Pandemic gives U.S. Faster Payments Council role of easing digital transitions
Whether deserved or not, the payments industry has had a hard time shaking its decades-long stigma that any type of forward step will be long and drawn out.
But contrary to that trend, the U.S. Faster Payments Council — created through a recommendation from the Faster Payments Task Force — has proved to be effective in its mission of promoting faster payments and pushing the industry through potential roadblocks with information and data for merchants, corporations and banks to better understand how systems work and what they offer.
The agency's voice carries even more weight in light of the coronavirus pandemic, which has hastened the transition to digital and remote payments.
Through it all, the council has been able to avoid the pitfalls of other industry groups that often have to dig in their heels and argue over who gets the deciding vote on standards, operations and fees.
"I do think we have a tendency, in general, to create these narratives that are X versus Y, whether it be cash vs. electronic, or debit versus. credit, or contactless versus chip, or this versus that," said Reed Luhtanen, a former Walmart payments executive who now heads the U.S. Faster Payments Council.
"When you step back and look at how payments have evolved in this country, it is the continual adoption and usage of new things," said Luhtanen, who took over as executive director of the council in early April when Kimerbly Ford, the council's first director, stepped down.
The U.S. Faster Payments Council positions itself well in that setting, taking an agnostic approach in educating those seeking more information about faster payments — without forcing anyone to take a stand on one approach over another.
"We don't necessarily see people abandoning older types of payments," Luhtanen added. "When I was at Walmart [from 2005 to 2020], the company was still accepting hundreds of millions of checks every year. And cash is still a huge part of the economy."
Rather than pitting faster payments against cash or ACH transfers, Luhtanen said, the council is focused on helping people understand that "there are different models and different payment types available to them for instant payments or for push payments, such as Visa and Mastercard having their own products in the market."
"All of these pieces can fit together and provide different answers to different questions," he said.
Through its sheer number of members and sponsors, the council has built credibility throughout the industry as a voice worth listening to when seeking the facts on faster payments initiatives and how they could benefit a business.
The council currently has more than 150 members, covering every aspect of payments. Its founding members include the Federal Reserve, Shazam, ICBA Bancard, Visa, Bank of New York Mellon, North American Banking Co., Open Payment Network, The Clearing House, the New England ACH Association, Ceridian, Mastercard, JPMorgan Chase, Walmart, Bankers' Bank, Corporate One Federal Credit Union, Early Warning Services, Target Corp., Goldman Sachs Bank USA, First Data/Fiserv and TD Bank.
The council's most recent research, completed with member Glenbrook Partners, provides insight into consumer bill pay through an online survey that revealed bill pay as one of the top three faster payments use cases for both banks and businesses. Nearly 60% of respondents gave faster bill pay top priority.
The research is at the core of what the council hopes to do in providing information for banks, merchants and businesses. It stressed the Request for Payment, or Request to Pay, messaging feature as a key driver for biller-direct and bank bill-pay models. The research also provides information about how a fragmented faster payments ecosystem could ultimately be a barrier, as well as the business case potentially not being as strong for other businesses as it is for banks.
Because so much has taken place since the Fed launched its faster payments initiative in 2011, the council's work has become a vital part of the process because it provides an "organizational structure to propose ideas and solutions to difficult challenges and to provide background and education on the topic," said Sarah Grotta, director of debit card advisory for Mercator Advisory Group.
"The council has published overviews about the interoperability that can be achieved between real-time payments rails, as well as background on ISO 20022 messaging, which both The Clearing House Real Time Payments and the proposed FedNow will use," Grotta said.
ISO 20022 messaging has been viewed by faster payments providers as a vital standard, in that it allows descriptive details to be attached to the transmission of the payment as a way to clarify and speed up the process.
The Clearing House launched its RTP network in late 2017, about a year after Nacha began its first phases of Same-Day ACH, and the Fed proposed its own same-day settlement process through FedNow, which has a potential launch of 2024 or sooner.
The council also focuses on smaller financial institutions in terms of how to approach a faster payments strategy, and work to build payments directories and address security and fraud in faster payments.
"The FPC doesn't have an official status, meaning it can't regulate and it doesn't have any governance or rule-making ability," Grotta added. "But it does have a role to play and it will shape and influence the efforts to integrate real-time payments into the market."
Luhtanen prefers it that way. The authority to establish standards or rules would simply lead to more payments politics for the council.
The U.S. Faster Payments Council has adapted its approach to reflect the tough economic times and changing consumer behavior.
"We definitely have a much more ambitious mission to ensure that participants in the payments ecosystem understand what is available to them and that we help the industry with things that are easier to use," Luhtanen said.
"That can help facilitate the corporate side in providing some input that can influence decisions that are made on the network operator, technology provider and financial institution side, and vice versa," he added. "We enable that to have the two-way flow of communications that can help influence outcomes in a way that very few others are really situated to do."
Since becoming executive director and now enduring the COVID-19 pandemic, Luhtanen senses there has been a lot more ambition to transform payment processes.
"The pandemic has really caused people to rethink the way they live their lives personally and the way they work and how that flows in a lot of different ways," he said. "And that includes how they think about payments and how digital instant payments can facilitate 21st-century business in a remote fashion."