Inside Wells Fargo's diverse faster payments strategy
Rather than homing in on specific methods to accommodate real-time payment processing, Wells Fargo realized a mix is the best bet to avoid inadvertently leaving parts of its client base in the dark.
The bank is evaluating FedNow, the pending government-backed payment rail that many large banks panned early on. Wells has also built its infrastructure to support other faster payment initiatives including Push to Card (also known as Mastercard Send and Visa Direct), The Clearinghouse Real-Time Payments (RTP) network, Same-Day-ACH, Zelle, and most recently its test of the blockchain-powered Wells Fargo Digital Cash.
“Five years ago we only had cash, check, wire and ACH in which to conduct payments and now we have so many options. We continue to add to the list and don’t take away. The reason being is that each one brings different functionalities to deliver on specific payment use cases,” said Michelle Ziolkowski senior vice president, head of global payables, treasury, merchant and payment solutions at Wells Fargo.
For example, Push to Card is very useful for B2C disbursements such as rebates or insurance claim payments because it has a wide reach and benefits the underbanked, Ziolkowski said. According to the FDIC 18.7% of U.S. households are considered underbanked and as whole 93.5% of U.S. households are banked.
When the Federal Reserve announced in August that it was launching a real-time 24/7 clearing and settlement payments service that would be available by 2024, many in the financial services industry saw this a competitor to RTP.
“Request for payment on the RTP network will be a big hit with corporate customers when it gets fully rolled out. Yet there are constantly new rails being developed as faster and better options. Now we have blockchain being created as new choice and it is being made available to corporate customers,” said Steve Murphy, director of the Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.
Wells Fargo, which is an RTP network bank, views FedNow as an opportunity to add another service line. Wells hopes a use-case-specific approach that tailors fast processing will keep companies from being overwhelmed by myriad options to speed payments.
“First and foremost, companies are slow to adopt faster payments because there is so much choice in the market. What we are likely to see is that as different use cases get solved by faster payments, such as insurance claims, the adoption of that specific payment rail for that use case will be almost instantaneous as no one company will want to cede a competitive advantage because you are still paying insurance claims by check when everyone else is doing Push to Card,” added Ziolkowski.
Blockchain is also part of the mix at Wells Fargo. Distributed ledgers such as blockchain are seen as a way to streamline faster payments, which generally do not have a direct business case but rather are a means to improve cash management for other business lines. Blockchain has proven successful in streamlining cross-border payments, for example, and at Wells Fargo international payment processing will also be a gateway payment type for blockchain.
Last month Wells Fargo announced it will test Wells Fargo Digital Cash, initially to support real-time payment processing and settlement for cross-border uses, such as for corporate clients. That’s most likely just a first step, as Wells Fargo has suggested much broader use for its first internal blockchain platform.
Wells Fargo is in a race with other large banks to find uses for blockchain technology, which underpins cryptocurrency but has also proved useful to improve speed and accuracy for payments and other general financial services.
JPMorgan Chase unveiled JPM Coin back in February for institutional clients and business-to-business money flows that represent U.S. dollars held in Chase accounts.
In August Bank of America filed a patent application for a security system for a peer-to-peer network with a digital wallet interface, providing that interface to a user's computing device and instructions for tiered password system.
“Because the payments landscape is changing so rapidly you want to have your fingers on each rail to get a read on how it’s doing. It’s an advantage to offer every option since not all financial institutions will do so," Murphy said.