1. Faster Payments: The Good, The Bad and The Ugly
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Faster Payments: The Good, The Bad and The Ugly
Sims Propst, SVP
South State Bank
Gary B. Nesbitt, AAP
GNesbitt Consulting

2. SOUTH STATE BANK OVERVIEW
South State Corporation is the largest bank holding company headquartered in South Carolina
Recognized by Forbes as #14 in List of Top 100 Largest Banks in America
Serving the financial needs of customers and communities since 1934
$14.5 Billion in asset
2800 employees
165 Locations, 200 ATMs
States
North Carolina
South Carolina
Georgia
Virginia
Rank 4th in deposit market share within footprint

3. GNesbitt Consulting
Independent consulting firm specializing in banking and payment activities and issues.
Our goal is to help financial institutions and companies understand and comply with the myriad payment rules and regulations that govern the payments landscape.
We help organizations understand and mitigate the risks associated with participating in the various payment systems.
We help organizations establish payment programs that are efficient, effective and compliant with all appropriate rules and regulations.

4. Agenda A Definition of FASTER payments
Real-time or near real-time options
What came out of the Faster Payments Task Force
RTP
Zelle
Card Network Options
Same-day ACH
Where we are now
Phase IV
Other ACH changes
The RTGS (Real Time Gross Settlement) RFP from the Fed
Where do we go from here??

5. Definition of Faster Payments
Does it mean Real-Time?
Sometimes – but then what is real time? 5 seconds, 30 seconds, a minute, five minutes, etc.
In the end the question is, what’s fast enough for you and your company’s needs?
Same-day ACH is a “Faster Payment” but it’s not real- time, just faster than it used to be
Check image is MUCH faster than paper delivery, so you can call check a faster payment as well

6. What Came Out of Faster Payments Task Force?
Sixteen possible “solutions’ were submitted that met, or at least partially met the “Effectiveness Criteria” the Task Force developed
No individual vendor was picked, that’s up to the market
Final Report listed 10 objectives – the first was to form a group to foster faster payments the second to begin the development of Rules
GFFT was formed – Governance Framework Formation Team – Represented FI’s, business, processors, etc.
US Faster Payments Council JUST formed to move this along

7. Who Were the Sixteen? NABC/ICBA Nanopay Ripple Swapstech
RTP by the Clearing House
Dwolla
SHAZAM
WingCash
Hub Culture
Intercomputer
Kalypton/ECCHO
Momo
NABC/ICBA
Nanopay
Ripple
Swapstech
Thought Matrix
Token
University Bank
World Currency

8. Real Time Payments RTP is a payment rail, not a product.
Started in 2013, supported by Vocalink (UK)
First LIVE transaction happened in Nov. 2017, focusing on B-to-B
Growth is slow, only a few big banks are connected
FIS and Jack Henry have signed agreements to offer the service
Goal: 95% of F.I.’s by the end of 2019

9. Real Time Payments Key Features: Credit push - irrevocable
Request for Credit
ISO – global compatibility
Robust messaging
Immediate Transaction acknowledgement
Real-time payments
24/7/365 processing and settlement
Integrated tokenization and directory services (use of alias’s supported)
FI’s can be receive only or send & receive

10. Zelle Owned by Early Warning Systems (AWS) EWS owned by 7 large Banks
Rolled out last year by a number (about 50) of large banks and credit unions
Primary focus – Person to person (P-to-P), plan on more business cases this year
Key features:
Near real-time if the two F.I.’s signed up with Zelle
Use phone number or rather than R/T # and Account Number
Will use the debit card rails for outside of network entries
Credit push network
Now up to 173 F.I.s but not all have launched – talk to your banker – that’s the way to get connected
$25 Billion moved in the 1st Qtr – up 33% from 1st Qtr and growing quickly
Some bad press about fraud – an issue for the F.I.’s

11. VISA and Mastercard The networks are working together, somewhat
“VISA Direct” & “Mastercard Send” are the products
Deposit based products – so credit push like RTP
Sold as a P-to-P solution or a funds disbursement solution (corporate – for reimbursements, refunds, rebates, payouts, etc.)
Near real-time – instant payments to all eligible US debit cards or prepaid cards
Leverages Visa/Mastercard payment security systems

12. Other Faster Payment Options
Primary focus is on P-2-P Solutions
PayPal
FI owned (Chase QuickPay)
Popmoney
Venmo
Social media affiliated platforms
(Mostly P-2-P via mobile)
Are any of these truly real-time or even same-day?

13. 1Q 2019 Same Day ACH Activity

14. Same-Day ACH – Phase 4 Quick Review of Same-Day ACH…
Phase 1 – Credits Only with a $25,000 per transaction cap – All SEC codes but IAT and a few specialty ones
Effective Entry date was key
There was a fee to use the two same-day windows
Posting by the receiving FI was at their “close of business”
Returns & NOC’s could also be run same-day (without a fee)
Phase 2 – Both credits and debits – same limits, same issues
Phase 3 – Receiving institutions were required to make funds available by 5:00 P.M. local time for consumer credits – everything else was the same

15. Phase 4 - Upgrades!! Three major changes:
Expanding access to Same-Day ACH
Increasing the Same-Day ACH dollar limit
Providing Faster Funds Availability
What do these mean to the users of Same-Day ACH?

16. NAVIGATING PAYMENTS 2018: PASSPORT TO PAYMENTS
File Submission (ODFI Delivery)*
File Distribution (RDFI Receipt)*
Settlement
(Interbank)*
Funds availability
(RDFI requirement)*
Current 1st Window
10:30amET/ 11:30amCT
12noonET
5:00pm Local
*NEW* 1:30pm Local*
Current 2nd Window
2:45pmET/ 1:45pmCT
4:00pmET/ 3:00pmCT
No change
*NEW* 3rd Window*
4:45pmET/ 3:45pmCT*
5:30pmET/ 4:30pmCT*
6:00pmET/ 5:00pmCT* (Current NSS is 5:30pmET, require change to 6:30pmET +
SD: End of processing day*
Classic: Before 5pmLocal OOB* next day PPD, non-PPD EOD
Anticipated schedule: Increased Access is the most controversial of the 3 updates. The pacific coast needed some additional time to get in their Same Day transactions by the 11:45pmPT, the new window allows for 2 more hours up to 4:45pmET/1:45pmPT. Again I want to stress here is that the windows are not set by NACHA they are set by the operators, and adding this 2 hours makes the timeframe for the operators much tighter. This allows for receipt of the files by the RDFI’s as late as 5:30pmET or 4:30pmCT, and interbank settlement at 6pmET or 5pmCT. THIS also means funds availability at end of day for all RDFI’s for these Same Day CREDITS… (I’ll say that again at the end of processing same day). (Settlement is then at 6pmET and 5pmCT) RDFI’s can choose to make the funds available sooner than their end of day as well.
 ---ALL credits, debits and returns are eligible for same day processing in the new window except, or excluding IAT and ENR’s and limit as of 2019 of 100k
 WHY? PT regions show 31% using SDACH, and an additional 35% would use it if they had this extra time.
The NSS and Fedwire comments for changes are not in the purview of NACHA to change, the next slide here has more details
NAVIGATING PAYMENTS 2018: PASSPORT TO PAYMENTS
* Indicates new changes

17. Expanding Access
This is GREAT the further west you go, or for those that can’t deliver files until later, BUT:
The Fed has to move back settlement times by at least 30 minutes to allow this to happen – in phase 1 this “ASK” was a tough one with the Fed agreeing to the change on the last day they could based on NACHA’s ballot
RDFI’s would not be required to make funds available for this window until the close of business – this varies significantly!

18. Increasing the Dollar Limit
Current Dollar limit - $25,000
NEW Dollar limit - $100,000
Positives:
Can run balanced files with the offset up to $100,000
Can process larger transactions, generally good for the business to business market
More transactions can run same-day when needed
Negatives:
COULD have large dollar transactions hitting your account late in the day when funding is an issue

19. Faster Funds Availability
Transactions delivered in the first Same-Day window would be available by 1:30 P.M. local time
Today these are by 5:00 P.M. local time
Funds from ALL non-Same-Day credits would be available by 9 A.M. local time regardless of when they entered the network or whether they are consumer or business payments
Today some are not required to be made available until the end of settlement day
These are incremental, but positive changes!

20. Timing Expanding Same-Day ACH – September 18, 2020
Delayed until March 19, due to Federal Reserve Bank time required to make necessary changes.
Increasing the Dollar limit – March 20, 2020
Providing faster funds availability – September 20, 2019

21. Other Rule Changes Coming
ACH Quality and Risk Management Topics:
Return for Questionable Transaction
Supplementing Fraud Detection Standards for WEB Debits
Supplementing Data Security Requirements
Minor Rules Topics:
Updating some ACH operator edits
Clarification of TEL Authorization Requirements
Clarification of RDFI obligation to return a credit entry declined by the receiver
Editorial clarification on Reinitiation of Return Entries
Editorial clarification on RDFI liability upon receipt of a written demand for payment

22. RTGS Stands for Real Time Gross Settlement
Gross settlement is settling each and every transaction individually,
Wire Transfer is a gross settlement network
ACH is a net settlement network
The Federal Reserve issued a Request for Comment on November 15th, 2018
The comment period closed on December 14th
They requested feedback on two general topics:
Should the fed build a 24x7x365 real-time gross settlement system for faster payments?
Should the Fed build a liquidity management tool that would enable transfers between Fed accounts to support 24x7x365 processing?

23. RTGS
The Fed has stated that no decisions have been made when it comes to development of either service
The feedback so far:
The larger banks and RTP users have suggested that since there is already an operating network in place the Fed does not need to build new settlement system
Community banks and large merchants have encouraged the Fed to play a part and develop a network

24. RTGA Issues Interoperability Speed to market There is no timeline!
It’s hard to switch transactions between two competing networks in real-time with all the security and integrity issues with payments
Speed to market
RTP is up and running, how long would it take the Fed to design and develop a 277x365 system? And if they do, would that slow down the implementation of faster payments as much of the market might wait for the Fed to build their network
There is no timeline!
And a side issue….ubiquity

25. NACHA’s API Standardization Efforts
Efforts began in 2017
Group includes banks, credit unions, processors and software developers
Identified first 5 APIs
Account Validation*
Account Balance/History
Get Bank Contact Information*
Interoperability
Transaction Status
Work continues to build out APIs

26. Where Do We Go From Here
For most of us, we monitor, read, talk to our peers, and watch
Ask our customers about their expectations when it comes to payments – not just faster payments
Review internal business cases, whether FI or Company, to determine where a faster payment makes sense
Cost/benefit will be part of the equation
Real-time payments WILL be a reality – the REAL question is when!

27. LinkedIn: http://www.linkedin.com/in/garynesbitt/
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