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Responsible Innovation, Part 2: Do Community Financial Institutions Need Faster Payments?
In my last post, I introduced themes from a summit that the Retail Payments Risk Forum cohosted with the United Kingdom's Department for International Trade. The summit gathered payments industry participants to discuss faster payments and their effects on community financial institutions (FIs). This post, the second of three in a series, tackles the question of whether community FIs and their customers actually have an appetite for increasing the speed of payments.
A summit attendee from WesPay, a membership-based payments association in the United States, presented the findings of a survey of 430 U.S. FIs about current payments initiatives. An important discovery was that awareness and adoption of faster payments solutions remains low, as the responses to two survey questions indicate:
- For same-day ACH, a majority (57 percent) indicated that the first phase—faster credits—"has had no measurable impact on our customers'/members' transactions."
- When asked about the Federal Reserve Faster Payment Task Force, 34 percent of respondents indicated they were unaware of the initiative, and 46 percent indicated they had only high-level knowledge.
Responses to another of WesPay's survey questions suggest that, although there may be low awareness of many current initiatives, many financial institutions are recognizing that faster payments are inevitable. A majority (60 percent) agreed that faster payments initiatives are "an important development in the industry. However, our institution will be watching to see which platform becomes the standard."
NACHA's representative presented statistics from phase one of same-day ACH, with reminders about the phases to come.
- Same-day ACH reached a total of 13 million transactions in the first three months (launched September 23, 2016).
- Phase 2 will allow for direct debits to clear on the same day (to launch September 15, 2017).
- Phase 3 will mandate funds availability for same-day items by 5 p.m. local time (to launch March 16, 2018).
- The current transaction limit is $25,000, and international ACH is not eligible.
Results of a study by ACI Worldwide, a global payments processor, look a little different from WesPay's survey results. The study looked at small to medium-size enterprises to gauge real-time payments demand. For the U.S. respondents, the research revealed that:
- Fifty-one percent are frustrated by delays in receiving payments.
- Forty-two percent are frustrated by outgoing payments-delivery timeframes.
- Sixty-five percent would consider switching banks for real-time payments.
We don't know yet what U.S. adoption rates will be, but Faster Payments Scheme Ltd. (FPS) in the United Kingdom already has a story to tell. U.K. panelists attending the summit at the Atlanta Fed stated that FPS has had constant adoption growth due to cultural change and customer expectations.
- FPS reached a total of 19 million transactions in the first three months (launched May 27, 2008).
- The FPS transaction limit increased in 2010 from £10k to £100k, and then to £250k in 2015.
- On April 2014, Paym, a mobile payments service provider, launched, using FPS. Paym handles person-to-person and small business payments, similar to Zelle in the United States, which started up in June 2017, using ACH.
- FPS had a total volume of 1.4 billion items in 2016.
For payment networks offering new solutions, community FIs are the critical mass that ensures adoption. Their participation will require practical benefits with a lot of support before they are willing to commit. Some community FIs might be forced to adopt new systems because everyone else has. Will new networks in the United States contest same-day ACH, which already has the advantage of ubiquity? Likely, as options develop, so will customer culture and expectations.
In the final installment of this "Responsible Innovation" series, I will look at future impacts of faster payments.
By Jessica Washington, AAP, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
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