This podcast with Mimi Joy explores consumer financial wellbeing in the US and initiatives to improve access to quality affordable financial services for low and moderate income Americans. Mimi shares her perspective as Head of Partnerships at the Financial Health Network, a leading authority in the space.

Topics discussed include:

• The current state of the financial health landscape
• Research on the effect of the pandemic on low and moderate income consumers and their financial wellbeing
• New approaches to serving the needs of vulnerable consumers
• Key financial health lessons for payments professionals

What is financial health?

As the economic recovery continues, financial health is attracting increased attention from stakeholders across the financial industry. The Financial Health Network, previously CFSI, works with stakeholders including banks, technology providers, and others to improve financial health by enhancing consumer resilience and increasing opportunity. The first component of this goal, resilience, refers to a household’s ability to withstand a financial shock. The second, opportunity, refers to a household’s ability to save for the future, for housing, education, or retirement.

The Financial Health Network measures the financial health of American families through periodic research including its ongoing Pulse Survey and the annual Finhealth Spend Report. Both track the financial lives of Americans, examining the effects of government stimulus, predatory lending, and new financial technology on how consumers, and especially vulnerable consumers, transact, save, and plan for the future. This research shows that low and moderate income households bear disproportionate costs for everyday financial services.

What are the levers of change?

It doesn’t have to be that way, and providers are realizing the opportunity to serve the broad swath of American consumers who lack access to quality affordable financial services and associated products. The changes don’t have to be monumental; banks eliminating overdraft fees or allowing grace periods before the imposition of an overdraft fee are good examples of seemingly mundane changes that can be hugely beneficial to consumers living paycheck-to-paycheck.

Outside of the traditional banking sector, fintechs are helping low and moderate income consumers make payments, borrow, and save through innovative new products.

What do payments professionals need to know?

As fintech players continue to expand their focus on historically underserved consumers and banks retool their offerings to better meet the needs of the segment, there’s plenty of opportunity for payments professionals to get involved in the changes going on in the industry.

Real time payments, for example, offer an opportunity to speed up access to cash for people who need their next paycheck as soon as possible. And advances in cross-border payments are making it easier for workers in the US to send money to family abroad. Providers can also use data to help consumers make informed decisions about spending and saving, and help people without a credit history borrow based on transaction patterns.

With all these developments, it’s an exciting time to be a payments professional thinking about financial health.

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We continue our series on fintechs and how they improve payments and data handling flows.

One of the major trends that has emerged in the last five years is the “as-a-service” phenomenon. Payments as a service companies – true payment platforms for those offering payment capability as well as those needing to make and accept payments – are broadly available. Stripe is just one example. We are now seeing “banking as a service” providers proliferate.

We spoke with Robin Gandhi of TripActions in Episode 146. TripActions is a fintech focused on the travel needs and expense management of its enterprise customers. And what’s become clear from that conversation and many others is the extent to which fintechs serving specific vertical markets are able to focus so crisply because they can partner with these “as a service” providers who have done the hard, back office work of integration to banks, payments systems, and enterprise software.

We’re calling this trend “multiplayer fintech”. It enables firms like TripActions to take very comprehensive capabilities to market that no single provider could ever hope to do. And to, in a matter of months, deploy more efficient payment transaction flows through process redesign, modern user experience approaches, and with multiple revenue opportunities for the provider.

In this episode, we speak to one of the leading enablers and participants in multiplayer fintech, a company that has done the hard work of software enablement of payment operations, those challenging back office services. We are joined by Modern Treasury’s CEO Dimitri Dadiomov, its Chief Growth Officer Rachel Pike, and Erin McCune, Glenbrook’s B2B practice leader.

A True Fintech

One of the pleasures of producing Payments on Fire® is hearing the creation stories of fintechs like Modern Treasury. And, as with other firms, the business of Modern Treasury grew out of the tool set that Dmitri and his colleagues had to build in order to delivery the services of a mortgage industry firm they’d started. Integrating multiple financial institutions into their payments flow proved challenging given the number of banks and their typical reliance on legacy infrastructure. Speaking with other fintechs addressing other markets affirmed the breadth of those difficulties. Modern Treasury’s raison d’être was established.

In enterprise payments, payments operations is especially challenging. Nothing is as simple as tapping a card or writing a check. Challenges include payment initiation from inside the right application, approval management and controls, reconciliation, and reporting.

In classic fintech fashion, Modern Treasury has taken a design approach that starts with the user experience and process efficiency. No more automation of previously paper-based processes. This is about new replacement processes.

APIs Everywhere

Following the fintech playbook, Modern Treasury’s offer is based on an extensive set of APIs that support multiple payment methods including ACH, wires, check, the Real Time Payment (RTP) network, global payout capabilities, connection to the Canadian EFT system, and digital currency exchange specialist Silvergate Exchange Network, another fintech.

External account verification is supported via microdeposits and through a partnership with the fintech Plaid.

Synchronization of payment activity into accounting is made possible by connections into QuickBooks and NetSuite.

The multiplayer fintech theme is clear here, both in the build-out of Modern Treasury’s own operations as well as in its role as a payments operations platform for other providers.

So, listen to this episode. And, if you know how a particular industry works, dream of what you could assemble from building blocks like these.

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If you want to understand the incumbent merchant services business, the industry that puts payments capabilities into the hands of merchants, take a listen to this Payments on Fire® episode. It focuses on the realities facing the major stakeholders in that portion of the payments industry through a discussion with NMI, a payments technology provider.

Topics discussed include:

Getting payments acceptance capability into the SMB merchant’s hands is complicated. The merchant services industry, as it’s called, is complex. It has multiple sales channels serving dozens of merchant categories.

Multiple Channels to the SMB Merchant

If you are a merchant or an independent software vendor (ISV) or a value-added reseller (VAR), you have no end of ways to payment enable your business. For merchants, their interest is in payment acceptance at the right cost, with reliability, transparency, and flexibility as major concerns. ISVs and VARs who sell commerce systems, look to offer payments to their customers as an embedded value-added service and also as a way to generate revenue over and above software subscriptions or margins on hardware.

Financial institutions have been a traditional channel for merchant acquiring and revenue, often using independent sales organizations (ISOs) to be the sales channel and often a provider of payments technology to the merchant customer.

Many of the providers of payment services and platforms insert themselves into the transaction flow directly, taking a piece of the payment revenue. Pure-play technology enablement as a service is less usual and for the merchants and ISVs and others who want more control over the payments revenue component of their business, the tech-first proposition is very attractive.

The Value-added Gateway

This white label enablement of payment tech providers is where NMI plays. Its customers, its affiliates as the company calls them, are the ISOs, ISVs, and financial institutions selling payment acceptance to SMB merchants. NMI provides, behind the scenes, the tech stack for those sales channels.

Its strategy has worked. Handling over 1.5 B transactions a year with over $100B in value, NMI has a major role in SMB payment enablement. A quarter million merchants are on the NMI platform.

Fintech Disruption in Merchant Services

The ISO channel in particular has been disrupted by the likes of Square, Stripe, and many others. But these fintechs are not attractive as providers to ISVs or FIs because they take the payments revenue, leaving little or no payments margin for NMI’s customers to make money.

NMI provides a bridge to help its ISOs move to what NMI’s Nick Starai refers to as the NextGen ISO, a software-led company selling more than payment terminals and merchant accounts. NMI tech enables the NextGen ISO and supports its partnership with business focused ISVs selling tools that help the customer run their business.

As with other Payments on Fire® guests over the last year, NMI reports that the pandemic has accelerated adoption of touchless tech and its overall transaction volume.

One adaptation NMI has made to the touchless requirement is support for QR codes. Using NMI’s code, a merchant unwilling to upgrade its POS terminal for contactless acceptance can display a QR code to the customer who scans it with her smartphone. The QR code decodes as a URL that directs the smartphone browser to the merchant’s online payment page where the normal checkout process takes place. If the customer has Apple Pay or Google Pay provisioned NMI’s software detects it and displays the operating system’s checkout and payment flow. A scan and a couple of taps for the customer shifts the transaction to card not present rails.

The line between brick and mortar and online continues to blur because customers have come expect a seamless, touchless payment experience regardless of channel.

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The fintech phenomenon and the ability of software developers and their enterprise customers to embed payments capability into business processes relies on multiple forms of access.

• First, there is the establishment of the business and contractural relationship necessary for access to a payment system. The rules of payments schemes, i.e. payment networks, say that you have to be a financial institution to be a direct participant. Non-bank third parties must be sponsored into the network by a member bank. That requirement is in the network rules.
• Second, technical access is necessary. We’re all familiar with APIs, those application programmer interfaces, that companies like Stripe, PayPal, and others have built to simplify access to card network rails (primarily) and open up access to millions of new payment acceptors.

But there are other important payment systems. In the US, the automated clearing house (ACH) is systemically important because it is ubiquitous and carries far more value than cards, cash, and check. Because of that, the pandemic, and the secular trend to digital, ACH is hot as is connectivity to bank accounts through firms like Plaid and GoCardless (podcast link).

The US also has the fast payments network the Real Time Payments Network (RTP) from bank processor The Clearing House. While connected to far fewer financial institutions, its 24/7 availability and instant push payment capabilities are opening up new use cases in payroll and B2B payments (podcast link).

Programmatic access to non-card rails is the focus of this Payments on Fire® episode. Dwolla is a specialist in the programmatic access to the ACH and now TCH’s Real Time Payments (RTP) Network.

Founded in 2008, Dwolla has gone through some pivots. At one time it built a real-time payment switch with the ambition to connect all banks to it. Dwolla’s helped with the Fed’s Faster Payments Task Force and the Gates Foundation’s Mojaloop switch for e-money systems in developing markets.

Dwolla has always been a bit ahead of the market but now the market is catching up as interest in the use of non-card payment methods grows and the API-based proposition has become a foundational business modality.

In this episode, Brady Harris, Dwolla’s CEO, and Adam Steenhard, Senior Director of Corporate Strategy, join Glenbrook’s George Peabody and Elizabeth McQuerry to discuss the growth of digital B2B payments and enterprise interest in fast payments.

Brady and Adam speak to their experience with important capabilities built in RTP including the request for payment message type and the ISO 20022 payment data representation standard. They also discuss how partnering with other fintech providers gives them the ability to offer a broad capabilities set that would otherwise take years or be impossible to build.

This “multiplayer fintech” model relies on the assembly of capabilities offered by platform providers and offerings designed to address what a specific market requires. Dwolla uses the multiplayer fintech model to expand its offering into a comprehensive set of capabilities – a rich payments-as-a-service platform. TripActions has taken payments- and banking-as-a-service platforms and applied them to travel and expense management (podcast link). More on multiplayer fintech ahead!

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Fast payments are “must haves” in most economies. Their key attributes make them superior to other bank-led, open-loop systems. The speed of money has caught up with the speed of our communications. As Glenbrook’s Elizabeth McQuerry puts it, “this is a convergence of ideas around the world, a commonality, around this single approach in payments.”

Note: “Fast payments” is the term of art that the world’s standardized on. These new systems have gone by multiple names: real-time payments, faster payments, immediate funds transfers, and more. Very recently, the World Bank and the Bank for International Settlement (BIS) settled on “fast payments” as the moniker for these systems.

In this Payments on Fire® episode, Elizabeth and ACI Worldwide’s Craig Ramsey discuss the evolution of fast payments, its global spread, and the wide variability of use cases seen around the world.

ACI Worldwide is a $1.3B provider of payments technology to financial institutions, billers, merchants, and other ecosystem participants. Operating 24/7 in some 14 countries and 18 systems, ACI is a major participant in the global fast payment phenomenon. Among ACI’s roles are connectivity of core banking systems (the ledgers) to domestic fast payment systems. ACI also brings fraud management and back office services.

Elizabeth and Craig discuss the impact of rules on use cases, the slow rollout of services that take advantage of ISO 20022 messaging, and the nuances of deployment from country-to-country.

Craig notes that fast payments do not replace existing systems. They provide banks, and their customers, with a broader range of payments choices. Banks can make decisions about which rail to use for a given transaction.

An essential success factor is ubiquity. National mandates are enormously influential. The explosive success of Brazil’s new PIX system is an example. But even in a market-driven economy like the US, the benefits of fast payment systems are very apparent,

Push Payments and Risk

From a payments network and financial institution point of view, push payments are less risky than pull payments. The principal reasons include:

That said, those accountholders themselves can be victimized by fraudsters through social engineering.

Authorized Push Payment (APP) fraud occurs when the rightful accountholder has been convinced to send funds to the criminal. This fraud is troubling because the payment is initiated properly. The accountholder has logged into their financial institution and provided the correct credentials. They’ve simply sent the funds to a fraudster. This form of fraud is a concern for wire systems—high value, low volume system ($4.5M per transaction) and, as the UK has reported, it is a serious concern for the fast payment systems that are built for high volume, lower value transactions. In the UK, no systemic solution has been found.

Fast Payments Now, CDBC Later?

Payments on Fire® Episode 152 – Fast Payments with Elizabeth McQuerry and ACI’s Craig Ramsey.mp4 from Glenbrook Partners on Vimeo.

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We continue our fintech series on how fintechs deliver payments services that were formerly brought to market by banks or were just unavailable.

Key hallmarks of these fintechs, and innovators in general, are:

• Market entry at a point the incumbents aren’t serving well
• Rapid expansion of service offerings to more deeply embed their services into the customer’s operation
• Rapid geographic expansion based on customer demand

To illustrate those points, and more, George welcomes back to Payments on Fire® Marwan Forzley, CEO and co-founder of Veem, a company that exemplifies that rapid evolution.

Veem is now an international payments network serving SMBs with domestic and international payment services.

Its creation story is fascinating. Initially, Veem used crypto rails to move money between the countries it operated in. Now, it is a multi-rail firm with its own operations in major markets and a wide array of partners to serve payment corridors with less volume.

To drive volume over its network, Veem has taken a number of steps. A few examples include:

1. Provide domestic payments without charge.
2. Embed Veem payments capability into accounting systems like Xero, QuickBooks, NetSuites, and more.
3. Turn accountants and bookkeepers using those systems into a sales channel
4. Let those accountants tee up payments for their SMB customers and provide a customer facing dashboard that supports multi-party approval (CEO and CFO, CFO and controller) for payment initiation

These non-payment capabilities smooth the adoption of the Veem service into the customer’s business processes and expands its value.

Surprising uses of the service included cross-border labor payments and even intra-company transfers to balance books across multiple geographies, a service that once required the use of correspondent banking services.

Marwan and George also discussed the epidemic’s impact on the company. As a firm with a customer base heavily involved with e-commerce, the shift to that channel was beneficial.

Their conversation concludes with a discussion of stablecoins, CDBCs, and NFTs.

Take a listen!

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In Episode 150, we continue our focus on fintech and its role in improving the payments process for specific verticals.

We recently spoke with Robin Gandhi at TripActions about the hard focus it has on enterprise expense management for the Travel and Hospitality industries. It’s also a great example of multiplayer fintech. (Take a listen).

In this episode, we find out how a fintech helps a very different industry, a segment we have come to rely on more and more as the pandemic has extended supply lines to our doorsteps and stretched the transportation and warehousing businesses.

Take a listen to George and RoadSync’s CEO Robin Gregg as they take a deeper look into how fintech’s solve specific problems for specific industry segments. RoadSync provides payments and commerce services to the logistics and trucking industries.

RoadSync’s market targets include warehouses, trucking firms, and the maintenance and towing operations that keep it all on track.

Logistics is an industry that still relies heavily on checks. When a driver picks up a load at the warehouse, they often pay by check. Knowing the check is good before the driver hits the accelerator is necessary. RoadSync helps with these “dock door” payments through check authorization as well as enabling the warehouse to accept credit cards.

Like so many of today’s fintechs, RoadSync has built out data handling capability around its payments services. Matching up payments to invoices is critical on both sides of the transaction.

For example, the warehouse can create a complete invoice through RoadSync and then simply text the link to the driver for review and payment.

Roadside repair plays a key role in logistics. We’ve all seen an 18 wheeler with its hood up or a blow tire. Those repairs are not inexpensive. Towing and repair services need to:

Get authorization from the freight carrier before doing the work. Work over authorization is a key step.
Get the invoice to the customer when the work is done. The repair tech can create the invoice on the spot.
And get paid, best case by the driver as soon as the last bolt is tightened. RoadSync gives the repair tech the ability to accept a card or a fleet check

To help drivers find those RoadSync-able truck and trailer repair services, the company has established its BigRig411 directory.

In Glenbrook’s payments education workshops, we will call the introduction of a new payment system like today’s Fast Payment rails an “ecosystem build.” Success requires the deep participation of as many parties as possible.

Here, RoadSync is applying that imperative in the areas it can impact. It is automating both sides of a transaction. It makes it easy to find ecosystem participants. And it is API-enabling its services so its payment services and data handling can be more deeply embedded into fleet, warehousing, and repair operations software.

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The U.S. is moving faster than ever into seamless, account-to-account payments. That means enterprises and their payments providers are able to initiate a payment from one bank account and direct it to another. Think payroll. Think supply chain.

The system attracting the most interest today is the ACH, a network built on batch processing and lacking authorization. Despite those shortcomings it has some enormous advantages:

• It is ubiquitous. The network effect matters for payments even more than it does for social networks
  It is cheap. Compared to wires and cards, it is inexpensive for transactions that aren’t time critical. And the ACH has sped up with Same Day ACH transactions now available

That lack of authorization and banking’s reliance on authentication methods of varying effectiveness makes these transactions a fraud target. COVID has only increased the fraudsters’ appetite for attacking this channel.

Fraud prevention in this context requires the use of data and intelligence to, among multiple steps, identify out-of-pattern behavior between counter parties.

Join Glenbrook’s Nicole Pinto and George Peabody as they speak with Eli Polanco, CEO and Founder of Nivelo, a company that offers risk scoring for ACH transactions to improve payment success rates and reduce fraudulent transactions.

Listen as she speaks to her entrepreneurial experience and shares her insights into the evolution of bank-to-bank payments.

Click for the transcript

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2021 will be remembered as the year that cryptocurrencies become a full time presence on Wall Street and a top agenda item at the world’s central banks.

Here’s a short video of Goldi pitching his concept

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Prepaid cards are the “apps” of the card world. Join George and Fiserv’s Head of Prepaid Dom Morea as they introduce prepaid’s twin modalities – open loop and closed loop – and then dive into how the gift card industry has morphed into a far broader set of uses cases. And plan to return for the next episode as they discuss open loop’s evolution.

Card payments have four modalities:

• Charge Cards. There are charge cards that are a form of very short term credit, you pay off in full the monthly statement
• Credit Cards add the option of revolving all or a portion of the debt obligation and, if you do, you pay interest on those charges

Both of these are products that we buy as consumers or businesses. And we’re paying with money we don’t have at the moment of the transaction. They are “pay after” products.

• Debit Cards. Debit Cards, on the other hand, are a feature of a specific checking account. It draws on funds that are available right now. It’s a “pay now” method. As soon as the issuer authorizes the transaction, a hold for that amount is placed on funds in your account.
• Prepaid Card. The final modality operates in “pay before” mode. That’s the prepaid model where funds have been placed in an account to be spent at a later date. Like debit, prepaid draws on funds that are already in place. In most cases, the prepaid funds owned by an accountholder are pooled in a single bank account.

Prepaid is used in two different manners

1. Open loop prepaid cards are network branded (think Visa and Mastercard). They can be used anywhere the network’s cards are accepted.
2. The second approach is closed loop. This is the domain of the gift card where a merchant has pre-sold an obligation to provide goods or services up to the value in the prepaid account.

Prepaid Use Cases Abound

Prepaid is big business. Go into any chain drugstore and you’ll see a rack with both open and closed loop prepaid cards for sale. For years, the physical footprint of that “prepaid mall” has been the most profitable square footage in the store.

The prepaid world has some very interesting dynamics. Unlike credit card products that may be issued to millions of cardholders and used for all kinds of purchases, a prepaid program may only serve a few thousand and may be locked down for special purposes.

The Apps of Cards

That’s why we think of prepaid as the “apps” of the card world. Prepaid lends itself to some very specific use cases and program types.

In this first of two interviews with Dom Morea, Fiserv’s Head of Prepaid, we cover closed loop prepaid and some of the new and growing use cases Fiserv has supported, often driven by COVID-19.

Here’s Dom discussing B2B use cases for closed loop prepaid programs:

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