Fighting Financial Awkwardness with Faster Payments?

Faster Payments Tracker™ MAY 2017

Fighting Financial Awkwardness With Faster Payments?

Offering a service that makes it easier and more fun to exchange money can help ACH transaction volume Early Warning Services these relationships remain healthy. jumped by 5.3 percent to processed over 170M P2P reach 25.6 billion in 2016. transactions last year.

Mike Vaughan, Chief Operating Officer of Venmo Faster Payments Tracker™

Table of Contents

What’s Inside 03 How companies from various industries, including insurance and ridesharing, are investing in tools and solutions to help funds exchange between parties faster.

Feature Story 05 Fighting Financial Awkwardness With Faster Payments? Mike Vaughan, chief operating office of Venmo, on how the P2P space has evolved and how he expects the market will shape the future of payments thanks to the millennial influence.

News and Trends 08 Check out the latest headlines from around the space.

hether it’s real-time payments, P2P transactions, Here’s what’s happening around the world of ACH or blockchain-powered technology, various Faster Payments: Wcompanies in markets around the world are making their interest in adopting faster payment solu- In various industries around the globe, the speed of pay- tions clearly known. ments is poised to accelerate.

Over the past few weeks, several companies have made At the industry level, new payment solutions are promis- notable investments in accelerating the pace of payment ing to make it easier for companies to deliver money to transactions by investing in various tools and solutions clients, customers and employees with greater ease. For that are allowing funds to be quickly exchanged between example, in the insurance market, a new solution from senders and receivers. Some of these investments One, Inc., promises to “kill the check” by sending funds include efforts to improve cross-border payments, while from an insurance claim directly to a recipient’s bank other developments are focused on added new security account, debit card or prepaid card. Meanwhile, in the measures to help customers fight back against fraud rideshare market, Uber is offering a way for its drivers to with solutions that offer real-time insights into question- get immediate access to their funds through Instant Pay, able banking transactions. which sends earnings to Mastercard, Visa and Discover debit cards. According to some recently published reports, there has been plenty of activity surrounding faster payment With the availability of new payment tools come new methods to make these investments worthwhile. The opportunities to understand how they work. In an effort latest statistics from NACHA find thatACH transaction to help accounts receivable and accounts payable profes- volume increased by 5.3 percent to 25.6 billion in 2016, sionals learn about faster payment solutions like Same with an estimated volume of $43.7 trillion. In the arena of Day ACH, NACHA opened a new educational program P2P transactions, Early Warning Services reported that at its annual PAYMENTS 2017 conference at the end of over 170 million person-to-person payments, valued at April. The conference invites professionals to explore $55 billion, were recorded in 2016. With such vast sums the latest developments, research and trends in faster of money on the line, it’s little wonder why companies are payment initiatives. And across the world in Ghana, the investing in solutions to improve the delivery of funds. Ghana Interbank Payment and Settlement System will launch an educational campaign to develop awareness With billions of the dollars being exchanged between of the benefits of Instant Pay, which recently debuted in parties, the P2P market is dramatically changing the way that country with the help of the U.K.’s Standard Char- people send and receive money. For the May Tracker’s tered Bank. feature story, PYMNTS spoke with Mike Vaughan, chief operating officer of PayPal’s Venmo, about the compa- Check out the Tracker’s News section for the latest up- ny’s efforts to help money flow between friends with dates from across the Faster Payments landscape. greater ease and how the tool is helping take the awkwardness out of splitting bills.

FIVE FAST FACTS

ACH volume grows to over 25 billion payments, valued at $43 trillion in 2016.

Survey: Nearly 75 percent of U.S.-based SMEs said banking in real-time is a priority.

77 percent of global financial services companies plan to adopt blockchain technology in real-life use cases by 2020.

Zelle Network–based institutions processed over 170 million P2P transactions valued at $55 billion in 2016, said Early Warning Services.

$1.3 billion: amount cashed out to Uber drivers using new Instant Pay service.

Fighting Financial Awkwardness With Faster Payments?

onsumers want what they want, when they Between Venmo’s services and new competitors like want it, and digital technology in recent Zelle arriving on the scene, consumers have plenty years has more than facilitated it. Be it an of tools and solutions at their fingertips to help them Uber ride, a music or video download or send money requests to friends and families to split access to banking services, consumers expenses. But for those who feel uncomfortable ask- Cexpect instant gratification. ing their friends to pony up their fair shares, whether it’s for a restaurant bill, rent or utilities — or for a ride In the P2P space, this means consumers these days home — Venmo may hold an advantage. The peer-to- have the ability to settle bills and deliver money to peer mobile payment service offers a social media friends and family, well, fast. This capability to quick- element aimed at making the exchange of money more ly send money to other parties is gaining popularity. fun for both sides of the transaction. According to recent data, the Same Day ACH offering was used to make 1.8 million P2P transactions totaling PYMNTS recently caught up with Venmo’s chief operat- $1.2 billion in Q4 2016, the first full quarter of Same ing officer, Mike Vaughan, about the service’s millennial Day ACH Credit availability. appeal, how mixing social media and finances changes the payment dynamic and how payment trends are Among the more popular players in the P2P space is poised to change — thanks to faster payment solutions Venmo, a mobile payment platform owned by PayPal. and offerings. While Venmo has become a popular service for friends and family members to quickly exchange money, it soon will be getting more competition from more A cure for ‘the awkwardness of money’? established financial players. Earlier this year, Bank of America became the first major financial institution to When it comes to transacting money with friends the introduce Early Warning’s Zelle into its mobile app as a traditional and old-fashioned way, the experience can way to compete with Venmo in the P2P space. often be awkward and cumbersome. Having to search

wallets and purses, or to go looking for the nearest While other services, including Zelle and Splitwise, allow ATM for cash, can get confusing and someone typically users to divvy up expenses, they lack a social media el- winds up having to fork over more than their fair share. ement that millennials have come to enjoy. By offering a These uncomfortable moments can taint friendships. faster payment solution that appeals to users who tend to be quick with a selfie, Venmo may have found a way “It’s [through] that awkwardness of money that Ven- to make swapping money more fun. mo is uniquely positioned to break down those walls,” Vaughan said. And, Vaughn said, these P2P faster payments enabled by offerings like Venmo are actually saving relation- Vaughan said Venmo — which, according to the most ships — because unpaid debts can lead to conflict and recent figures from parent company PayPal, processed resentment among friends or family members. Offering $6.8 billion in Q1 2017 — tackles feelings of financial a service that makes it easier and more fun to exchange discomfort by giving consumers a more engaging money can help these relationships remain healthy. option to settle debts, by mixing social media with finances. While other solutions exist that allow users to send money quickly, he said the Venmo platform goes Onboarding generations old and new? a step further by allowing users to post the exchange in a social media feed that makes the experience more Venmo has a reputation for being popular among the engaging and entertaining for both sides of the transac- millennial generation. But, Vaughan pointed out, the tion. Users can also select an emoticon to indicate the platform wasn’t designed specifically with the millennial purpose of the request. Vaughan said that adding this generation in mind. The demographic group just hap- social media component to the dynamic makes P2P pens to have been drawn to it most naturally thus far. payment requests less uncomfortable. “Our focus was, this has to be a mobile-first solution,” “The social side of Venmo makes it less awkward,” said said Vaughan. “The millennial generation is more in tune Vaughan. “Venmo is really breaking down some of the with doing things on their phone, so it’s the case that we social norms around money that made it so awkward have a lot of traction with that demographic.” and complicated in the past.”

We always want to make it easier and faster for people to get money into and out of Venmo.

UNDER THE HOOD However, other groups are now starting to take notice of Venmo’s potential. Notably, Vaughan said, the parents of millennial users are starting to take an interest.

“We’re starting to see it jump generations,” he said. What trends are changing the way you do business? Vaughan said that because millennials are using the Venmo platform to exchange funds between peers, the “We always want to make it easier and faster for parents of these users are now turning to the service, people to get money into and out of Venmo. Currently, because it offers a new way for parents to quickly send the only way to get money out is through a user’s bank money to their kids at college — using a format that account, which runs over the traditional ACH rails. the students already find appealing. Parents can use the service to send money for free to their kids’ bank To address consumers’ access to their money, accounts, debit cards and prepaid cards. A 3 percent fee something we’re doing now is a partnership with Visa. is applied to credit card transactions. Under this deal, users will be able to instantly withdraw and move money from their PayPal and Venmo Getting younger players on board with services like accounts to their bank account via their debit cards Venmo, Zelle and others enables these users to act as leveraging Visa Direct. This means that users who “early adopters” of the systems. The more they use the want immediate access to funds they have sitting in products, the more likely they are to attract new users their Venmo accounts will be able to move those funds and “shape the habits of their parents and other older to their bank account [within about 30 minutes]. This customers.” feature will go live by the middle of 2017.

Because Venmo functions as a social media platform, Partnerships like this are part of PayPal’s strategy to Vaughan isn’t surprised that generations beyond millen- leverage the collective assets of leading companies nials are using it to send money. to advance the digitization of payments. For example, another partnership with Mastercard will enable “I think that’s kind of natural with this kind of network Masterpass as a payment option for Braintree effect and this kind of platform,” he said. “You’ll start to merchants. For PayPal, these types of partnerships see that continue to grow and escalate, where broader allow us to add more services to our value proposition, and broader groups are joining and becoming more greatly strengthen our ability to offer more choice and comfortable with mobile payments in general.” flexibility in payments and [help] push our platform into new contexts, including in-app and in-store.”

Adjusting to faster payment changes Mike Vaughan, COO of Venmo

While Venmo might be popular among millennials and their parents to exchange money without any awkwardness, new players appear to be ready to stake their claim in the P2P space. The first of these players is He acknowledged that the arrival of new players will Bank of America, which became the first major bank to prompt the company to take steps to adjust and im- introduce Early Warning’s Zelle feature as a competitor prove that experience for its users. These tools will help to Venmo through its mobile app in February. Another the company determine the best way to make sure its 18 banks have similar plans to integrate Zelle into their offering remains appealing to Venmo’s customer base. services. “We’re just scratching the surface of the public’s com- But while new players and tools arrive on the scene, fort level with digital payments,” he said. “A little bit of Vaughan appears confident that Venmo’s social me- rising water lifts all boats, but for us, we don’t see that dia-like platform will help set it apart even as the faster as taking away from Venmo.” payments field gets more crowded. Even as new players introduce their own P2P services “There have always been different ways to send money,” to deliver consumers access to their funds when they said Vaughan. “Venmo didn’t fill a gap of something that expect it, the service that offers the more engaging user other services weren’t already doing. The big part of experience — one that utilizes emoticons — could stand Venmo is the experiences.” apart from the crowd.

What´s Trending able and payable functions. Sessions offered at the center focused on how businesses can utilize Same News from PAYMENTS 2017 Day ACH, how to reduce ACH risks for businesses, the benefits of payroll cards and more. At NACHA’s annual PAYMENTS 2017 conference in Tex- as last month, cross-border payment services provider Earthport was named the winner of the 2017 NACHA Payment networks news Excellence in Payments Awards, which is awarded to companies or individuals that have “shown superior ACH payment transactions rose in 2016 leadership and accomplishment in the development, implementation or advancement of domestic or inter- According to the latest statistics released from NACHA, national electronic payments,” according to the confer- ACH overall transaction volume in 2016 reached 25.6 ence website. In taking home this prize, Earthport beat billion, a 5.3 percent increase over 2015 volume. This out Charbebacks911 and TableSafe, which were also is the third consecutive year in which volume increased named as finalists. by a billion transactions or more over the previous year. NACHA said transactions transferred over the ACH The winners of the NACHA Challenge award were also Network in 2016 are valued at $43.7 trillion, represent- named at the PAYMENTS conference. The awards, ing a 5.1 percent increase in value compared to 2015. which total $25,000 in value, are given to teams that NACHA CEO and President Jan Estep said in a press have developed “new ways to leverage Same Day ACH release, “With the implementation of Same Day ACH, to create innovative solutions to improve efficiencies we have added to the robust capabilities of the network, and added capabilities within the payment system.” now enabling not only next-day payment capabilities, This year the $15,000 Judges’ Choice Award went to but same-day capabilities as well.” lienwaivers.io for its cloud-based software as a service that allows businesses to deploy Same Day ACH NACHA also said that with the launch of Same Day through their banking portal. Meanwhile, KeyCorp took ACH credits in September 2016, the payment type was home the $10,000 Audience Choice Award for its ACH responsible for more than 13 million credit transactions, Syndication solution that allows large ACH originators totaling nearly $17 billion, with same-day direct deposits to tap into the benefits of Same Day ACH using a single making up 52 percent of Same Day ACH volume. point of access. Early Warning Services processed over 170M In addition to handing out awards for payment innova- P2P transactions in 2016 tions, NACHA also offered a new educational program specifically geared toward corporate payment profes- In other payment network news, Early Warning Services, sionals at the PAYMENTS 2017 conference. The Mutual the real-time payment, authentication and risk mitiga- of Omaha Bank Corporate Learning Center was offered tion company, has announced that financial institutions as a “specialized education” program for payments end in the Zelle Network processed more than 170 million users in corporate, business, government, academic, person-to-person payments in 2016, totaling $55 billion charitable and religious organizations to engage in in aggregate transaction value. According to a press problem-solving exercises with their peers. The center release, there are currently 20 banks and credit unions featured nearly a dozen education sessions for these in the Zelle Network, which can reach 85 million con- professionals, most of whom work in accounts receiv- sumers in the U.S. through the mobile banking app of its

participating institutions. Zelle allows payments to be In the same press release, One, Inc. CEO Christopher sent, received and split using a registered mobile phone Ewing said, “The claims check is dead,” referring to the number or email address. Funds sent with Zelle will solution’s ability to deliver money to claimants’ ac- be available in bank accounts within minutes in most counts directly. The solution could also offer significant instances, Early Warning Services noted. savings for the insurance industry, since the average paper check can cost insurers $4 to send out and manage. Report claims Same Day ACH offers opportunities for suppliers Uber drivers embrace Instant Pay For suppliers, Same Day ACH could create an opening for these players to improve their cash flow by getting In addition to the insurance industry, faster payment access to funds faster. Receivable Savvy, an accounts solutions are finding ways to be implemented in the receivable and order-to-cash management firm, recently rideshare industry as well. Uber began offering Instant released an eBook intended to guide vendors on how to Pay to its drivers last year in an effort to pay them take advantage of Same Day ACH technology. faster, and this year expanded the program by opening it up to all Mastercard, Visa and Discover debit cards. To According to the publication, titled The Definitive Guide date, hundreds of thousands of Uber drivers are taking – Same Day ACH, not only does Same Day ACH mean advantage of the program, and the service accounts faster supplier payments, but the technology also for over $1.3 billion in cash-outs to drivers, according presents a host of other benefits for B2B vendors. But to recent reports. The company also plans to expand to capitalize on the benefits, companies must develop the service to its meal ordering and delivery service, a deep understanding of the technology and com- UberEATS, drivers and courier drivers with more than municate with their customers to determine whether one delivery on their route. The service is currently avail- receiving Same Day ACH payments is an option. This able only to drivers in the U.S. and allows drivers to cash also means businesses on both sides of the transac- out their earnings up to five times per day, according to tion should be aware of cutoff times for ACH payment Uber’s website. submission and collections and whether their financial institutions provide payment confirmation. D+H takes instant payments to the cloud

Over in Europe, another instant payment solution is Faster payments developments being tested by financial technology solutions provider D+H. The company recently launched a cloud-based One, Inc., launches first instant insurance testing environment for European banks that creates claims payment solution simulated connectivity to EBA CLEARING’s pan-Europe- an instant payment infrastructure solution. By offering Cloud-based insurance software provider One, Inc., a testing environment, D+H aims to help European recently announced a new tool that enables insurers to payment service providers comply with the European deliver claims directly to a consumer’s bank account, Payments Council’s SEPA Instant Credit Transfer (SCT) debit card or prepaid card. In a press release, One, Inc., Scheme, which is slated to go live in November. The said by offering the solution, called ClaimsPay, the com- simulation allows banks that are in compliance with pany is currently the only insurance software solutions the SCT scheme to use D+H’s resources to test instant provider that offers inbound and outbound real-time payments while incurring lower risk. payment services for the insurance industry. ClaimsPay is a new component of One., Inc.’s cloud-based process- Swift launches new real-time payment fraud ing software ProcessOne, which features a tokenization solution process that allows all payment methods, including checks and credit cards, to be tokenized without expos- Speaking of lower risk, the SWIFT network recently an- ing credit card and other financial data. nounced a new solution to help smaller banks fight back

against fraud and cybercrime by automatically detecting Global developments in faster payments questionable payment activity. The solution will allow SWIFT’s customers to screen their payments, according SIA to help Central Bank of Iceland with new to chosen parameters, as outlined by the bank’s own payments system risk and compliance policies. If a transaction triggers a “red flag” for any suspicious activity or transactions that In Italy, a financial services firm is partnering with a do not fall in line with the bank’s policies, the system will major bank in Iceland to improve that country’s payment generate a real-time payment message calling atten- systems. Italian financial services provider SIA was cho- tion to the anomaly. SWIFT hopes offering the service sen by the Central Bank of Iceland (CBI) to implement will help banks manage risks involved in cross-border and support a new real-time gross settlement system payments, such as meeting requirements in place under and instant payment platform for the country. According existing trade sanctions, know-your-customer and an- to a press release, CBI manages all interbank payments ti-money laundering regulations. in the country, which can reach levels of 1 million payments per day, with a peak of 160,000 per hour. The The service will launch as a hosted utility solution, technologies from SIA are intended to upgrade CBI’s which means SWIFT users will gain immediate access current mainframe-based real-time solutions for high- to it without requiring a hardware or software instal- and low-value payment systems, which have been in lation or maintenance. The service is part of SWIFT’s place since 2001. The new solutions are expected to go Customer Security Programme, which launched in May live in 2018. SIA has also provided solutions for central 2016 and is being managed by the SWIFT Board. The banks in Sweden, Norway and Denmark. goal of the program is to reinforce and develop global banking security measures by building on existing SWIFT and industry efforts.

Italy makes its move in real-time payments In Ghana, Standard Chartered invests in Instant Pay In other Italian banking news, the nation’s largest retail bank recently took its first major step into the realm In addition to blockchain, the U.K.’s Standard Chartered of real-time cross-border payments. Intesa Sanpaolo Bank has also launched an instant transfer service in and EBA Clearing completed its first testing activities, Ghana. With the successful integration of the Ghana using technology by Dovetail for pan-European real-time Interbank Payment and Settlement System’s (GhIPSS) payments. According to the bank, Intesa Sanpaolo is Instant Pay, the service allows Standard Chartered cus- now the first bank in Italy to connect to the new EBA tomers to make instant transfers to the bank accounts infrastructure’s test system. in other financial institutions. The banks said that Standard Chartered mobile app users can also use the An official from the bank said transactions between service. The Instant Pay feature allows individuals and originator and beneficiary accounts will take roughly 10 businesses that have accounts with Standard Chartered seconds. Meanwhile, EBA Clearing said account-ser- Bank to make money transfers from their own bank vicing payment service providers across Europe will be accounts to other bank accounts, either at the Standard able to use the technology for payments made in Euros Chartered Bank or another institution. To speed up starting in November. The transactions will be fully com- the acceptance of Instant Pay technology, GhIPSS is pliant with the SCT scheme and aligned with ISO 20022 planning to launch a public education campaign to build global payment messaging standards. awareness of the technology and its capabilities.

MUFG, Standard Chartered, other banks form Payments Canada picks Accenture to assist blockchain partnership in Modernization initiative

In other cross-border payment developments, a group of Back in North America, another partnership could bring international banks is planning to launch a cross-border changes to Canada’s payment infrastructure. Payments payment service that is powered by blockchain. The Canada tapped Accenture to help it lead its Moderniza- banks include the Bank of Tokyo-Mitsubishi UFJ Bank, tion initiative, which aims to transform the infrastructure the banking arm of Mitsubishi UFG Financial (MUFG), and rules that support financial transactions in Canada. Standard Chartered, Bank of America Merrill Lynch, According to the Payments Canada Industry Roadmap & Banco Santander, the Royal Bank of Scotland and the High-Level Plan, which the company released in Decem- Canadian Imperial Bank of Commerce. ber 2016, the initiative is designed to put the country on the leading edge of payments. The underlying technology for the solution will be provided by Ripple, and the group is considering a launch Intended changes to be introduced as a result of the ini- date in 2018. By looking to Ripple’s blockchain solutions, tiative include improvements that support faster trans- the banks are seeking to address the various problems actions, as well as long-term upgrades, such as a new with cross-border payment systems, including delays, core clearing and settlement system and the introduc- costs and lack of transparency. Beyond cross-border tion of global messaging standard ISO 20022, which will payments, the new blockchain solution could also have eventually help the system transition from paper-based the potential to enable the settlement of interbank invoicing and checks to digital processing. agreements. The process is estimated to take three to four years.

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