As the Federal Reserve Bank of Atlanta seeks to promote safer innovation in the nation's payments system, it is exchanging knowledge and building ties with fintech firms and banks that partner with those firms.
A signature component of that effort was a recent event at the Atlanta Fed headquarters, the first in a series of "innovation office hours" events the Federal Reserve System is holding nationwide. This first daylong office hours session brought in two dozen financial technology, or fintech, entrepreneurs and bankers on February 26. They discussed payments security, regulation, financial inclusion, and other matters in small meetings with experts from the Atlanta Fed and the Federal Reserve Board of Governors.
The overarching mission of these office hours is to influence the direction of innovation so that firms are more likely to incorporate security into their development processes.
"Innovations are great," said Atlanta Fed president and chief executive officer Raphael Bostic. "But I want innovators to think about risk in a very fundamental way."
Fed's mission includes safeguarding payments system
Thousands of financial services apps have debuted in the marketplace in recent years. Most of those connect to the nation's core payments processing systems—the "payment rails," in industry lexicon. Basically, payment products such as PayPal, Venmo, and many others function as pathways that funnel data into the underlying plumbing of the payments system. While the rate of fraudulent payments remains low, each new connection to the system is another avenue for potential mischief.
These payment rails are a small number of core processing systems such as major credit card firms' processing networks and two automated clearinghouses that clear and settle payments including direct deposits and online bill payments.
Part of the Federal Reserve's mission is to protect the integrity, safety, and accessibility of that underlying payments system. That pursuit has evolved as the volume of noncash electronic payments has soared. This is why the Atlanta Fed considers encouraging safe payments innovation to be one of its top strategic priorities.
One reason for the safer payments innovation initiative is that many fintech firms are small and lack in-house expertise in payment and data security. Consequently, balancing speedy development of apps with sound risk management and security can be a challenge for young companies without deep pockets.
Take Qoins, an Atlanta-based startup with six employees whose "financial wellness app" has helped its customers pay down more than $10 million in debt since its 2017 launch.
Christian Zimmerman, the company's founder and CEO, visited the Atlanta Fed for innovation office hours. Zimmerman said the conversation helped him better understand the Fed's role in payments and financial inclusion and establish relationships that could prove valuable in the long term.
Sheena Allen described her experience as a more interactive and wider-ranging conversation than she expected. Founder and CEO of Atlanta-based CapWay, which makes a mobile banking and financial education app, Allen said her conversations with Fed experts centered on financial inclusion and data security.
"It was definitely not one of those very traditional, hardcore financial security" discussions, Allen said. "It was a really great mixture [of topics], which was very, very helpful."
Convening groups for substantive discussion is a central Fed duty, in payments as well as economic policy areas. As Cheryl Venable, Atlanta Fed executive vice president and product manager of the Fed System's Retail Payments Office, said at the office hours event, "We don't have all the answers, but when we convene inclusive groups of parties involved with the issues, the right answers often reveal themselves."
Innovation office hours are scheduled at various regional Federal Reserve Banks over the coming months. Find information on the Federal Reserve Board of Governors innovation page.