All posts by Christian Hibbard

Marketing Associate Christian Hibbard is the newest member of the Marketing team at Alacriti. His areas of interest are: Faster Payments, Data-driven Marketing, and Sustainable Business. Christian holds a Bachelor of Arts in Philosophy from Temple University.

New Players, New Games

Most never expected that a service as ubiquitous as the taxi would be struggling against external competition. Now we know that ride-sharing apps and other unexpected competitors have appeared and compromised what was once a stable market. This story has played out across many industries, but payment services are of particular interest. Once upon a time, outside of handing over cash, the easiest legitimate way to share money would be via a financial institution. Now, options abound for consumers looking to transfer funds. 

Services like Zelle, Venmo, and CashApp have become the de facto standard for low-to-middle value peer-to-peer (P2P) payments. Actions like splitting bills have been made easier by the development of these applications. Furthermore, they’re seeing increased use as payment solutions for commerce, sidling up against other newer players like Square. All of these services have two key factors in common, powering their rapid growth—accessibility and speed.

Catalyzing these changes are the exciting new payments rails gaining momentum in the U.S. The Clearing House’s RTP® Network is one example in use since 2017. We also have FedNow, releasing in 2023. For FIs willing to capitalize, this is an incredible opportunity to offer transformative services. If an institution’s faster payment options are able to match the accessibility of mobile payments, then they are a no-brainer for those using digital payments for the first time. For the consumers already using a fintech competitor’s service, moving money between their wallet and primary bank account becomes seamless, instant, and often free. Furthermore, if they’re able to instantly transfer money from their primary account directly to any of their peers, they may consider switching over entirely. 

There is still debate over whether fintechs are direct competitors at all or rather parallel systems that improve upon financial services without replacing them. The answer differs based on the individual platform. Walmart, for example, currently offers transfers, check-cashing, as well as prepaid and credit cards, but could, in the near future, position itself as a bank of its own. With a banking charter from the FDIC, Walmart could be a serious competitor. Other services are toeing this line—Venmo now offers debit and credit cards, as well as access to cryptocurrencies. However, they rely on their partner—Bancorp Bank’s FDIC charter—in order to hold the funds that their users deposit. 

Cryptocurrency itself has the potential to change the competitive landscape drastically. Decentralized Finance, or DeFi, is touted by some as the future of banking services. The explicit goal is to create an entirely self-sustaining network of financial services, removing the middle-men and centralized infrastructure entirely and in turn rendering those services cheaper and more accessible, not to mention more democratic. The volatility of crypto, in general, is of concern to some, as well as the saturation of competing DeFi services within the crypto ecosystem. That being said, there is tremendous potential, not to mention marketability in having a financial service operated entirely by those who use it. As such, it is worth keeping an eye on the field if you aren’t already. 

All of these players could easily become a competitor, partner, or defunct in the years to come. The best way to stay ahead is to prioritize your digital transformation across hardware, software, and company culture. Offering ease-of-use and speed to compete with new competition is absolutely necessary and is a natural complement to the security provided by already having an FDIC charter. 

Read more about Payments Transformation in Digital Transformation: More Than Technology and More Important Than Ever.


Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Flourish or Flop: How to Follow Through on Your Payments Transformation

When it comes to the digital economy, the United States has been a holdout. Still, there was $895.7 billion worth of U.S. digital transactions in 2020. As most are aware by now, the pandemic accelerated that growth. Still, many institutions find themselves unsure of how to approach the fraught transition out of their legacy infrastructure. For the last few decades, they’ve relied on core processors capable of handling vast amounts of information at once. What they can’t do is process individual transactions, one at a time. They also rely on regular downtime to function properly. Another potential risk to maintaining legacy systems is missing out on the flexibility of the now-popular cloud solutions. AWS boasts a 31% average cost saving on infrastructure, as well as a 69% reduction in unplanned downtime. 

This is not to say cloud migration is a painless process. The banking core is the beating heart of a financial institution, and making any alteration is weighed carefully. The good news is once the transformation is complete, the inherent risks in altering a bank’s systems are cut significantly. Cloud computing allows banks to iterate on their systems and sandbox potential changes as well as keep redundant systems in place. The actual hardware that hosts these systems could be spread out over the country, drastically reducing catastrophic risk. Such services allow a bank to make a safe and steady migration from core banking to cloud computing, providing a unified service in the meantime, so no customer loses service.

Migrating away from an on-premises, batch-based core is a necessity for payments transformation, but other steps can ensure an organization’s success. One such example is going live with the RTP® Network. Real-time payment services are most financial institutions’ best shot at competing with the likes of Venmo and Paypal. We’re edging closer to a world in which payment services allow users to send money from one account to any other account. An “A2A payment” like this would allow users to pay their mortgage directly from a mobile wallet, for example. A student living with roommates could get everyone’s share of utilities and transfer that money to the utility provider in the same app without moving it between accounts manually.

Another consideration, perhaps the most crucial to the success of any transformative effort, is the cultural factor. How are the human beings that work at your company going to adjust to the new normal? It’s estimated that 7 in 10 digital transformation schemes ultimately fail. This is not for lack of financial investment, tech access, or even good system design. What it often comes down to is an assumption that employees will effortlessly adapt to the new normal. However, the post-transformation payments industry has different practices across the board. Great care must be taken to demonstrate that these new practices are not necessarily more difficult or more complex, just different. If you are partnering with a trustworthy software provider, then the well-designed systems provided should sell themselves. Your employees will see the benefits of digital transformation in the time and effort these new systems save.

While other industries in the U.S. have already benefited greatly from the transformation into a digital economy, the spotlight is on payments. Financial institutions are coming to grips with the new rules of competition, one of which is the role of fintech as both competitor and collaborator. If the progressions of digital payments in other countries are any indication, fintech and challenger banks could easily run away with the lion’s share of payments traffic in the coming decade. To ensure their place in the industry of tomorrow, small and mid-sized financial institutions need to compete with the solutions offered by their competitors.

Read more about Payments Transformation in Digital Transformation: More Than Technology and More Important Than Ever.


Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Episode 1: Zoomer Banking

The inaugural episode of our podcast will introduce our show, and cover our first topic—how Generation Z thinks about banking. Christian Hibbard gives a first-hand perspective, and also covers internet culture and how Zoomers decide what businesses to patronize.

Chatbots Gone Rogue: How Weak Chatbot Security Enables Bad Actors

Over a short time span, chatbots have become standard practice in customer service. Services from basic troubleshooting advice to full-fledged payment services are available to consumers with minimal intervention from human staff. As with any automated process, great care should be taken to make chatbots robust and secure. As they become more sophisticated, the potential for malfunction or even exploitation has increased. This raises the stakes for chatbot providers and users. It also raises the question—what could go wrong if I use an unsafe chatbot?

In 2017, German regulators raised a red flag about a line of children’s toys. The government found that these dolls could be used as a clandestine surveillance device, which is illegal under German law. The dolls were marketed as remarkable new technology when, in actuality, they were just a chatbot. Children could ask the doll questions and get answers based on the doll’s fictional life. Concerns arose when parents realized that their children were having lengthy, if somewhat one-sided, conversations with the doll. The children believed they were having a private chat, but all of that data was being sent to the toy company’s chatbot operator. In addition, several different consumer awareness groups and tech organizations demonstrated that the Bluetooth receiver in the doll was not secure. It could be paired with any phone from up to fifty feet away by anyone who knew how. That phone would then be able to access the microphone and speakers embedded in the doll, listening and speaking through it. It’s no surprise that after the German ban went into effect, owners were told to destroy the doll or either face a heavy fine or a two-year jail sentence.

The doll’s chatbot was vulnerable to what’s called a “man-in-the-middle” attack, in which a third party can access a chatbot conversation. They can then passively monitor the chatlog or even alter the messages sent, perhaps to carry out a phishing attack or trick the user into divulging sensitive information. This is far from the only way a malicious party can take advantage of a chatbot, however.

Other Kinds of Chatbot Attacks

Direct attacks on individual consumers are bad for business, but what can be even more devastating is an attack on the back-end systems directly. Delta Airlines found itself in one such situation a few years ago. Delta claimed that subpar cybersecurity practices from their chatbot provider opened a backdoor to highly sensitive information. Hackers were able to breach the chatbot provider’s systems. They then modified the chatbot’s source code to allow them unrestricted access to other information entered on Delta’s website. In total, some 825,000 customers’ sensitive information was stolen. Chatbots can be a great way for organizations to unify many different services into one convenient location. This creates an attractive target for hackers, who can exploit weak links in the chatbot’s implementation and access many systems through it.

Other types of attacks attempt to overwhelm or manipulate chatbots from the client side. Similar to a denial-of-service attack, bots are deployed to create a huge amount of traffic at once. This overwhelms the chatbot, leading to delays or errors for genuine users. A similar kind of attack uses bots over a long period to mislead the chatbot’s implementer. It’s common for businesses to analyze the usage of their chatbot to inform their development decisions. By consistently sending erroneous queries, the genuine customer data can be skewed to the preference of an outside party. Even worse, if the chatbot utilizes machine learning, it could be trolled into giving unhelpful or even offensive answers. Chatbots like this learn from past exchanges to use more complex and human-like answers. An unsupervised chatbot could easily be manipulated into producing outlandish messages, as with the infamous case of Microsoft’s Tay.

What Can My Business Do?

The potential outcomes from these attacks range from lost leads and wasted resources up to existential threats to an organization. Some organizations opt to develop their chatbots in-house. Limiting external exposure helps to limit risks but can be too costly an option for smaller businesses. The only way to secure the benefits of automating customer service without leaving yourself open is to pick a trustworthy partner. A reliable chatbot operator has strong cybersecurity practices. They also take care to monitor their chatbots closely as part of a larger culture of vigilance. 

Chatbot security is crucial for those who are accepting payments with sensitive financial information. Providers of this service can do their due diligence to ensure the experience is convenient and safe for both user and operator. For the security of the messages themselves, all information should be encrypted. It’s standard practice to ensure only those with the right credentials can read the messages sent if somehow the data is intercepted. Redundant security practices can further boost the security of messages. One such practice is the use of payment profiles. This allows users to select from an account on file rather than entering sensitive information directly. 

Authentication is another crucial piece of the security puzzle. Essentially the chatbot needs to be able to easily verify the identity of the user interacting with it. Without this, impersonators could initiate fraudulent payments. Many opt to just require the user to sign in before they can access the payment chatbot. Generally, the easiest way to authenticate users is via a username and password. For operators, more robust authentication such as two-factor or even biometric authentication is necessary. 

The only thing better than having many different security practices is having one holistic culture of security. Utilizing these practices is crucial, but they each only cover one area. As mentioned earlier, redundancy is crucial. A good chatbot provider will stress-test their systems in varying circumstances, from penetration attempts to natural disasters. In doing so, they see how their other security systems function in the event of a failure of one. 

Chatbots can make your services more accessible and potentially shrink customer service costs. On the other hand, they can frustrate your customers and leave your organization vulnerable. The difference, as always, comes down to design and implementation. From the individual messages to the back-end security, the same security practices that hold true for banks themselves should apply to every new service they hope to provide. Whether it’s designed in-house or outsourced, a properly used chatbot is a worthwhile investment.

To learn more about chatbots and AI, read our resources, Financial Institutions Are Investing in Chatbots and How AI is Saving Customer Service.


Alacriti created Ella, an AI-powered, highly secure payments chatbot that facilitates seamless, personalized, and context-aware interactions with customers through messaging apps, intelligent personal assistants, and directly on your website. To find out how Ella can transform how you engage with your customers, contact us at (908) 791-2916 or info@alacriti.com.

Faster Tax Refunds

The most efficient tax refund is the one that doesn’t need to be sent. Overpaying your taxes means the IRS holds some of your money interest-free until they get around to returning it via a tax refund. By day 29 of the 2021 tax season, the IRS had processed over 40 million direct deposit refunds. Needless to say, if you don’t file your taxes perfectly, you’re not alone. 

The fastest way to get your tax refund, according to the IRS, is to file electronically and opt for direct deposit to your bank account. Taking both these actions bypasses the postal service. This means the time you spend waiting is no longer than it takes the IRS to process your return, plus the time your refund spends moving through the ACH network. The amount of time that the IRS needs to process a tax return differs based on the individual, but an ACH transfer generally takes 2 to 3 days to initiate, clear, and settle. This is faster than paper processing, which can take weeks, but it still has room for improvement. With the release of new real-time payment rails, such as The Clearing House’s RTP® network, tax refunds could find their way from the IRS to your bank account in just a few seconds. 

Before we cover instant tax refunds, let’s go over how things work now. Assuming the taxpayer has opted into using direct deposit, the IRS will initiate an ACH transaction. As mentioned before, this can take a few days. A faster alternative within the ACH network is Same Day ACH. Unfortunately, there are fees associated with this accelerated processing, so this is generally not used for tax refunds. On the bright side, the new real-time rails will offer an economical way to receive tax returns the moment the IRS is done processing them. 

The only real-time payment service currently available in the U.S. is the aforementioned RTP® network. The Clearing House has seen great adoption so far, but the network has not yet achieved the same reach as the ACH network. While The Clearing House is still building its network, another is set for release in 2023. FedNow, by the Federal Reserve, will operate alongside The Clearing House’s network in the hopes of providing broader accessibility. The key distinction between FedNow and the RTP® Network is that FedNow will not be privately owned. Being a public-sector resource, FedNow will be better suited to meet the needs of more diverse and less capitalized financial institutions. Ubiquitous access will be a huge motivator for the IRS to start offering instant tax refunds, and the combined reach of the RTP® network and FedNow are poised to achieve this.

Read more about government issued checks in Poky Stimulus Checks—An Argument for Payment Modernization.


Alacriti’s Cosmos for RTP® enables financial institutions and organizations to quickly and seamlessly connect to The Clearing House’s RTP® network without the burden of significant infrastructure overhauls or capital investments. To speak with an Alacriti real-time payments expert, please contact us at (908) 791-2916 or info@alacriti.com.

Real-Time Payments and the Non-24×7 Banking Core

24x7x365 access to services is an often noted benefit of the digital era. Organizations that thrive in a digital environment have gained a significant edge in the past year. Those that don’t have found themselves scrambling to find a safe and convenient way to offer their product. The worlds of banking and digital payments are no exception. Members already expect to be able to manage their accounts on the go at any time. With the help of some advanced stand-in capabilities, actions like these are possible outside of the traditional working hours. This approach is reaching a breaking point, due to the demands that the current generation of payments rails and functionality places on a traditional banking core.

What is the Banking Window?

To understand the predicament many financial institutions face, we have to rewind time to the analog era. Back then the banking window referred literally to the location where information and funds flowed in and out of the bank. For everyone, retail bankers and big firms alike, banking was done solely within the “open window” hours. Once the bank closed, everyone went home, and any outstanding changes to a ledger had to wait until the next morning to be recorded at the bank. The clearing process as we know it today originated here as well. Before the end of the working day, an employee would schlep over to the banking window and hand in a ledger, recording the payables and receivables of that day. 

This process was much improved and automated as banks technologized their processes. Firms could communicate raw data to a bank’s central processing system or core. This is an obvious improvement over having to manually transfer that information. These core processors were built to handle massive batches of data very quickly and automatically make the appropriate changes in the bank’s records. As time went on these core systems still reflected the practices of the preceding era—the banking window still only opened during the working hours of the bank. The ledger was digitized, then handed off during banking hours as a compilation of every transaction from that day. 

ATM – Any Time… Maybe

The first dilemma for core processors arrived with the ATM. They made banking incredibly convenient and accessible. But, their accessibility had to be made compatible with the rigid operating standards of the core processor. Stand-in systems were developed to operate the ATM network outside of the banking window, then deliver a batch of the transactions to the core once it came back online. Banks could boast that they were never closed, though was only true from the client’s point of view. In reality, the core system was still taken offline every night. 

These stand-in systems evolved to cover new banking technologies, reconciling them with the batch-based, banker’s hours-only core processors. The most important function is still compiling off-hours data to be entered when the core comes online, since the ways a person can access their banking information have multiplied over time. If a member checks their balance or takes action outside of the core processor’s working hours, then that information is being held by the stand-in system. Today the obvious example would be online banking—most customers want to make transfers or check their balance from anywhere, at any time. The banking core was never intended to be accessible at 2:00 a.m. from the burger shop parking lot, and so the stand-in system has to do the work.

Why it’s Not Good Enough

For the past few decades, institutions have been able to get away with these patched solutions, and the customer experience has been more or less acceptable. As we entered further into the Digital Era, some started to wonder when to stop retrofitting and start building new systems. The transition from physical to digital banking was mainly a technological shift—the culture and practice of banking were not fundamentally changed. The transition we’re in now is cultural, and as such, it is much more difficult to patch around.

Consumers increasingly expect instant, seamless service: in entertainment, ordering products, even with their food. If a financial institution offers a similar experience, nothing is stopping the consumer from switching. The pace of innovation is only going to accelerate. If a new stand-in solution is required each time a new feature is introduced, it won’t be long before legacy cores just can’t keep up.

One such feature is faster payments, specifically instant/real-time payments. Two qualities make this payment rail challenging for legacy cores. One is that they require 24x7x365 processing as a condition of entry to the network. This means very scarce, if any, downtime for an institution’s core. The other is the fact that they are instant, with the very top end of acceptable processing times sitting around 15 seconds. They are fundamentally incompatible with a system that relies on batch processing because they can’t wait until the end of the day to clear. 

Why Not Upgrade?

If the process were as simple and secure as installing a new solution, it would be a no-brainer. However, a financial institution’s core processor is its nerve center. Making any kind of change to it is frankly a risky prospect, especially for a community bank or smaller credit union. These institutions often don’t have the budgetary or staff support to justify a full core conversion. There’s also timing to consider—when to start, where to set milestones. The already-complex payments market is evolving rapidly, so deciding when to stop upgrading and start overhauling is not easy. For some, it might seem more prescient to stick with stand-in processors, which can be developed in-house but are more commonly developed by a third-party service provider.

This means having a proxy service that liaises between the core and the payment rails. One potential route is to leverage the ability to post transactions as “memo posted” to clients’ digital channels while the payment itself is in queue to post to the core. It can be a tenable option for balancing the risks of altering a core processor with the risks of not having any kind of 24×7 capability. The question that remains is whether this balance will be enough to stay ahead of the curve, rather than just keep pace. 

For more on real-time payments, please see our blog, Why RTP, Why Now?


Alacriti’s Cosmos for RTP® enables financial institutions and organizations to quickly and seamlessly connect to The Clearing House’s RTP® network without the burden of significant infrastructure overhauls or capital investments. To speak with an Alacriti real-time payments expert, please contact us at (908) 791-2916 or info@alacriti.com.

U.S. Faster Payments – What We Can Learn from the Rest of the World

Real-time payments are finally picking up speed in the United States. The RTP® network from The Clearing House (TCH) has seen consistent growth in its three-plus years of operation, and the Federal Reserve’s FedNowSM Service has recently confirmed its 2023 go-live plan. Domestic payment rails have come a long way in a few years, but we still have work to do before we match the success seen by some of our peers. The benefit of being at this stage is that we can study those successes, and use them to inform our efforts. There are currently fifty-six real-time payment schemes operating internationally. In this blog, we’ll hone in on three of the most interesting cases. 

Japan

Originally an RTGS (real-time gross settlement) system, the Japan Bankers Association (JBA)  Zengin system has been processing payments since 1973, with continual updates since then. Until 2018, it was able to process instant payments between two participating bank accounts during weekday business hours. In 2018 it was upgraded to be accessible 24×7. Despite the sophistication of the payment rails available, around 84% of people still use cash for day-to-day purchases. These obstacles to potential adoption are similar to those in the United States—even though the infrastructure necessary for economy-wide instant payments has been available for so long, the complexity and cost of entry are still a deterrent. The age of the system is also a concern for some, who question whether upgrading 70s-era banking infrastructure can be as efficient as building a new system altogether.

The move to 24×7 as well as using ISO 20022 standards are both intended to incentivize digital payments through the Zengin System. In addition, the Bank of Japan created a “FinTech Center” to incentivize innovation by private companies. This “cashless vision” was inspired largely by the massive expected influx of international attention during the now-delayed 2020 Olympics. An industry panel advocating for the switch to digital payments estimated that the country might have missed out on ¥1.2 trillion worth of transactions, had the year gone according to plan. 

The Japanese government has begun offering rebates on digital purchases in combination with a sales tax hike. Some have criticized the measure, pointing out this might disproportionately affect the elderly and impoverished. This is certainly possible and mirrors similar concerns regarding checks in the United States. For as long as some hold onto the status quo, there will be some value in optimizing more aged solutions.

India

The paradigm example of a successful national instant payment system, India’s United Payments Interface (UPI), is about to enter its fifth year of operation. UPI is operated by a non-profit organization, the National Payments Corporation of India (NPCI). NPCI was formed after the Payment and Settlement Systems Act of 2007 by the Reserve Bank of India and the Indian Banks’ Association. Beginning with a pilot program of 21 banks, UPI has grown to 207 members as of January, and in that month, processed 968.7 million transactions

India has over 1 billion mobile phone users, with rapidly growing smartphone ownership. In response, NPCI designed its network to be mobile-first. In combination with its open API accessibility, UPI has been able to reach a staggering number of users via upgraded or purpose-built mobile finance apps. PhonePe, the most popular payment app built on UPI, boasted over 250 million users in November 2020. 

UPI connects multiple bank accounts into a single user interface, accessible from any participating mobile platform. Users are given a customizable “UPI ID” formatted similarly to an email address, as well as a pin code that is used to confirm transactions. This marks a huge improvement in simplicity for the end-user and is likely a huge factor in UPI’s continued success. The sender does not need to remember any long numeric code, and the receiver can decide into which account they would like their funds to be deposited.

Brazil

PIX is developed and operated by the Banco Central do Brasil (BCB) and is state-owned. By the end of its first operating week (Nov. 16 – 20, 2020), the service had already processed some 12 million transactions, worth around BRL 9 billion, or USD 1.7 billion. Users are structured into direct and indirect participants, similar to the RTP® network in the United States. Direct participants have an “instant payments account” with the BCB and can access the network directly. Indirect participants, with fewer members or less capital, have to partner with a direct participant as a liquidator. 

One of the often-mentioned goals of PIX was to foster competition in the Brazilian banking industry. By offering a relatively accessible payment rail, neobanks and fintechs can reach the underbanked. This builds a financial foundation for the citizens, as well as shaking up the competitive strategy of the top banks. WhatsApp connected shortly after PIX’s debut and new “chat banks” like Zro are taking advantage of the disruption to capture a rapidly growing user base. 

Like the other systems covered here, connection to PIX was mandated by the BCB for financial institutions with over 500,000 members. This no doubt contributed to the rapid growth in value sent and total transfer numbers. Already, the numbers reached in the initial weeks are now matched by the daily averages—between 5 and 6 billion Reais are sent in an average 24-hour window.

What It Means for the U.S. 

There is no perfect analogue for the financial system of the United States. Innovation relies largely on demand from firms and end-consumers, yet the average person’s payments literacy is quite low. The actions taken by other governments and central banks to promote real-time payments is a non-starter in the US given the current political climate in Washington and the relative size and influence of the financial sector on our economy, so while slight changes and modifications are possible, overhauling the entire system is not expected. As a result, the best strategic moves to make real-time payments accessible and popular are often the hardest to make. For example, India and Brazil’s central banks mandated connection for the largest institutions. For better or worse, the Federal Reserve does not have this power and has to entice participation by other means.

As for actionable strategies that are employable here, there are still a few good lessons. The obvious one is offering a public network via the central bank. As we know, FedNow will be fulfilling this in 2023. This is crucial because it provides greater accessibility and reach, particularly to community financial institutions and credit unions. A real-time payments network only works if both sender and recipient are participants, so ubiquity needs to be the main goal.

Something that both TCH and the Fed could benefit from is broader outreach. India’s NPCI has gone to great lengths to educate not just financial institutions but also consumers on how to connect. In addition, they made the benefits of the system very clear from the beginning and were able to secure the support of both banks and service providers in advertising the UPI platform. The US Faster Payments Council, of which Alacriti is a participating member, has as part of its mission to educate the market on the value that payments modernization will bring to our economy. There is obviously more work to be done but this is a promising step. 

Another lesson comes from Japan’s attempts to go digital. Japanese banks were expecting a massive influx of international tourism from the 2020 Olympics and used this to justify pushing instant digital payments. Of course, 2020 didn’t go according to plan, and as such, their justification was compromised. The takeaway is not to rely too heavily on one use-case or source of traffic. One potential boost could come from offering a rebate, like Japan’s government did, but perhaps without adding a sales tax as well. One of the benefits of real-time payments is the boost to efficiency—returning some of that capital freed up as a reward to early adopters is a shrewd move and makes it a much easier sell. 

Overall, real-time payments are impacting all payment systems globally. Although countries are taking different approaches to implement faster payments, no economy has a blank slate—there is always a transition from existing practices. It is essential that American financial institutions support the existing infrastructure and needs of the market while setting the foundation for the future payments that will inevitably dominate. The players that stand out in the years to come will be the ones that collaborate and innovate on bridging that gap today.

For more on real-time payments, please see our blog, Why RTP, Why Now?


Alacriti’s Cosmos for RTP® enables financial institutions and organizations to quickly and seamlessly connect to The Clearing House’s RTP® network without the burden of significant infrastructure overhauls or capital investments. To speak with an Alacriti real-time payments expert, please contact us at (908) 791-2916 or info@alacriti.com.

Why RTP, Why Now?

*Originally published on CUInsight.com

It’s a common experience. Someone puts a shiny new piece of technology in front of you, and they say that it’s going to change everything: faster, smarter, easier, safer. Great, you think, but… what does it do?

Everyone acknowledges the potential of real-time payments, but it’s still relatively new. In the long-term, the most exciting thing about RTP is the way it will integrate with open banking technology to catalyze further innovation. On the other hand, there has long been a lack of awareness among consumers and decision-makers of how we stand to benefit from broader real-time payments adoption. RTP connection is already a standard among the largest institutions; it’s the mid-sized to local institutions that are next in line now. 

So why use RTP? The most obvious benefit is speed, and while that’s certainly a selling point, the evidence suggests that speed by itself is not enough to get executives on board. They need to see a clear advantage and fortunately, there are plenty. We’re going to go over a few of these RTP use cases, broken down by the different players that might initiate them. Many of these situations cross sectors, the main difference being the specific details of the transaction. For example, any organization with employees would benefit from real-time payroll, but a credit union might see different benefits than a government agency.

Government

The most emphatic case one could make for a government-accessible RTP network is evidenced by the recent U.S. stimulus bills. The benefit is clear—the sooner financial assistance can reach a person who needs it, the better. Even after we recover from our current economic crisis, there will still be strong use cases.

Real-time payments could streamline every step of an often arduous tax process, from collecting to refunding – while saving money on paper checks and manual processes. Payroll would be accelerated, as would government-to-citizen compensation for working expenses like transportation or equipment. Despite modernization efforts, paying fines and other incidental fees to the government can still be a nuisance. Having the option to request and accept payment in one place could make the process easier for all parties.

Regional Bank or Credit Union

Many regionally-focused financial institutions are in the process of deciding whether to connect to a real-time payment system. Thus far, it has been a resource-intensive and time-consuming process, leaving many waiting for a strong use case to justify the investment.

Real-time banking services are already a selling point and will become even more highly sought-after in the near future. The pandemic accelerated the trend line for adoption. Initial use cases include allowing customers or members to receive their paycheck in real-time as soon as work is completed, P2P payments that allow vendors or family members to receive their funds immediately, and real-time bill pay which is good news for last-minute payers. The introduction of these use cases will cause members or customers to consider switching if their current account doesn’t allow them to do the same. 

Insurance

Verticals like insurance or utilities that need to make regular disbursements to their customers will see their processing expenses diminish—in time leading to a drastic reduction in paper checks, if not getting rid of them altogether. This makes both employees’ and leaderships’ lives easier. But more importantly, it satisfies the consumer’s desire for convenience. It might not be long before even same-day processing float is considered substandard. Similar to the stimulus payments mentioned above, insurance disbursements go out to people when they are in immediate need of assistance. Real-time payments would allow an insurance agent to transfer funds to a client as soon as the claim is verified. For example, a car insurance provider could immediately provide funds for transportation from the scene of an accident, or to hire a rental car. As with many industries, real-time payments access is already incentive enough for many consumers to switch to a more modern provider. 

Lenders

Whether it’s to an end consumer or otherwise, any industry that issues loans can benefit from a real-time infrastructure. Being the first to offer this capability presents a huge marketing advantage. A car loan provider could offer on-the-spot financing and request-for-pay. This shortens the borrowers to-do list. They can send the first payment immediately and from then on receive a monthly request-for-payment message. All the client has to do is accept the request, and then the payment is instantly received by the lender.

Corporation

In comparison to traditional transfer systems, real-time payments are resource-efficient. They provide a single point of contact for both the payment message and information regarding the payment. The ISO 20022 standard employed for real-time payments provides the data necessary for ease of processing into backend systems, as well as increased fraud protection. The result is a significantly streamlined workflow and efficiency that pays off in shrinking operation costs. The data-rich messages sent on real-time networks allow for better cross-sell opportunities, improved forecasting tools, and automated transfer services. 

Small to Medium Business

Businesses can be made and broken in the time between initiating payment and final settlement. This is especially true in times of economic pressure. For example, a manufacturer operates at a deficit from the time they ship to the time they receive payment. If this same business can receive funds as soon as they make a sale, their growth trajectory has a better foundation. They can close sales and purchases in real-time and immediately redirect the funds. 

Another use case for businesses is payroll. Employees can receive paychecks instantly and with more flexibility, and the payor does not need to account for the float period— funds deduct immediately. If the business is accustomed to that float period, they can nudge their payday to the date that the payment would be received without any disruption to their current budget. This is an especially important feature for employees in the gig economy or those who work irregular hours. Overall, businesses see happier workers, increased revenues, and accelerated growth.

Individual

One appealing use is P2P. If a convenient interface is provided, real-time payment is more appealing than both cash and competing mobile payment services like Venmo or CashApp. Mobile payments offer convenience but in a closed-loop system. If a customer needs to make a mortgage payment, for instance, they need to transfer funds to their bank account. This means either waiting at least a day for a free transfer or paying for an “instant” transfer. 

The use of banking aliases could drastically simplify sending P2P transfers through a bank’s real-time option. An alias would allow users to share a memorable, unique identifier rather than an account or routing code. Best practices have yet to be established, nor has a convenient method of standardizing these aliases between different banks. Once these hurdles are crossed, however, consumers will be happy to simplify their finances.

As we mentioned a few times, consumers, especially Millennials and Gen Z, are willing to switch service providers to access real-time payments networks. In fact, 30% of consumers believe that access to real-time payments is a key factor when selecting a financial institution. This goes for banks, credit unions, utilities, payroll providers—if your firm is moving money at any scale and wants to win life-long customers, then moving to real-time is a necessity. But this demand is itself an opportunity. 

For more on real-time payments, please see our blog.


Alacriti’s Cosmos for RTP® enables financial institutions and organizations to quickly and seamlessly connect to The Clearing House’s RTP® network without the burden of significant infrastructure overhauls or capital investments. To speak with an Alacriti real-time payments expert, please contact us at (908) 791-2916 or info@alacriti.com.

Poky Stimulus Checks—An Argument for Payment Modernization

With so many people feeling the pinch this year, government disbursements have been a topic of fervent discussion. The U.S. government has spent $1.69 trillion in response to the pandemic so far, and that number will likely increase as the year goes on. Of that $1.69 trillion, $269 billion went out in just the first round of Economic Impact Payments (EIPs). This amounts to around 152 million individual payments sent. Of that first round of EIPs, some have still not found their destination. For example, over a million were sent to deceased people. The U.S. has a disbursements problem characterized by a reliance on physical payment media, vague or siloed payments data, and a lack of multichannel support.

These problems can be attributed to challenges with both the government and financial institutions. While the United States’ administration has not been as strong an advocate for modernization as some other countries have, many American retail bankers are hesitant to move on from checks. For some, especially demographics like elders or impoverished rural citizens, getting a check mailed then cashed still seems easier. In addition, 5% of the U.S. population is unbanked—they don’t have any option but to receive a physical payment like a check or prepaid card.

Aside from being slow, paper checks and other physical disbursement methods are expensive. It’s hard to say how much the government spends on each individual payment, but the printing, mailing, and processing costs of checks are significant. Years ago, Bank of America estimated that a business check can cost between $4-$20, based on the cost of the check and shipping, and the time personnel spends on mailing, creating, and reconciling the check. Given the quantity being released, the overall taxpayer bill is astronomical even by a conservative estimate. To avoid some of the challenges that checks cause, the government has begun issuing prepaid debit cards. While this is an improvement for the citizen, it has the same infrastructural costs as the check when it comes to production and mailing. 

Another challenge is the lack of a clear payments alias. The closest thing the Treasury and IRS have to reliable identification is a person’s social security number. Among the reasons that this is not ideal is the fact that social security numbers were never designed for this purpose. There are fair objections to giving a government agency extensive personal information, but at the very least, they should know whether a person is still alive. Data points like address, account number, and even income are already available to one agency or another. What’s lacking is a secure way of unifying this information, so mistakes like paying the dead don’t happen so frequently. This is a challenge for the payments sector overall—how do we provide reliable and specific information about transacting parties without rendering the parties vulnerable? How do we ensure that this security isn’t being exploited by criminals?

From a ‘big picture’ perspective, if the role of a government is to protect and support its citizens, then it first needs to be able to reach those citizens. With the vast resources available, it’s no longer necessary for so many to be left in a lurch when it comes to payments. The Treasury, similar to a good fintech, can help by providing multichannel support. The more options the government makes available, the more people get their much-needed financial assistance before it’s too late. Paradoxically, having more potential payment methods makes the process of disbursement simpler. If the U.S. had a standardized real-time payments network, those who qualified for the stimulus payment could just send a request-for-payment to the government agency providing it. Even with the systems available today there is the potential for at least some people to receive a timelier stimulus. The government could use an existing system like FedWire or Zelle to disburse payments right away, not just to large firms but to those relying on them to put food on the table. 

The bottom line is that mistakes and delays in stimulus disbursements have made maintaining the status quo a much harder sell. There is a massive disconnect between the people who make and maintain the infrastructure and those whose livelihoods depend on it. A poll last November indicated that 63% of Americans were living paycheck-to-paycheck. This means that if a worker loses their job, they are at once not able to pay their rent, buy groceries, etc. Providing a fast digital disbursement instead of an old-fashioned paper check can be the difference between eviction and having more time to find another job. Also, there is an inherent responsibility to remove payout friction wherever possible to both the individuals that need it most and the economy in general. The economic benefits of a more efficient flow of funds are clear, as are the benefits of protecting people from economic disasters. 

What Are Real-Time Payments?

Real-Time Payments or “RTP” refers to payment rails (platforms or networks via which payments are made) that share a few characteristics. The first is in the name: they are real-time, or at least very close—initiating, clearing, and settling in a matter of seconds. Real-time payment networks are ideally 24x7x365, meaning they are always online and available for a transfer. As a result, in order to connect to a RTP rail, the bank or credit union’s backend systems will need to be 24×7. “Open-loop” is also an important characteristic—this means the payments are connected directly to a personal account, rather than relying on a prepaid balance. A data-rich messaging format like ISO 20022 is also necessary. Without this clear and nuanced form of information, it is more difficult to resolve errors, which leads to processing delays. Strong formatting standards also provide greater security to all participants in the network.

Current examples of RTP networks include The RTP® Network from The Clearing House (TCH) in the U.S., UPI in India, Faster Payments in the UK, and PIX in Brazil. The terms “instant payments”, “immediate payments”, and even “fast/faster payments” are also sometimes used interchangeably to refer specifically to real-time payments rails. 

This can get very complex very fast, so let’s hone in on what’s most relevant in the U.S.

Real-Time Payments in the U.S.

RTP® Network from the Clearing House

Launched in 2017, RTP® Network was the first of its kind in the United States. It is developed and operated by The Clearing House Payments Company L.L.C. (PayCo), which is privately owned by a group of the world’s largest banks. It currently reaches over half of all U.S. demand deposit accounts but is accessible to 70%. Access is available to all federally registered depository institutions, either via a direct connection or a third party service provider (TPSP). Financial institutions with the resources to make their backend processes compatible with the network can connect directly, but most may need to use a TPSP. Such providers specialize in complex and resource-intensive infrastructural issues like ensuring 24x7x365 processing. As with all specialization, this makes TPSP’s more efficient. The current cap for an RTP® transaction is $100,000, with lower limits sometimes set by connected institutions.

This network allows for several types of messages:

  • Credit Transfer: the only way funds can be transferred on TCH RTP, a credit push
  • Request for Payment: prompts a user to send a credit transfer
  • Payment Acknowledgement 
  • Request for Information and Response to RFI 
  • Stand-Alone Remittance Advice 

FedNow from the Federal Reserve

Pending further updates, the Federal Reserve will launch its own RTP network in 2023 or 2024. Much of what goes for The Clearing House’s network also applies to FedNow, the main difference being that FedNow will be operated entirely by the Federal Reserve banks. The goal is that the launch of a second domestic RTP rail will drive competition, in price and ease of use but most importantly adoption. Given that the service is still in heavy development, specifics are still being worked out. What we do know is that FedNow’s rollout will be phased, the first stages involving support for core capabilities. The Fed is aware that the main obstacle for many financial institutions is 24x7x365 processing, so they are hoping to ease that transition. Concerns have been raised involving interoperability and public-private sector competition, but the Federal Reserve seems to be taking these concerns, as well as other lessons from extant systems into consideration. The current expected value cap for a FedWire payment is $25,000, but the Fed is considering an increase before release.

Common Questions

Even if you’re fully versed in payments lingo, there are some overlapping terms that it helps to clarify. Although the industry markets the benefits of RTP to end-users, many still don’t have the information they need. The meanings of terms can depend on who’s using them, as well as the country they are being used in.

Faster Payments is a blanket term that, in the U.S., refers to an accelerated payment rail. Examples include same-day ACH, real-time payments, Zelle, push-to-card, and others. They are advocated for by the US Faster Payments Council. In the U.K., Faster Payments refers to the actual payment rail itself. 

Is ____ a real-time payment?

Mobile Payments: Not really, not yet at least. Apps like Venmo and CashApp offer instant transfers between users, but in reality, the value is held in a “closed-loop”, in contrast with the aforementioned “open-loop”. Within the loop, i.e. the app, users can exchange funds instantly, but if they want to retrieve money from within that closed-loop, they will have to use another payment rail, typically an ACH payment. However, some are eyeing real-time payments as a method of facilitating transfers between their eWallets and a checking account. This doesn’t make mobile wallets themselves open-loop but would allow for an easier connection to an open-loop system, like RTP.

Zelle: Kind of! Operated by Early Warning Services LLC, a company owned by several prominent U.S. banks, Zelle is an independent transfer service linked to many banks and credit unions. It has recently been integrated with The Clearing House’s RTP® network, which allows payments sent with Zelle to be delivered by the RTP network. If the payee or payer’s financial institution is not connected to the RTP network, then it still settles in minutes via Zelle’s network but is not technically real-time.

Wire Transfer: Kind of. Typically reserved for low-volume, high-value transactions, wire transfers do settle instantly. For this reason, they are referred to as real-time gross settlement or RTGS transactions. Despite the similarities, the difference is a practical one: real-time payments are ideal for high-volume transactions, whereas wires are used for high-value transactions. You might use RTP to send money to a family member, or pay rent; while wire transfers make more sense for buying expensive real estate or corporate acquisitions.

Same-day ACH: No. While same-day ACH transactions are an improvement over plain old ACH transactions, they only shorten the three-day window down to one. More importantly, they are batched, so rather than being individually processed like RTP or wire transfers, they are all compiled and settled together at the end of the working day. 

Push-to-Card: Almost. Push-to-card leverages existing card networks but reverses the flow of information so that funds can be sent to a debit or credit card, rather than from. It can settle in minutes, which is fast, just not as fast as an rtp network.

Check: What? No!

Why Use Real-Time Payments?

There is a myriad of benefits to using real-time payments, across every level of the financial system. The most familiar example to most Americans today is disbursements from the U.S. Government—stimulus checks. The cost of these Economic Impact Payments is high enough without the cost of printing and mailing checks or cards. Add in inevitable errors—misspelled names, payments sent to the deceased—and the price rises even higher. However, what’s even more crucial than money is time. People need aid to keep them out of the red, and to do that the payment has to arrive before their money runs out. The Treasury Department and IRS have the Herculean task of sending out hundreds of millions of payments, and there is just no way to do it without delays. Had the government been able to leverage a faster network, every American would have been able to receive their stimulus the day it was approved.

The good news is that soon we won’t have to think about the “what ifs”. More institutions are connecting to TCH’s RTP® network, and with the arrival of FedNow, real-time payments should very soon be the standard that ushers the U.S. into the next generation of commerce.

A Crash Course in Faster Payments

2021 is expected to be a watershed year for faster payments in the U.S. Not only are customers expecting their goods and services on-demand, but they’re also relying on digital, social distancing-friendly solutions to do so. With use of cash being discouraged, people are looking for alternatives that offer the same speed and finality of payment. Faster payment offerings fill that need. They are designed to significantly expedite the actual movement of funds, with settlement completed anywhere from the same day to a few seconds after the payment is initiated.

“Faster payments” is an umbrella term for different payment systems that various entities have launched in support of quicker on-demand payments. In this blog post, we’ll outline four of the major systems that have evolved in support of faster payments.

Real-Time Payments: RTP® from The Clearing House & FedNow 

First, we’ll tackle the newest payment rail: real-time payments. Real-time payments (RTP) is a generic industry term for a payment network or “rail” that allows businesses and consumers to send, clear, and settle payments instantly. Globally there are more than 50 rtp networks, and all differ slightly but have a few typical characteristics. Funds move from the initiating account to the receiving account in a matter of seconds, and they require 24x7x365 systems for both operators and participants. These systems also use the data-rich messaging standard for payments, ISO 20022. This allows for much more detailed information on a payment’s source and purpose, or even why a payment was denied. Real-time payment networks tend to have irrevocable payments, and most are based on a  credit push model. Rather than withdrawing directly from your bank account, which is known as a “debit pull”, a creditor would send a request for payment or a request to pay, which can then be accepted or denied by the payer. 

In 2017, The Clearing House (TCH) launched its real-time payments system, the first new central payments infrastructure launched in the U.S. in over 40 years. RTP® is also The Clearing House’s registered trademark for its privately-owned real-time payments network. The infrastructure of RTP® is designed with both speed and security in mind, conforming to consumer protection criteria that help prevent fraud and misuse. 

FedNow is another real-time payment service which is in development by the Federal Reserve, set to go live by 2024. The Federal Reserve is expecting that the addition of a competing network will drive both to become more efficient while remaining cost-effective for the market. In addition, having two networks allows for redundancy— users have a contingency plan in case one network is offline. On the other hand, some worry that the lack of any clear plan for interoperability casts doubt on these benefits. 

The expansion of real-time payment allows the U.S. to catch up to other countries, including the U.K., South Africa, and Brazil, that already have 24/7 RTP systems in place. TCH’s system supports fund transfers, payment requests, and two-way communication between parties. The infrastructure is built to help facilitate financial transactions between businesses and consumers including bill payments, insurance claim payouts, and invoicing. RTP is open to all U.S. financial institutions, and as of 2020 is on its way to becoming an industry mainstay. 

Some have delayed their RTP integration, citing lack of client demand and difficulty in upgrading to a 24×7 operating model. Alacriti recently partnered with PYMNTS.com to publish a report on RTP’s demand curve and found that RTP is starting to catch the attention of consumers. It’s not hard to see why. A rideshare driver could be compensated by the end of every ride instead of having to wait for a specified payday during the week. Business owners can receive payment the moment an order is made, and immediately direct that money towards additional working capital needs.

Early Warning Services: Zelle®

Formerly known as clearXchange, Zelle is a faster payments network, owned by Early Warning Services, that allows users to send money to one another by simply using an email address or a phone number that is linked to their accounts. Zelle is accessible from participating banks’ websites, the Zelle app, and other mobile apps.

From the date of its launch, Zelle became one of the biggest faster payments networks with nineteen financial institutions participating. Today, 924 financial institutions are contracted to participate in the Zelle network, with around half online as of 2020. Zelle’s growth allowed it to process over 1 billion total transfers from September 2019 to September 2020. Zelle was built to facilitate person-to-person payments, without the need to physically exchange cash or write a check. The availability of funds is near-immediate, meaning that people receive money faster than ever, the system actually clears and settles the funds leveraging older central rails. Zelle has seen solid growth prioritizing low-value transfers—value limits are set by the individual financial institution, but are generally between $5,000 and $20,000 a month, with smaller daily limits.

The Card Networks: Mastercard Send and Visa Direct

Two well-known payment card brands—Mastercard and Visa—are staking their claim in faster payments as well. These well-established brands operate tried and true card networks that have moved money via credit and debit card transactions for over 60 years. They are now leveraging their existing networks reach to join the faster payments revolution.

Traditionally, debit cards have facilitated “pull” transactions, meaning that the merchant accepting the card for payment was “pulling” funds from the underlying customer. Visa Direct and Mastercard Send are now flipping the sequence and using debit card accounts to push funds from businesses or merchants directly to consumer’s accounts. This can facilitate everything from government benefit payouts and insurance claim payments to wages earned by contract workers in the gig economy. Given the ubiquity of Mastercard and Visa cards around the world, it also opens the possibility for fast, frictionless cross-border payments.

Nacha: Same Day ACH

The Automated Clearing House (ACH) Network is one of the largest payment systems in the world and has a 40+ year history of moving money between financial institutions. ACH is the backbone of many financial transactions that people have come to depend upon, from electronic mortgage payments to direct deposit of payroll and payment of government benefits.

Historically, payments made via the ACH network took one to three business days to settle. In 2015, an amendment to the National Automated Clearing House Association’s (Nacha) Operating Rules was announced to speed up the settlement of payments made via the ACH Network. This amendment, known as Same Day ACH, was designed to enable the same-day movement of money for almost any ACH transaction.

The Bottom Line: The payments market is entering a tipping point, as the desire for faster payments has driven significant innovation in payment networks over the past several years. This has resulted in the evolution of established networks (ACH, Mastercard, Visa) and the development of new ones (Zelle, RTP, and FedNow). As faster payments continue to generate new consumer interest and demand, financial institutions and businesses can capitalize on this by partnering with the right Fintech to help execute their digital transformation strategy. 

Stay tuned for more updates related to faster payments on our blog or follow us on LinkedIn and Twitter.

*This is an update on an original post published April 2018

Faster Payments: What it Means for Credit Unions (Webinar Recap)

It goes without saying, the need for convenient and fast digital payments has never been greater. For credit unions, this means it’s time to get ahead of the curve. Despite the growing demand, the burning question remains: Where do we start?

On October 29th, Alacriti co-hosted a webinar with Aite Group to share some crucial insights on faster payments and what they mean for credit unions. If your credit union is looking to transition to a 24×7 faster payments network, here are three key insights:

  1. Consumer expectations are only getting higher.

It’s been a new normal for years now: faster, easier, on-the-go. These themes apply to every market, but credit unions have unique obstacles to overcome before they can fully meet member expectations. . The rapid growth of P2P transfer services demonstrates that frictionless, instant payments have real market value. Members expect to see that same speed and convenience at their credit union. 

  1. There are valid concerns for CUs to consider while bringing their payments up to speed.

Despite the need for faster payments, there are good reasons why adoption among Credit Unions has so far been slow. Zelle has seen considerable demand among members, but other faster payment methods, such as RTP from The Clearing House, are still in the early stages of consumer awareness. There are also serious technological and operational overhauls required in order to satisfy the demands of a 24×7 real-time network. The barriers to entry are weighed against consumer demand; for the past few years, many have decided to wait and see. Picking the right technology provider is key to making these necessary steps as painless as possible.

  1. The best way to start is by reaching out to your members.

The information gap is closing, and 2021 will be the year that we see a rapid uptick in outreach to the general public. Many will see their payroll provider advertise instant disbursements, or seek easy P2P transactions directly from their account. It’s prudent to reach out in the early stages and see what’s important to your members.  With this knowledge, you can make an informed decision on how to move forward.

Watch the webinar, Faster Payments: What it Means for Credit Unions, with Erika Baumann CTP, Sr. Analyst at Aite Group, and Mark Ranta CTP, Payments Practice Lead at Alacriti for more on this topic.