Transcript
Speaker 1 (Eric Dotson)
Good morning, everybody. My name is Eric Dotson, and this is our presentation called “Stronger Together, How Community Banks and Credit Unions are Uniting Behind Faster Payment Strategies.” By the end of the presentation today, you’ll know how an alliance of community banks and credit unions are working together in the real time payment landscape to support every community financial institution in the country and how a community financial institution who is interested in offering real time payments but is not sure how can become involved in the alliance.
As I mentioned, I’m joined today by two panelists that I’ll be working with. Margo Giles is a senior vice president of payment operations for Alloya corporate Federal Credit Union. She’s been working with the credit union for the past 20 years, and I’ve had the privilege of knowing Margo for the past three years.
Margo, why don’t you take a second and tell us a little bit about Alloya Federal Credit Union?
Speaker 2 (Margo Giles)
Sure. Thanks, Eric. It’s my pleasure to be here today and I’m happy to share a little bit about Alloya, we are a corporate credit union, which means we provide investments, liquidity and payment services to credit unions and related service organizations across the country. And we call them members. And we serve nearly 1400 members across the country. From all different sizes from under 15,000,000 to over several billion in assets and we basically streamline access and aggregate services for our members to help simplify their lives and help them work towards success. And lately, one of the areas that has been getting a lot of attention is the FedNow Service and instant payment area. And we help our members in a number of ways. We are providing an educational opportunity to our members to help them better understand the benefits of offering faster and instant payments, and we’re also preparing some products and services to help our members get these new payment rails without a lot of complexity. And lastly, one of the things that we’re known for is our service. And we are preparing to provide a service to our members throughout the implementation and support process to help them take advantage of these new different types of payments. So that’s sort of Alloya in a nutshell. And happy to be here.
Speaker 1 (Eric Dotson)
Great. Thanks, Margo. We appreciate it. We’re glad to have you here. My other panelist today is Drew Kishbaugh and Drew is the executive vice president and Chief Operations Officer for Atlantic Community Bankers Bank. Drew has over 4 decades of experience in the industry and I’ve had the privilege of knowing Drew for the past, oh I think 20 plus years. So, Drew tell us a little bit about ACBB.
Speaker 2 (Drew Kishbaugh)
Thanks, Eric. ACBB is a banker’s bank located in Camp Hill, PA we also have an office up in Glastonbury, CT. Very much like a corporate credit union, we serve financial community or community financial institutions with credit and lending services, international services, advisory deposits, investments, and treasury management. So, what we’ve been specializing in probably in the last 18 months to two years is faster payments, instant payments. It’s been the hot subject matter, so between ACBB, other bankers’ banks, and corporate credit unions, we’ve been sitting on the Feds councils or RTP councils being educated, becoming the expert on this subject matter. So that we can help our financial institutions get to the next level. During the faster payment initiative, we will be offering primarily settlement services. We do that today for other products and services. It seems natural that we would do it for instant payments or faster payments and we will also provide the rails through the collaboration with Aptys and everything to the FedNow network and RTP. Thanks Eric.
Speaker 1 (Eric Dotson)
Great. We’re glad to have you too, Drew.
Speaker 2 (Margo Giles)
Tell us a little bit about you, Eric.
Speaker 1 (Eric Dotson)
Myself, then I’m the co-founder and Executive Vice president of sales and marketing at Aptys Solutions, and I’ve been in the industry for a long time also. A little bit. About Aptys. We’re a leading provider of payment solutions in the industry we provide these solutions to over 5000 financial institutions today.
We participate in the FedNow pilot program and Aptys is the only vendor that offers a true end-to-end solution for real time payments for mobile origination to payment processing and all the way through the gateway. So we’ve been in the industry working with customers for a number of years now. And in every payment channel and across the country.
A little bit more about our story then, in order to support community financial institutions, we came together with our customers and formed the first of its kind consortium were jointly owned by both banks and credit unions, that allows us to provide a unified voice in the payments market space for the breadth of our customers, those 5,000 financial institutions we work with.
We’re a FedNow pilot participant and as I mentioned, we offer end-to-end payment solutions for our customers.
Let me jump in first by talking a little bit about what’s going on in the industry. Why is faster payments? Such a big issue. And where did it all kind of come from? And obviously in the US here we began in about 2015 working with the Federal Reserve Bank to understand what faster payments is and what should we be looking for in faster payments with the faster payment’s taskforce. The results of that have led to where we are today, but looking around the world, what we’re seeing, is there’s a lot more out there than just the US, right. In fact, Deloitte did a survey and some of the things that they found is that the increasing demand for faster payments has been really driving this initiative around the world, so you can see there’s a lot of countries that already have faster payments in place.
There’s a growing regulatory push in the industry to be able to have more innovation, but also looking at how we can manage faster payments and control the fraud in the industry and then ultimately improving market infrastructure allows us to put these types of capabilities in place today when we couldn’t do it in the past. So you can see the United States is down there #32 for faster payments in the country. But taking a little longer look at it, one of the other things that I think is driving faster payments is this whole Google effect.
As Deloitte mentioned, there’s now increased customer demand for faster payments. Part of that has to do with what Google did to us in the early 2000s. That they started coming out with any number of different products and services and as they did that, they brought them to the market quickly and very effectively in what they were doing. And consumers began to look and say, well, if Google can do it, why can’t you do it? If Google could do this faster, why can’t you do this faster for me? And so that whole demand started driving technology enhancements around all different types of payments and across the industry. And so, the financial industry has been looking at improving what we can do with payments, so that customers get the type of payments that they need.
As I mentioned, there’s many countries around the world that are offering real time payments today. And ACI did a survey of faster payments around the globe, and they ranked it by transactions per head per month. And looking in 2022, Thailand tops the list. For the number of transactions that an individual will do using their faster payment solution. But then also they did a projection from 2022 out to 2027, 5 years from now and they see that there’s continued global growth and faster payments with Bahrain coming in as the leader at over 83 transactions per month is what they estimate by 2027.
Now what I find interesting is as you look down this list to see where is the US, we’re not in the top ten. In fact, if we break it down by region in the US, in the region that the US is in, we come in at #2. Out of two countries, so it’s the US and Canada and the US is #2. And so you see, we have a long ways to go. I’ll also point out down in the lower right-hand corner the estimates by Deloitte or excuse me by ACI that the global transaction volumes will continue to grow. You can see there’s 63% year over year growth in transaction volumes that are taking place right now.
So, there’s a lot happening now.
The other thing I’ll just one of the things I thought is that as I looked at our region, I thought our region included Mexico, but then in that survey, it didn’t. So, if we included Mexico, where does that put the US? It puts us in 3rd, so we even have space to catch up with our partners here in this part of the world.
Now, one other thing I’ll point out, down here in India. And I thought this one was an intriguing fact. So India implemented their faster payments and they continue, they’re one of the leaders in the world in faster payments today, but one of the note at the bottom that’s highlighted in yellow is, they also felt like it helped unlock 16.4 billion of additional economic output. Which was equivalent to, you know, half a percent of their formal GDP, but that’s huge increase for them for faster just by implementing faster payments in the country.
So with that introduction, then let’s talk about faster payments here and what’s going on in the US.
And the first topic of conversation is FedNow and RTP. Why would that be something that’s important to a community financial institution? If I’m in? And of course, I live in Idaho, so if I’m a community financial institution in Idaho why do I, why should I be looking at faster payments, whether it’s FedNow or RTP.
Speaker 2 (Margo Giles)
Yeah, sure, Eric. I think that even though the US is starting a little bit later and maybe it’s going to take a while for us to become a player in terms of those rankings, it’s still very important for financial institutions that want to appeal to their customers or members in the future in terms of payments to be part of this instant payment ecosystem.
It is coming. People want faster payments and faster everything these days. And technology has really made that possible. And I think to remain and stay relevant, community FI’s are going to need to satisfy their customer and member demands in this area. So, if you think about. You know people who have accounts with you, they’re going to want to be able to receive payments instantly and earn wage access is a great example of this. If they can get paid today and get their money into their community financial institution account that’s going to be very appealing to a lot of people and as an account holder if you need to get a payment somewhere instantly in order to avoid late fees or other consequences, is instant payments really is going to be the simple solution?
So, I guess the bottom line is that it’s really in a community financial institution’s best interest to offer a variety of payments to satisfy customer needs. ACH is still going to be around and it’s going to be a good option and perhaps even the best option in some cases where speed isn’t a factor. But as we move into the future, there’s going to be a demand. These are modern solutions people are going to want. These solutions that are faster, that are simple and convenient.
Speaker 1 (Eric Dotson)
OK, great. So, Margo if I’m a member of a community credit union out here in Idaho, then you’re saying I’ll be able to access these services from that credit union potentially and be able to make real time payments from those credit unions.
Speaker 2 (Margo Giles)
Absolutely. And I think the key thing about FedNow and RTP is that each financial institution needs to be connected to the network to participate and that includes being able to have your members, your customers, your account holders be able to receive payments. So, if you’re connected to the network and you have the ability to process, which is the service that we’re working on, will be providing the backbone for us to be able to enable these services for our members, anyone, anyone in in the US who’s connected through their financial institution will be able to participate.
Speaker 1 (Eric Dotson)
- Thank you. So, Drew from the community bank perspective, do you think the same thing as the credit union or are there some things that you think banks can benefit from?
Speaker 2 (Drew Kishbaugh)
No, it’s pretty much the same thing and I thought Margo did a nice job recapping all of that I mean things to remember back in the late 70s, early 80s, you know the ATM networks, they were pretty much a closed network. They had different ones, but you were tied to that network, FedNow and RTP are like the national network opening it up to these payments. You can go anywhere. It’s not like you swipe your Starbucks card and only use it at Starbucks. Faster payments is going to be able to be used anywhere and it’s really going to change the landscape of how payments are moving. But we have the same effect whether you’re a credit union or a community bank. This is going to benefit everybody.
Speaker 1 (Eric Dotson)
- Even the banks in Idaho, huh? They’ll be able to. All right, well, great. Well, let’s look at the next thing then.
How is the consortium of banks and credit unions working together to bring this to the industry and to me out in Idaho, how are you enabling that for community banks? So, we’ll start with you first Drew.
Speaker 2 (Drew Kishbaugh)
Well, Eric, you mentioned earlier, you know Aptys has over 5,000 financial institutions all together, you know through the correspondent relationship which represents over 50% of all the FI’s in the United States. That’s a large number of community banks and consumers impacted by that.
So, you know the idea, bankers, banks, corporate credit unions getting together, sharing the ownership of a common platform, all designed to help with the settlement and the movement of money and faster payments is just another module in that payment’s hub that Aptys has created that corporate credit unions and banker banks get to share with their community financial institutions.
Today, we do a lot of settlements already whether it be wires, ACH, checks, whatever it may be, instant payment is just another payment channel. It’s another thing, the key with this one, it’s 7x24x365. So corporate credit unions and bankers’ banks are here to relieve some of those pressures off the financial institutions to let them go out and serve their communities.
One of the ways we’re going to be able to do that is through the settlement agent that we’re able to offer and we will take care of liquidity issues, we’ll monitor the balances, and we will settle at our own institution. So that will be a tremendous help for financial institutions. They don’t have to worry about staffing late in the evening or on weekends or holidays.
The other thing we wanted to do is to be able to provide the rails, we wanted ties to the Fed and RTP. There are other providers out there, there’s fintech’s, core’s, other providers that are going to try to offer these solutions. And I’m not saying they’re bad, but you know the one thing your corporate credit union or bankers bank can do, we could provide the complete package. We have the settlement piece, and you have to be a financial institution to be able to offer that. So, when we talk together as a group, corporate credit unions, bankers’ banks with Aptys, we wanted a complete package. Something that we could deliver the whole thing to our clients or members.
Speaker 1 (Eric Dotson)
I remember when RTP was starting up and obviously now with FedNow one of the big issues was maintaining funds in an account at either RTP or at the Fed that you could then transact off of. And what I’m hearing you say is you may simplify that process for community financial institutions, right?
Speaker 2 (Drew Kishbaugh)
Absolutely, absolutely. We’ll put the deposit there. It’ll be going through our account. We have to manage that account for liquidity purposes and then we’ll just settle with them at our own institutions.
Speaker 1 (Eric Dotson)
OK, so me out in Idaho then. And one of the things I heard you say is, today I can go do an ACH transaction, but I’m limited by office hours, banking hours, right.
Whereas this will allow me to transact 24/7, right?
Speaker 2 (Drew Kishbaugh)
Convenience comes some inconvenience for people handling the liquidity, and that’s the purpose we serve.
Speaker 1 (Eric Dotson)
Well, Margaret, what do you think about the credit unions then? How is it impacting what the credit unions are doing today.
Speaker 2 (Margo Giles)
Yeah, I think it’s very similar and I think if you’re listening to this and you’re wondering wow banks and credit unions working together, that’s something new. Well, it really is in our best interest to collaborate work with Aptys to create a solution and that we’re not all reinventing the wheel and we can make this available to our members, our credit union members, you can make it available to the banks that he serves and where we’re differentiating ourselves is through other means.
And so instead of all of us inventing new solutions and imagining the amount of effort, time and money, this is a very smart approach in terms of collaboration and creating a really top-notch solution that could be leveraged across a large number of financial institutions.
So, I think it’s a very appealing approach and we stand in a position to provide service24x7x365 and that helps to simplify our members lives even more so, so that they don’t have to be concerned about the service of having funds in the account and potentially having the service staff because there’s not enough times available. So yeah.
Speaker 1 (Eric Dotson)
Yeah. And you know, it’s interesting, my perspective having worked with both sides is that having everybody come together, you get a little different perspective and approach to the market. And when you look at it, the community banks tend to have a little more focus on how they support their business customers in addition to their consumers, whereas the community credit union side has a little more focus on supporting the consumer and then secondarily they need businesses that you work with.
And so having that different perspective tends to have people focusing on different things that bring to the whole, a better solution and approach to how we can help the end user of the product and so that’s what I’m really excited about as we work together is seeing how, when we put this together, the different things that we can work on that help both sides of the equation and ultimately will help everybody in this process.
Let’s look at one more question here then. What do you see your community financial institutions doing today to really meet this challenge of FedNow and RTP and what are the challenges and successes that you’re seeing with your customers as you work with them? Margo, what do you think with the credit union?
Speaker 2 (Margo Giles)
Yeah. I mean, quite frankly there’s a whole range of things that our members are doing. There’s a lot of good things and there’s a lot of engagement and curiosity, especially since the Fed recently announced their launch and the RTP network has been out for several years now.
And we do have members who are receiving payments on that network, but we have a lot of members who are very interested in getting on FedNow and some of them are looking at that gradually getting on to the different platforms, possibly like with receive only, enabling receipt of instant payments, and then from there they’ll expand forward. And others are just trying to understand what it means to them. And we’re helping them through some educational opportunities rather than them having to go out and research everything, for which there’s a ton of information out there now about faster and instant payments. We’re hoping to kind of synthesize that and provide some options for our members to consider. So it’s been very positive in terms of a lot of good things and awareness happening. And oftentimes when we’re having conversations with our members, we refer to what kind of opportunities this can help them provide to their account holder.
We call these use cases, and there’s been a ton of use cases identified for instant payments and some of them have to do with the ability to receive payments instantly into your account. And that may be that you need the funds in your credit union account or your bank account in order to make a payment that’s due immediately and these types of opportunities can really help make people’s lives less stressful.
And then on the other side if you need to receive a payment instantly. Say you’re having a crisis and you are impacted by perhaps a natural disaster, and you need funds, whether it’s from a government entity or possibly some other resource. Being able to receive funds immediately into your account so that you can do with those funds what is most important to you can really impact people’s lives. So those types of things that you’ll hear more and more use cases in the immediacy of receiving.
And instant funds is just really going to be a game changer now. All that said, it doesn’t mean that there aren’t hurdles that need to be overcome and struggles. But that’s where we come into play and we can help again, synthesize information, help provide guidance and direction. And of course, solutions for our members to leverage. So, I think having this community and having the willingness to share information and to provide assistance is really powerful.
Speaker 1 (Eric Dotson)
That’s great. Yeah. You know as we’ve worked with you, I know it seems like every other week there’s something new that comes out. Hey, you’ve got this financial institution that’s working with this challenge that they’re trying to overcome with faster payments. And I’ve just been really impressed as you work through those things with your customers, in helping them to overcome whatever roadblock it is, or whatever thing that they’re looking for to make that connection and seeing it all come together.
It’s kind of interesting to see it all kind of happen in real time.
Drew, what do you think about the banks? What are you seeing with them as far as the successes that they’re having and any challenges or opportunities that they’re dealing with?
Speaker 2 (Drew Kishbaugh)
And I’ll say the same thing. You know, it’s interesting you hear all different kinds of use case, every financial institution has a different use case for whatever their client base makes up, so we heard the use cases for payroll, accounts payable, Uber drivers, the door dash that’s out there delivering. They’re getting paid daily. There are some daily paycheck companies out there, so they need that money to fill up their gas tanks. There are college students running around things along that nature, so there’s a ton of use cases out there. They’re all good. They all have value.
I will say, you know, between the corporate credit unions and the bankers’ banks, we all have the same needs. We’re trying to solve the same problem. The only difference is maybe the use case. We all have the same use cases; we just prioritize them a little differently. Maybe the corporate credit is more interested in having this up and running before something else. And the bankers bank wants this up running before something else. And it’s just because that’s the use cases we’re hearing. And it all depends on the mix of your clientele or the financial institutions you’re supporting. But it’s the same need.
We all need to get into this these rails and use this payment methodology. It’s here to stay. It’s not going away. Some of the use cases I’ve heard are defensive. I need to do this to stay competitive in the marketplace with other financial institutions. They don’t have a good business justification or return on the investment right now. They’re taking a defensive stance. I need it to stay competitive. I happen to agree with that. I think they should put a little more time and effort into developing it out a little bit, but the use cases are again you’ll hear the saying, that’s just how we prioritize and about the only difference.
Speaker 1 (Eric Dotson)
Yeah. So, at the end of the day when you look at where we’re headed with everything, let’s say 5-10 years from now. What I heard is, we’re still going to have ACH, we’re still going to have wires, check. How am I going to choose which one to use? What do you? What do you see as being the options for customers and how they’ll choose which one they want to use?
Speaker 2 (Drew Kishbaugh)
Who wants to?
I’ll go and let Margo fill in the gaps and I’ll leave plenty of gaps for her to fill in.
Speaker 1 (Eric Dotson)
OK.
Speaker 2 (Drew Kishbaugh)
I think consumers want convenience, so it’s up to fintech’s, banking institutions and software developers to come up with these applications. OK, that makes it easy for them. OK, we’re going to provide the community financial institutions with the ability to get on to the payment channels, the rails the FedNow and RTP. But there does need to be some applications on the front end to let the consumer say, “hey I can pay off my car and I should probably do it today before another day’s interest accrues.” So why not do it through instant pay versus alright if I send that ACH, I have to calculate that extra days’ worth of interest. A lot of people are looking for convenience. So I think fintech’s and software development companies need to create these opportunities and hopefully it’s through mobile because everybody likes to play with their phones, the opportunity to hey, I’m going to go schedule a payment or do payment and the options will pop up saying hey, I can do it through instant pay I can do it through ACH or maybe I want to send a wire, maybe it’s important and I feel comfortable with wires. It’s been around a long time. I don’t think check’s going to be one of the options on your mobile device, but you never know we crazier things have happened. But I do think that’s what’s going to happen. I do believe we’re going to get to the point where the consumer will have the option and maybe its fee based that hey, if I want it to go faster, I pay a little bit more. That’s the convenience people are willing to pay for. You see it all the time.
Speaker 1 (Eric Dotson)
- Margo, what do you think?
Speaker 2 (Margo Giles)
Yeah, I mean, I would just add to that, it has to be simple. And I think from a consumer perspective or even a business perspective that whatever system they’re using to initiate a payment has to be simple. And then from there the considerations are “when do when do I need this payment to get there? And/or do I need these to be considered good funds?” So, if you’re paying a business or paying for something where you need to make sure that they received the payment and they don’t have any question about that payment being returned. And that’s one of the characteristics of instant payments is if you pay someone or pay a business, pay a bill using instant payments, it’s good funds and it gets there immediately. So, I think that those factors are going to drive the usage and that’ll be determining what rails, if you will, payments will go on based on the needs of the end user, whether it’s a consumer or a business.
Speaker 1 (Eric Dotson)
You know, I love that ability.
As a consumer myself of payments, to have that option to say “hey, do I need it there immediately or can I wait a couple of days?” It just gives me that flexibility to determine what is the type of payment that I need to do. And so, I think that that’ll be a great convenience for consumers down the road and for business customers when they start looking at how they want to consume payments. So ultimately, how does a community financial institution get started? Drew, I think I’ll turn to you first.
Speaker 2 (Drew Kishbaugh)
My best advice to you would be to talk to the payment professionals. That’s your corporate credit union, your bankers bank, local ACH network, Fed representative. It could be many different people, but I would encourage you to get educated on the subject, OK? You don’t want to go into this blindly. It is a very complicated process. There’s a lot of steps to take but that’s what the corporate credit unions and bankers banks are here for. They’re here to walk you through those things. So whether it’s the Fed paperwork, what needs to be completed, talking to your core about what you need to do on their end, talking to the your correspondent to find out what they’re offering, how are you going to get the payments if you’re going to be sending, do you need another software provider to get those payments in the network, what are you going to do about settlement, liquidity? These types of questions bankers banks and corporate credit unions are well prepared to answer.
And there are other people you can talk to. But I do encourage you to just talk to people about what you can do and what others are doing. Reach out to other financial institutions in your geographical area that you feel comfortable with and ask them what they’re doing. Everybody’s going to have a different cost structure. Everybody’s going to have a different return on their investment. Not that you can share those types of things, it’s not going to be the same but at the end of the day everybody’s looking for a solution to get on to the faster payments networks and handle the fluidity and settlement and bankers’ banks and corporate credit unions are a great solution for that so talk to them, talk to your neighbors, and educate yourself.
Speaker 1 (Eric Dotson)
Hey, Margo, what do you think?
Speaker 2 (Margo Giles)
Yeah, I mean it starts with education. If you don’t understand what instant payments is about, you need to get educated. And again, as we’ve mentioned, there’s tons of resources out there to do that, including your corporate credit union or bankers’ bank. And I think the bottom line is that the message is don’t try to go it alone. I mean, there are resources out there, there are a lot of entities that have done a lot of research and have pulled things together to help simplify your understanding and your ability to take advantage of these new payment rails.
Speaker 1 (Eric Dotson)
The great thing I like about all of this is if they work with their bankers’ bank or corporate credit union our combined voice is there in the market for them to be able to represent what their needs are to the networks, to the industry. There’s nothing better than to be able to call up the Federal Reserve and say, “Hey, as a member of this alliance we need some help with this or we need to make some changes here or there and we’ve got a very close relationship working with the Federal Reserve.” On this pilot and getting everything in place for customers, everything from the largest community financial institutions down to the smallest. And so, I appreciate working with the two of you and in this alliance together really has been educational for us and seeing the impact that it can have to any community financial institution that’s out there. So, with that, I think we’ll open it up. For questions from everybody and we appreciate your attendance today.