Payments On Fire
Payments On Fire® podcast series
is where payment issues are reviewed, dissected,
and batted around with industry leaders.
In other words, a good conversation
between payments geeks.

Latest Podcasts

Episode 152 – The Fast Payments Imperative – Elizabeth McQuerry, Glenbrook and Craig Ramsey, ACI Worldwide

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:

  • They are “known good funds” transactions that are only entered into the network if the funds are in the sending account.
  • Unless there is an account takeover, they can only be initiated by the accountholder.
  • The rules of fast payment systems make these irrevocable transactions. There are no chargebacks.​

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?

The build-out of a new open loop payment system and technique is a once in a generation event. We’re five years into the US’s fast payments evolution. The next five will see Zelle, the RTP Network, and FedNow in operation and serving a whole range of use cases, many unanticipated by their designers. How these rails evolve and how they connect to the fast payment systems in other countries are unknowns. Rule changes are as inevitable as those new use cases.

Because tech accelerates change in payments too we may see yet another method of payment emerge in the US, a “digital dollar” issued by the Federal Reserve. Fast payments is a stepping stone to CDBC which requires realtime, 24/7 processing.
Aimed at very different use cases, these central bank digital currencies (CDBCs) are a newer phenomenon we will discuss in upcoming podcasts and blog posts.

Questions for Stakeholders

  • How should fintechs use fast payment rails, how should they gain access to them, and who should they parter with?
  • What makes more sense? Should you work with a financial institution or a gateway provider? Should you become a financial institution?
  • What is the best way to prevent APP fraud? How should the industry make accountholders whole after they have been defrauded? Or are the victims of APP fraud on their own since they authorized the transaction?
  • How does the card industry respond to a new payment system that operates with very different economics where fee revenue is only based on the number of transactions and not their size?
  • We are here to work with you to make your fast payments initiatives successful. Reach out to talk.

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

 


 

Read the Transcript

(more…)

Episode 151 – The Fintech Network Built for SMB Payments – Marwan Forzley, Veem

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!


 

Read the Transcript

(more…)

Episode 150 – How a Fintech Speeds the Logistics Industry – Robin Gregg, RoadSync

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.

Read the Transcript

(more…)

Episode 149 – Bringing Data to Secure A2A Transactions – Eli Polanco, Nivelo

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

(more…)

Episode 148 – The Fintech Bringing Crypto and Diem to Payments Users – Ran Goldi, First

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.

The potential for cryptocurrencies to digitally enable the financial lives of world’s 1.7 billion unbanked is gaining interest as well as increasing incumbent concern.

  • Who needs an ATM when digital cash is available on your smartphone?
  • Why pay high currency conversion fees if a digital currency works across border?
  • Is a traditional bank account and its ledger-based approach really necessary when low value retail and casual transactions are the use case?

We already see that cryptocurrencies are filling multiple roles. Here’s a bit of history that brings us to today’s discussion.

Grandparent Bitcoin

The progenitor of all this, bitcoin, has firmly established itself as a store of value. Major investors, their bankers, and money managers have peeled off a corner of their assets for placement into the first blockchain-based cryptocurrency. Its appalling energy consumption notwithstanding, bitcoin is more popular, and profitable, than ever. Its volatility is catnip to traders. And the bitcoin exchange services of the Cash App, PayPal and now Venmo are major revenue drivers for those firms.

“Corporate” Currencies

That volatility inhibits bitcoin’s utility as a payments method when low cost, low friction, and certainty are required. Who wants to be concerned about major currency fluctuations during the time it takes to complete a transaction?
Into that gap, multiple companies have proposed, and some deployed, stablecoins, a cryptocurrency backed and pegged to the value of a fiat or soveregin currency like the US dollar or euro. The goal is to simplify exchange within a given country and especially across borders. That proposition has appeal.

A major player in this category is Facebook’s Diem, the current incarnation of its original Libra initiative. Diem’s plan is to employ a few single-currency stablecoins tied to specific major national currencies for use within those countries and regions. A generic, multi-currency Libra Coin, its value tied to a basket of those major currencies, is optimized for cross-border transactions.

Diem is serious in its trust building efforts. Diem is seeking financial services licensing in Switzerland to increase trust in its governance and lower the significant resistance of central bankers around the world. And every Diem coin is in fact backed by fiat currency on deposit. Its “new money” proposition is backed by “old money” in an account.

Central Bank Digital Currencies

Central bankers are not known for innovation. Their role is to maintain stability and trust in the status quo. Their collective reaction to bitcoin’s emergence was a predictable immune response and most broke out in a rash when Libra was announced.
But in the decade since bitcoin emerged, more central bankers have warmed to the concept to varying degrees. Countries as diverse as China and the Bahamas have launched their own CDBCs, digital representations of their currencies, legitimate obligations of the state, backed by their “full faith and credit.”

Other countries, like the US, are evaluating the concept but have made no commitment to issuance.

CDBC use cases may be both broad and narrow. Incumbents in the banking and payments industry, already well down the path of moving money electronically, see few uses. Cash replacement is one area of interest. As use of the physical token declines, some members of the economy may be left out. Digital cash may help. The Bahamian Sand Dollar is meant to reduce reliance on the physical transport of cash and speed payments across an archipelago of islands often swept by hurricane disruptions.

At a very different pole, China’s digital yuan is already in pilot in multiple cities around the country and China wants to make it possible for foreign visitors to use it during the Beijing Winter Olympics next year.

Despite statements to the contrary, China’s CDBC could be employed for geopolitical goals as a challenge to the US dollar’s traditional role as the global reserve currency and its traditional role in global trade. Given China’s dominance in global trade, use of the digital yuan could be required of some trading partners, particularly those along China’s Belt and Road corridor.

And for all countries issuing CDBCs, there is the advantage of the increased visibility of digital cash transactions that eliminates the anonymity of physical cash.

Cryptocurrencies are not going away.

Making Cryptocurrencies Useful for Payments

Both “corporate” stablecoins and CDBCs have multiple virtues. They clear immediately. They are push payments with no credit risk. They settle immediately. Therefore, these transactions should be inexpensive.

That may drive merchant and enterprise interest in accepting them. What’s not to like about immediate funds availability in a payment that doesn’t cost much?

Issuance is one thing. But usage is quite another. The consumer / payer side of the transaction is an unknown. What’s in it for the consumer?

That said, there are those who both believe payers will adopt crypto-based payment method and that merchants, particularly those selling cross-border, will be quite ready to jump on board.

That’s the topic of this Payments on Fire® episode.

First for Diem Acceptance

In this episode of Payments on Fire® we welcome Ran Goldi, CEO of First Digital Asset Group to talk about his broad fintech experience, cryptocurrencies, and his progression into starting First.

First is admittedly way out in front of the market. Diem won’t launch its limited USD backed stablecoin until later this year. But Goldi’s team has already taken key pages out of the fintech playbook:

  • Connect merchant shopping carts to the First service and the Diem rails
  • Handle authorization and approvals
  • Provide risk and fraud management
  • And put an API in front of it all to speed consumption of First services

Goldi’s a lot of fun to speak with and his experience gives him an authentic voice in this discussion regarding what is, in fact, the future of money.

Here’s a short video of Goldi pitching his concept


Read the Transcript

(more…)

Episode 147 – The Apps of the Card World: Closed Loop Prepaid – Dom Morea, Fiserv

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:

 

Read the Transcript

(more…)

Episode 146 – Multiplayer Fintech Builds a Winning B2B Service – Robin Gandhi, TripActions

In our payments education workshops, we make the point that today’s fintechs rarely do something entirely new. At the macro level, our activities and the transactions they produce haven’t changed. We buy food and clothing. We pay rent.

But where and how we do these things has been transformed by technology.

A Great Time to Be a Fintech

Fintechs are the newer, nimbler businesses that are most often changing how we do things. We buy tickets online, get takeout using our mobile phones, and file insurance claims via an app.

Fintech entrepreneurs are busting old processes with much improved user experiences and “value for money” propositions.

It’s a great time to be a fintech.

The building blocks are in place. Powerful cloud-based capabilities are common. APIs connect these tools. Rich data and machine learning generate specific, actionable insights. iOS and Android give smartphones super powers. Business models like payment facilitation help some fintechs. You can even become a bank.

Multiplayer Fintech Builds a Winning Service

Individual fintechs are partnering with others to develop and deliver compelling new services. This is multiplayer fintech. Think of it as the fintech supply chain. The direct provider of services to the customer uses the specific payments capabilities of other fintechs to expand and strengthen what it delivers to its customers.

This approach lets the provider get to market faster with better capabilities than its competitors. That builds a competitive moat for a period of time. And expands the company’s revenues through a broader range of services.

Not Always Easy in B2B

The ability of these fintechs to displace incumbent vendors and processes (“How we’ve always done it”) can be hindered by the target company’s size and reliance on legacy systems. Their complexity presents a barrier. Dismantling it can take a lot of time and change management process support.

For mid-sized firms, however, the choice to shift to cloud-based service delivery is fast becoming a no-brainer. The work from home imperative has only accelerated the decision.

Prospering Despite COVID

We all know that the Travel and Hospitality industries have taken a COVID-inflicted beating. But not every company serving those needs has suffered.

TripActions, focused on corporate travel, just raised $155M at a $5B valuation to help enterprises analyze travel and expense data.

Join TripActionsRobin Gandhi and George as they talk about how TripActions has prospered in the last year with its travel expense management service that makes both the COF and the employee smile.

TripActions has employed those building blocks and partnerships with firms like Visa, Stripe, and Modern Treasury. Using the multiplayer fintech approach, TripActions now has a service that has rewritten how an enterprise manages its travel and expense management processes. For the employee, the hated expense report submission process can be virtually eliminated.

TripActions’ services could not have been built even five years ago. Without today’s technical building blocks and those partner-provide capabilities, TripActions could not have built its services and hit the market as it has.

It’s a good time to be a fintech.

Here’s Robin talking about multiplayer fintech:

 

Read the Transcript at the Payments on Fire® website
Expert payments industry commentary at Payments Views
The latest Payments News. Subscribe here
Read our COVID-19 Payments Industry eBook

(more…)

Episode 145 – GPay’s Impact on Every Stakeholder: Way More Than a Wallet – Steve Klebe, Google

GPay is Google’s app for payments, financial services, rewards, and, is expanding its capabilities, its partnerships, and its ambitions. Join Glenbrook’s George Peabody and Yvette Bohanan as they talk GPay with Steve Klebe, Google’s head of GPay business development and Google’s Processor and Partnerships work.

Fairly recently, Google’s payments services were a disjointed collection of point solutions. Today’s GPay is far more than a rebranding job. Listen between the lines to what Steve has to say. The implications are many.

Way More Than a Wallet

A lot has happened since Steve joined us in July 2019.

GPay has added incentives and loyalty more deeply as well as added expense management with automatic receipt discovery when sent to your Gmail account or via the camera. The incentives can turn into real money.

In the U.S. Google has teed up its Plex bank account offerings in partnership with Citi and Stanford FCU (other FIs to come) for launch in 2021. You can already add bank accounts to GPay through Google’s partnership with Plaid.

GPay is becoming a very competent user interface to the banking services offered by the FIs themselves. Google provides the UX and the data that matters. The bank does what it does.

Does this disintermediate the banks or give them a new channel through which they can offer their services? We will decide but personal experience suggests the GPay interface has a lot going for it.

Google has added these new capability and consolidated others under the single GPay roof. Its ambitions now go beyond simply being a repository for payment credentials and loyalty cards with a sprinkling of P2P payments on top.

Exercising Open Banking

One of the major payments and fintech trends for 2021 is open banking, the ability of third parties to access accountholder data.

PSD2 has driven this in Europe and India’s Unified Payment Interface (UPI), both pushed by mandate, enables a vigorous open banking ecosystem in that country. Google Pay, formerly Tez, has been a huge success in India. Of course, market pressure is the driver in the U.S.

Google is now exploring the potential for GPay to assume the role of “super app” along the lines of WeChat Pay or Alipay. Yes, that’s a big leap but there are hints of its ambitions. For example: Google has built over 100 HTML games optimized for low bandwidth networks and low memory smartphones, all targeted toward supporting its NBU (Next Billion Users) effort. GPay will be one of the presentation surfaces for these GameSnack.

Fairly recently, Google’s payments services were a disjointed collection of point solutions. Today’s GPay is far more than a rebranding job. Listen between the lines to what Steve has to say. The implications are many.

 

Read the transcript

Find more podcasts at Payments on Fire®
Read expert payments industry commentary at Payments Views
Read the latest at Payments News. Subscribe here
Read our COVID-19 Payments Industry eBook

Episode 144 – Innovation in Fast Money: 4th Annual RTP Network Update – Steve Ledford, The Clearing House

A Global Phenom

Realtime Retail Payments (RTRP) systems are a global phenomenon. These systems exist or will soon in over 50 countries around the world. Some have been in operation for decades. The UK’s Faster Payments system, operated by Mastercard’s Vocalink unit, has been in operation for over ten years. Still others are still in the design stage.

These account-to-account systems (A2A) have gained in regulator popularity because:

  • They are fast. The receiver has near instant availability
  • They are push payment systems. Transactions don’t take place unless the sender has enough money to fund the transaction. In other words, authorization takes place before the transaction
  • User authentication is up to the financial institution
  • These systems operate year round, 24×7
  • They are inexpensive. Transaction pricing is fixed, regardless of the value of the payment itself
  • They have rich data carrying capability
  • Some include a new message type called Request for Payment, essentially a digital invoice message that prompts the payer to send money and smooths account reconciliation.

Still New to the US

Most Americans still have no idea there’s a new national payment system in operation. Or that a similar one will begin operation in a few years. Wallets like Venmo and the Cash App abound. But an entirely new set of payment rails? That happens once in a generation.

Some of those Americans, on the other hand, may have experienced what a system like this can do. Zelle is a fast push payment system that moves money between banks accounts. But Zelle is more of a directory-enabled messaging layer. The money movement between banks relies on older payment rails like ACH and wires. New Age messaging and user experience; old fashioned settlement.

Key RTP Characteristics

Payments geeks, like Payments on Fire® listeners, know that the Real Time Payments Network takes a different approach. Operated by bank processor, The Clearing House, the RTP Network leaves management of the user experience and the use case up to the bank, the processor, or the provider serving a particular industry.

The RTP Network provides:

  • The messaging between the sender and the receiver and each of their banks
  • Nearly instant availability of the funds into the receiver’s account (by network rule)
  • 24/7/365 operation (ACH and wires take a break after working hours)
  • Instant settlement between the sending and receiving financial institutions

In short: the RTP Network provides the plumbing and pipes. What it looks like and how it’s used is up to another stakeholder.

Members of the network are financial institutions who either expose the RTP rails themselves or sponsor third party access so that those entities can make use of them. Nothing groundbreaking there.

An RTRP with RTGS

One of the impressive features of the RTP Network is that interbank settlement, the movement of funds between the sender and receiver banks, happens in realtime. The two banks settle their positions instantly. Settlement happens in realtime for every transaction. That’s what a realtime gross settlement (RTGS) does.

Contrast that with a system like Zelle that provides instant messaging among the stakeholders but typically leaves the final movement of monies between banks to an overnight batch process via ACH. And this is net, not gross, settlement. The amount includes all of the day’s transactions.

The RTP network achieves its RTGS capabilities using the following technique:

  • RTP requires each member financial institution to pre-fund monies sufficient to handle its transactions. The money to operate the system has to be in place ahead of time. This eliminates settlement risk between the banks
  • Each FI’s monies are pooled in a single pooled account, owned in common by the RTP Network’s member financial institutions. This pooled account is held at the the Federal Reserve
  • The Clearing House maintains a ledger that tracks every transaction, that debits and credits FI pairs in realtime for each transaction
  • Each Member FI is responsible for making sure it has enough funds to cover each of the transactions initiated by its accountholders. Each FI uses another open loop payment system, FedWire, to move monies into and out of its share of the pooled account as needed.

A Maturing System

That’s a lot of background to help US contrast this system against the other four mostly digital systems in the U.S. (If you’re not clear on that, join us for the best in payments education at a Glenbrook Payments Boot Camp®)

The RTP Network is in its fifth year of operation. In this Payments on Fire® episode, Steve Ledford updates us on:

  • The growth in member financial institutions
  • The growth in transaction volume
  • The expanding set of use cases
  • Who is using the RTP Network
  • How COVID-19 accelerated usage in new use cases

So, take a listen.

Here’s Steve talking about those new COVID-driven use cases.

For a snapshot of how the faster payments phenomenon is growing in the U.S. here is the 2020 Faster Payments Barometer.

Read the episode transcript

Find more podcasts, visit Glenbrook’s Payments on Fire® site
Read expert payments industry commentary at Payments Views.
Read the latest at Payments News. Subscribe here.
Read our COVID-19 Payments Industry eBook

Episode 143 – The Buy Now Pay Later Challenge to Credit Issuers – Chris Bixby, Sezzle – Payments on Fire® Fintech Series

Continuing our payments in fintech series, we talk about one of the major changes in the payments industry over the last few years: the installment lending phenomenon. Companies like AfterPay, Klarna, and Affirm (that just IPO’d and saw its stock double in one day) are leaders in this buy now, pay later (BNPL) space and appeal to Millennial and Gen Z users as well as the merchants selling to them.

These firms offer a range of installment payment options: three, six, and 12 month payback periods are typical. The interest rate gets lower the shorter the payback period and, for the shortest period, that cost is eliminated. The merchant pays for it as promotional financing. These installment loan options generally increase the size of the sale and, because the BNPL provider may take on the risk and guarantee the sale, they remove a measure of risk from the merchant. In other words, for multiple merchant categories, they increase sales.

BNPL providers accept multiple methods of payment: credit and debit cards and, of course, they may encourage the use of ACH as a low cost funding source.

For younger demographics, a majority of them without credit cards and credit histories, these services enable them to transact.

Sezzle is a player in this arena with a unique, very short term product that charges no interest to the consumer because the purchase is paid back in six weeks. The costs are born by its merchant customers. Sezzle has particular appeal to sub-prime or young consumers who may not even have a credit score.

Take a listen as Sezzle’s Chris Bixby, VP of Growth, and Glenbrook’s George Peabody dissect the Sezzle proposition and discuss the changing face of Retail in the post-COVID era.

Watch Chris describe why his customers choose the Sezzle payment option:

 

Read the Transcript (more…)