shape this year.
Speaking of credit push, the FedNow real-time payments system is scheduled to go live in May or June, on the early end of the Federal Reserve’s long-established timeline.
FedNow will serve as a “public option,” operating in parallel with The Clearing House’s (TCH) RTP network, which marked its five-year anniversary in November. This model aligns with the ACH ecosystem, where the Fed and the large bank-owned TCH each support market alternatives as well.
FedNow has begun piloting with more than 100 banks, credit unions, and third-party service providers. Don’t expect a sudden, dramatic change at midyear. A gradual, uneventful ramp-up would probably be fine with the Fed, and would essentially mirror RTP’s startup trajectory.
FedNow has the benefit of five years more market maturity, but will likely be rolling out through a base of smaller financial institutions with less addressable volume.
Don’t be surprised if the May/June FedNow launch amounts to early participants flipping the sign on their door from “pilot” to “live,” with a minor uptick in volumes. This slow ramp should not dissuade credit unions from investigating connectivity options, however, especially on the receiver side.
During the pandemic, banks and credit unions were flooded with what some economists termed “excess deposits.” It’s hard to fathom that little more than a year later, financial institutions—particularly smaller ones—may face the most competitive deposit environment in some time.
As Main Street commerce shakes off the effects of COVID, deposit balances are already trending downward since their early 2022 peak. Add inflation, unsettled equity markets, and a series of Fed rate hikes, and consumers have become less willing to accept a few basis points of return on their savings.
Call report data implies money is shifting toward time deposits, presumably in pursuit of higher yields, and also seems to be migrating toward larger institutions.
In the short run, credit unions may be content to let some “excess deposits” go. Soon, however, they’re likely to face cost of funds challenges or worse yet, a potential liquidity crunch.
A side note: It feels awkward to conclude this list without mentioning the aftermath of FTX and other crypto exchange meltdowns. While plenty more headlines and regulatory moves can be expected, at this juncture few if any of the underlying factors involve payments, as opposed to speculative investment and textbook fraud.
GLEN SARVADY is managing principal at 154 Advisors.