This episode features an interview with Reed Luhtanen, Executive Director of the U.S. Faster Payments Council. The FPC was birthed by the Federal Reserve as an independent, inclusive and equitable governance framework to speed up the nation’s payment system to facilitate the safe, secure transfer of funds in near real time. Reed is leading the first cross-industry payments trade. He is responsible for managing daily operations, working with the board and membership to execute on the FPC's strategic plan, and communicating with their stakeholders. Prior to the U.S. Faster Payments Council, he served as Walmart’s Senior Director of Global Treasury. On this episode, Reed talks about facilitating seamless transactions across a network of systems, exceeding user expectations of instant transactions, and protecting against fraud or inadvertent payments.
This episode features an interview with Reed Luhtanen, Executive Director of the U.S. Faster Payments Council. The FPC was birthed by the Federal Reserve as an independent, inclusive and equitable governance framework to speed up the nation’s payment system to facilitate the safe, secure transfer of funds in near real time.
Reed is leading the first cross-industry payments trade. He is responsible for managing daily operations, working with the board and membership to execute on the FPC's strategic plan, and communicating with their stakeholders. Prior to the U.S. Faster Payments Council, he served as Walmart’s Senior Director of Global Treasury.
On this episode, Reed talks about facilitating seamless transactions across a network of systems, exceeding user expectations of instant transactions, and protecting against fraud or inadvertent payments.
Quotes
*“We all want payments to be like they are when we do an Uber. And I think to the extent you can create this flow where the payment is part of an experience. It's one click on a button and then you get an acknowledgement back immediately that says you're paid and you're good to go, which is what you want. You want to know that the bill has been paid.”
*“We are already starting to see the tipping point for certain use cases. The big one that comes to mind is disbursements. So payroll, gig economy, government payments, things like that. That's probably the lowest hanging fruit and folks are moving aggressively towards using these networks to facilitate those types of payments. And then I think further down the road, it’s going to be things that are more mass market.“
*”I think if we've learned anything over the last couple of years, it's that the changes that we've experienced were not really a change in the direction that things were going. It was an acceleration of trends that were already in place. So you saw an acceleration of people moving all kinds of different activities to being remote and being digital that used to be in person and be physical. And payments have not been an exception to that. In fact, I'd say it's been one of the leading things affected by it.”
Time Stamps
4:43 Navigating new payment systems
6:41 Cash Crossroads: Navigating challenges in the payment ecosystem
13:26 Automating payments
14:38 Introducing new payment networks
15:46 Utilizing RFP
17:20 The appeal of faster payments
18:30 The advent of FedNow
19:30 The Playbook
23:37 Understanding different kinds of fraud
25:49 Preventing inadvertent payments
29:57 Report from the Future
33:58 Building the payment into the experience
35:01 Adopting faster payments, phasing out checks
45:12 The future of faster payments
Sponsor
The Invisible Vault is powered by the team at Kyriba, the global leader in cloud treasury and finance solutions, empowering CFOs and their teams to transform how they activate liquidity as a dynamic, real-time vehicle for growth and value creation. To learn more visit www.kyriba.com
Links
Check out FasteryPaymentsCouncil.org
Reed Luhtanen: We all want payments to be like they are when we do an Uber, right? Like you want it, you want to have the experience. And I used to, when I was at Walmart, I used to say, you know, nobody walks into a Walmart store thinking I want to pay for my groceries. Right. They walk in thinking they want to get their groceries. And the payment is a necessary final step before they can leave with it. And I think to the extent you can create this flow where it's the payment is part of an experience that is really more about Verizon saying, Hey, uh, Hey Bob, you owe us $50 for your, for your bill for the month. And you're saying, okay, you're right. I do. And it's, you know, one click on a button and the payment goes back, you know, along with your acknowledgement. And then like you said, you get an acknowledgement back immediately that says you're paid and you're good to go, which is what you want. You want to know that the bill has been paid and that you're not going to have your phone shut off.
Narrator: Hello and welcome to The Invisible Vault.
This episode features an interview with Reed Luhtanen, Executive Director of the U.S. Faster Payments Council. The FPC was birthed by the Federal Reserve as an independent, inclusive and equitable governance framework to speed up the nation’s payment system. The goal is to facilitate the safe, secure transfer of funds in near real time.
Reed is leading the first cross-industry payments trade. He is responsible for managing daily operations, working to execute the FPC's strategic plan, and communicating with stakeholders. Prior to the U.S. Faster Payments Council, he served as Walmart’s Senior Director of Global Treasury.
On this episode, Reed talks about facilitating seamless transactions across a network of systems, exceeding user expectations of instant transactions, and protecting against fraud or inadvertent payments.
But before we get into it, here’s a brief word from our sponsor…
So please enjoy this interview between Reed Luhtanen, Executive Director of the U.S. Faster Payments Council, and your host, Bob Stark.
Bob Stark: Welcome to The Invisible Vault. I'm Bob Stark and I'm joined by really interesting guests. The conversation I've been actually looking forward to for quite some time. Reed Luhtanen, who is the Executive Director of the U.S. Faster Payments Council. Reed, welcome to the podcast. It's good to have you.
Reed Luhtanen: Hey, Bob. Thanks for having me. I'm really looking forward to the discussion today.
Bob Stark: Yeah, well, let's start with just. Maybe not what faster payments are, because I want to get to that, but let's just talk about the faster payments council. What is this? And how did you get involved in it?
Reed Luhtanen: If you back up about six or seven years, the Federal Reserve had convened, uh, a task force called the faster payments task force as part of their strategies for improving the payment system in the United States. Um, and that task force did a number of different work items and among those. Coming up with a list of 10 recommendations for the industry on how to approach modernizing the payments infrastructure in the U S um, and among those recommendations was that the industry should stand up a independent, inclusive, equitable governance framework, uh, to over, to help, to help all parts of the ecosystem, um, move forward and either implement and, or adopt faster payments. And what came out of that was another group that the fed convened called the governance framework formation team, which I won't bore with all the details, but ultimately that group created and launched the faster payments council, uh, three years ago, uh, right now, actually. So it came out of that fed effort and what's, what's, what's really great about the FPC that makes me passionate about it is our focus on that inclusive. Requiring that all different facets of the payments ecosystem be treated equitably and have a seat at the table, both from a work group perspective, but also from an overall governance perspective. So our membership is divided into six different segments representing the different aspects of the payments ecosystem and those different segments are all represented on our board of directors and are all represented on the important committees within the FPC as well. So it really ensures that you have that rounded discussion. Say business end users and financial institutions and networks that are actually processing the payments, um, in a way that makes those, those conversations very productive and fullsome.
Bob Stark: No, that's actually really, that's interesting right there, just because you said it's very representative of a number of different end users and stakeholders is the faster payments council focused more on B2B payments or B to C or a combination of both.
Reed Luhtanen: Yeah, I would say what we're focused on. Enabling folks to have those discussions about what are the types of payments they're trying to do through these new types of payment systems? Right. So B2B has been one that's been very big, uh, early on as has B to C. Um, but that's not to say that there won't eventually be C to B or C P to P payments. Um, all these different types of flows can be in. And I think eventually we'll be supported by faster.
Bob Stark: I was thinking more of a business versus consumer, but as you say, it could be the other way around. It could be consumer back to business. So let's talk about what faster payments are. I think there's probably many people that think, okay, well, in the U S it was wires and then there's ACH, and then ACH got faster with same day ACH, but we're talking about a little bit more immediate than that. Is that a fair statement?
Reed Luhtanen: I'd say that's what most people think about when they think about faster payments. So there's a, the bank of international sales. Um, actually, it has a definition that they use that talks about a payment system that's available 24 7 or nearly 24 7, and provides for immediate funds availability within a few seconds of the transaction being initiated. Um, so that sort of separates the question of settlement out from the funds availability question. Um, but at the same time here at the FPC we've, as I mentioned before, we try to take inclusive approach to things. So actually when we're working through things, we do still include same-day ACH. And a lot of the conversations we're having, um, for a number of reasons, uh, the one you mentioned, which is that it is a significant enhancement in that system that versus where we were a few years ago. Um, but also because we're still in a state. Um, that's, you know, for lack of a better term, the lowest common denominator network, right? So it connects every single DDA in this country to every other DDA in a way that the RTP network doesn't yet do and certainly fit. Now hasn't even launched.
Bob Stark: This is a couple pieces there that I want to get into, but maybe first, Let’s get into our segment: cash crossroads. This is where we talk about some challenges you face in navigating the payment ecosystem.
When we're talking about these different payment in a call it networks, hopefully that's a good word that we can use for our conversation. We have basically fed wires. So fed wires are. Well, one network and they're administered by we'll just say one set of resources organization. Then we have the ACH network, which is another set of payment rails. Then we have RTP, which is fed. Now is coming. We have the clearing house, which has been most of the domestic activities so far. How do these different networks or rails inter operate and maybe even a bit of background in terms of who are the different stakeholders are involved? Because I think anyone in the payments space probably knows. Those that aren't in the payment space might benefit from understanding a little.
Reed Luhtanen: Yeah. Sure. So I'll take, um, I'll take ACH as a good example to then compare the other systems too. So the ACH has obviously been an operation for 50 years or so, and there are two main operators. There's the federal reserve and also the clearing house. Um, and they operate separate ACH networks and it, to the extent that the sender and the receiver, or in the parlance of, uh, ACH, the originator and the receiver. Um, are both using the same network then it's, it stays on that network and it processes from one to the other. Um, however, in the case where one, the say the originator is using the fed and the receiving financial institution is using, uh, the clearing house. That those two systems in the middle inter-operate with each other in a way that allows for seamless reach. It doesn't matter to either user that the transaction traversed, both networks, it happens in the same timelines and ultimately the experience is the same for them. Um, and actually, uh, would add added to this discussion, a third type of faster payment transaction that we haven't talked about yet, which is the push to card type of transaction through visa or MasterCard. There's a number of others. Shazam, uh, you know, I don't want to have to list all of them, but, um, those guys are also. Providing a level of interoperability. So if you say, have a visa debit card and I have a MasterCard debit card and, um, you're gonna push the funds to me. Those two networks can inter-operate in a way that allows you to do that in, in a seamless fashion. Um, today there's only one instant or fast payment network in the United States, and you mentioned it. And I did to the RTP network from the clearing house. Um, and it's unclear as yet. How, and if the clearing house will inter-operate in that same way, as those other two examples I just gave, which is the network to network style of interoperability. There are a couple other models of interoperability that are used around the world. One of those is the point of origination model, where instead of the name. Inter-operating with each other. There's a, an overlay service at the point of origination that connects to both networks and thus provides the user of that overlay service with the reach of both networks. Um, then there's also a model that's called the intermediary as a party to the payment model, which is a mouthful. But essentially what that means is you have a bank in the middle that receives the payment as a party to the payment, and then sends it out on the other side, on the other network as another party.
Bob Stark: So I want to come back on the international piece in a moment, but maybe first things. If we talk about faster payments, why faster payments and w uh, there's obviously benefits. I mean, I'm in treasury and payments. I get what those differences are, but for most of the listeners, what are the big reasons behind fast, maybe instant payments?
Reed Luhtanen: Yeah, I think to a certain extent, there's what I will call the sort of expectation rationale. And then there's also, I think, a more forward-thinking, um, rationale that I'd like to talk about a little bit, but first I think we're in a world where we expect things to happen in real time. We expect when we do whatever it is we're doing, it's never fast enough. And so I think the, the banking system has relied on a very robust and very successful system of, of interconnectivity for the ACH network. Um, but that does have a number of lags in it that fall short of consumer expectations and, and business expectations, um, in terms of how fast things should happen in the 21st century economy. And so. Developing those faster payments systems, you know, notably, like we mentioned, the RTP network where truly every transaction moves within seconds from one bank to the other in a way that allows for certainty and transparency is, is a huge game changer. Um, in meeting the expectations of those users. Um, another thing is the ability to include. And I think that we'll probably get into this in more detail later, but the ability to include rich data and even files along with the payment. So imagine, um, you're one business and you're invoicing another business. You can send that, that invoice in what's called a request for payments. And then when they pay you, they can. Including the messaging back that this payment is attached to the invoice that you sent us. So the reconciliation can be truly automated in a way that really makes the back office much more efficient. So I think there's lots of benefits there. And then, you know, the thing that I think about a lot is if you think about, let's say what 30 years ago, when there wasn't really an internet, I mean, there was, but we weren't using it to get on it by, buy things like we do today. Um, the internet really created a whole bunch of business models that wouldn't otherwise have existed. And I think, I think there's something to be said for, as you really leapfrog and advance certain technologies. Um, who's to say what types of business models might be made possible by having, you know, truly, you know, highly efficient and instantaneous payments that we haven't had.
Bob Stark: Uh, there's, there's a lot of different advantages there and I want to drill into a couple of them, but to summarize, we're seeing speed of payments. There's an instantaneous, hence the word instant payments or real-time payments, the irrevocability that goes along with that. So you don't have to wonder of where that payment is in the process. It settles instantly. And then there's the remittance part that you talked about, which I think we can spend a few more minutes on in a moment. Those are huge, like definitely huge advantages, especially for certain types of organizations. Are those the main advantages that most, I guess, corporates or even C to B scenarios are seeing or is there more to it?
Reed Luhtanen: Yeah, I, I really do think that the main thing that you hear more than anything else, more than the speed is that, that availability of enhanced data and information associated with the payment that, you know, takes a lot of human interaction and human error out of the equation. It makes things far more automated. Um, you know, I, we didn't talk about my background, but I worked at the, in the treasury office at Wal-Mart for 15 years. And, and I can tell you from experience that reconciling payments. Is a big part of the day for a lot of people in a company like that. And I'm sure that's true with every large company. Um, and to the extent you can clean that up through including information that ties invoices to the payments and makes it easily understood where the, why those payments came in and who they came from and why. You can really, you know, be a lot more efficient.
Bob Stark: Yeah, there's an entire category of software, AR automation. That's focused on cash application, funding different rails to gather remittance data, to be able to do exactly what you just described. Is it too bold to say that that entire category changes, as we get this RFP?
Reed Luhtanen: I think I, you know, I think one thing that we should be keeping in mind is if you think about payment systems, not yet happened in this country that we introduced a major payment network and then retired that payment network in a way that allowed us to be free of it. Right. So I think there will always, at least for the foreseeable future, be a place for all the different payment types. We've talked about wires and ACH and card, and now these new instant payments through RTP and fed now. And so. Will it change the nature of those software providers and the packages they're offering? I think there's no question about it. Um, but I think, um, you know, I'm not going to call for anybody's head.
Bob Stark: No, no, we're not definitely not asking you to do it. Good point. So in terms of the steps, cause I think some people are probably their ears perked up when they heard requests for payment. Is that the typical workflow that we would expect that it actually starts on the receivable side and actually sending, um, to like for that request for payment, or would it be initiated as a typical payment, which is more on the payable side?
Reed Luhtanen: Yeah. You know, I think that's an interesting, um, aspect of these is it is that it is going to depend very much on. On the use case, first of all. So if we're thinking about B2B payments, I do think that a lot of them will be conducted in that fashion where it's a request for payment and that's how ultimately how invoicing can be done. Right? So you're, you're not emailing an invoice. You're sending an invoice through say the RTP network as part of your request for payment, it's attached to it. And that way, when the payment comes back through the payment network it's associated with, uh, request that you sent and it becomes almost a conversation through the PA that includes the payment network, as opposed to the conversation off to the side. And then the payment happens and you got to figure out how to, how to match the two up. So I, I think a lot of B2B flows will be using the RFP. Um, you know, I think a lot of, a lot of other flows likely will as well. Um, but I also think there'll be a place for the more traditional, you know, wire style pushing the payment without our request for payment. Um, and I can see that being pretty successful in the say the, could C to B space, maybe brick and mortar.
Bob Stark: Yeah, absolutely. I can see where that point would come. So to go into that a little bit more, what's the. and the answer probably differs as we look at different time frames. For today, where does this fit amongst the other choices that we have, let's just say in B2B to start with. And I recognize that the answer is different as we look at different participants, but in B2B, given that we have some choices right now where are faster payments becoming really interesting and attractive for organizations?
Reed Luhtanen: The RTP network today doesn't have ubiquitous reach, right? So they're connected to a large number of DDA is more than 70% of the DDAs in this country, but not a hundred percent. Um, and what that means is you end up with needing to figure out what are the flows that I can facilitate that are going to be efficient from, for me to know who I can send these RFPs for, if I want to do it that way or who I can send a payment to directly, if I want to do that way. And so it lends itself to those bigger institutional payers and receivers who are more sophisticated and can figure that piece out and understand well I'm Proctor and Gamble and I pay Walmart all the time. We, our banks are both connected to the RTP network. We can, we can use that to transact, um, in that way. So I think it's it, at this point, we're at a stage where it has a lot to do with who, who is in a position to understand who else they can send the funds to, um, or who else they can send an RFP to, if that makes sense.
Bob Stark: Yeah, very much. Makes sense. Now, does that change as VC fed now and their initiatives getting closer? I mean, this has been talked about for a while. Does that change that, I guess we'll say participation?
Reed Luhtanen: I think. Absolutely. So what you're seeing, at least what I'm seeing in the market is a large number of smaller community banks, credit unions, um, who are participating in the fed now pilot and all indications are that they intend to follow through and implement fed now. Um, and so I think, I think you're going to have a situation where there is a large number of financial institutions. Maybe, maybe they don't represent a huge amount of volume compared to the, to the largest FIs who are already on the RTP network. Um, but a large number of them. And you got to get all of them eventually into the system in order for it to reach that ubiquitous level that you're looking for. Um, and then it becomes a question sort of back to your earlier point about interoperability is, you know, how do we, how do we get to a place where if at least one of the two instant payment networks is connected to all of the DDAs, how do we make that such that we, as an ecosystem have the reach of both of them combined. And I think that's going to be something for us to figure out as a, as a group, um, and, and navigate. But, um,
Bob Stark: Let’s jump into our next segment: The Playbook. This is where we talk strategy.
So in terms of the different choices that they have right now, one thing that people have said to me, typically, CFOs that are looking at and trying to understand where does real-time or instant payments fit into their portfolio of choices that they have for payments, it is, they often recognize that say the daily ACH limit has been going up recently. Is that potentially in, in response to some of the interesting opportunities that instant real-time payments provide?
Reed Luhtanen: I guess I'll preface this by saying that, uh, NACHA and the fed and the clearing house are all our members. So I, I, I don't, I don't necessarily want to want to speak for their motivations, but what I would, I would say is, I think there is a constant raising of the bar in the payment system. And that has been accelerating the last few years. So there's, there's a constant desire from these different providers to maintain as high a level of service as they can and differentiate themselves in the ways that they're able to from other systems, um, such that people want to use their network versus some other network. Right. So that's true between any of the card payment networks. It's true among the various types of payments we're talking about today, that they are all different alternatives for end users and for financial institutions to achieve the same objective, which is moving money from one account to another. And so to the extent the ACH network, uh, doesn't have the same level of say speed as the RTP network, um, increasing the amount of money that you can put in an ACH transaction is a logical thing for them to do in order to attract users that maybe want to transact in amounts that are higher than what the RTP network allows today.
Bob Stark: Yeah. Okay. That's understandable. And I would imagine there's those limits and those different details will certainly change as we continue going forward. Ultimately, what I'm hearing is that this is a big positive for those that were traditionally having to make choices based on the transaction limits and when it was $25,000 as a limit, that was a challenge for many organizations when they're having supplier payments that were more than that, but they didn't necessarily need the speed or delivery of the Fedwire.
Reed Luhtanen: Oh, absolutely. And I think the corporates are always going to say, we want the limits to be higher and higher. Right. Um, they, you know, that it increases the utility of the, of the system. If you want to transact in the millions, you need the limits to be in the millions. Um, And so I think that's going to be a constant battle because there is the, you know, the countervailing interest from all of us in the ecosystem and particularly the operators in the financial institutions to ensure that, you know, there's not, uh, fraud or inadvertent payments or accidental payments or anything else that ultimately, you know, you have customers who are upset. So I think, you know, there, there's definitely a balance to be struck there. And I think all the networks are continually trying to figure that piece out.
Bob Stark: Yeah, it's a great area to, to figure out in terms of what is the right utility, what do our customers, as, especially in the B2B side need in order to use these choices effectively. So I'm glad you touched on that. You also mentioned fraud briefly. I've always found that if you have a faster payment, whether it was something that just settled, you know, same day, as opposed to next day, or certainly something that settles instantly that you, if it's irrevocable, then it's, you need to say up your game, so to speak in terms of making sure that the payments you are sending out are the right ones. So the question in that is, is it a fair statement to say faster payments means that you have to be much better at, fraud prevention?
Reed Luhtanen: I, I would say that there are different types of fraud that are going to be prevalent in a space where you're talking about push payments instead of debits, right? So all these networks we're talking about, I guess the ACH network enables both. Um, but the visa, visa and MasterCard direct, those are pushed style. RTP is entirely push our fed now is going to be entirely push. So you've got a different type of fraud that you're needing to be concerned about. And yes, the there's no question that the, um, irrevocability of those networks, at least the RTP and the planned fed now networks irrevocability um, means that a mistake that is made is, is more difficult to correct. Um, but what you're seeing is not just that, but you're seeing a different style, different approach or vector to fraud, um, authorized push payment fraud being one that's very large. And that's, that's one that, um, is targeted at both consumers, but also at businesses. There's actually a lot of targeting of, um, folks who are, might, who are probably listening to this podcast. They probably get these emails all the time, trying to one way or another one way or another, get you to send a payment or, you know, there's all these different scams. Right. Um, and on the, but on the other hand, the nice thing about this type of payment is you don't have to have in your systems the sensitive credentials associated with the other person's account and the way that you do when you're debiting somebody's account. Right? So if I want to use the ACH network to debit your account, I need to have your account number in my system. And so that, that means that I've got to then keep that protected somehow and not let somebody take it because if somebody else takes it, then they can use it to debit your account. And that's not what we want. So I think, you know, there there's, you know, like I talked about this a lot, there's their balances and countervailing interests all over the place.
Bob Stark: Yeah, definitely. There is a different equation, as you said. And two things to me stand out is one is you can do something about making sure that the right payments, the right authorized payments are going out the door. It maybe shifts some of the responsibility or maybe take on, say shifts it from the bank. It puts the onus on you to actually have your payment processing your workflow correctly.
Reed Luhtanen: I think that's spot on. I think, you know, we talk a lot about, we want payments to be like sending an email or sending a text message. And we, we mean that in that it should be simple and it should be instant, I guess what we don't, but who among us has not sent an email to the wrong person, um, inadvertently. Right. So we, we definitely want to have the processes. Controls in place to prevent erroneous payments from going out or, or people being scammed, you know? And there are, you know, there's lots of different, you know, you're right. There's AI, there's machine learning, things like that, that can help it to detect it. There's also just putting in very simple checks, like asking somebody for one extra piece of information that you maybe don't even need to process the payment, but that would cause them to have to look up the person that they're sending it to and then re potentially realize that they had the wrong name or they had the wrong something about it that was going to make it go to the wrong place. Um, so there's, there's, there's lots of things like that that can be done to help offset and prevent fraud from mere, not fraud necessarily, but even accident, um, from happening.
Bob Stark: Yeah. it's, it's the same sort of checks ensure that the right payments go and whatever the issue, whether it was accidental or willful accidents, same things can be presented by having the right steps in place.
Reed Luhtanen: Our fraud working group right now is in the process of putting together a report on what are people who have implemented instant and faster payments, what are the different mitigation strategies that they've implemented and how are they working and things like that. So that should be a good resource for the industry, the ecosystem to try to get a handle on, you know, folks who are doing this, what are they doing to help, you know, head some of this off?
Bob Stark: Oh, I'm glad you're doing that because we definitely, we're always being asked for best practices and by CFOs or controllers or folks in the treasury side, always looking to ensure that they're doing most they can to be resilient. When you talked about the RFP request for payment process, given that there's information that is in there inherently, like I'm asking you to pay this for this particular invoice as an example or whatever the scenario might be. Does that also help in that fraud mitigation the sense that it already gives you information about what that payment is for?
Reed Luhtanen: Oh, it certainly can. Right. So if you ordered something, let's say you're your one business and you ordered something from another business. They, if all you had to do was just push a payment, then you're the one who's got the responsibility of making sure identifying what's the account number? How do I, how do I get this payment sent to them? You know, what's the right contact person to put on the payments so they know? Uh, versus I know I bought these widgets from Acme, Inc. And I got an invoice for the amount that I was expecting from Acme, Inc. And it all matches up with what I expected to happen that that provides a much higher level of certainty around, around that payment than you would have if you were just sort of pushing it out there without that.
Bob Stark: That's a fascinating feature. Um, because obviously you can connect to different pieces of information or data within your AP system. So maybe it's a PO in number or something along those lines that, automatically validates say some part of your process so that, you know, you're paying the right thing. In addition to all the efficiencies you get as a receiving organization. So it seemed, that feature seems really interesting.
Reed Luhtanen: Yeah, absolutely. And, you know, I, I, I sort of couched it as a person, but I think you're right. That a lot of this would be done by, you know, by computers and by the systems that are, that have all these different points of data to match up and, you know, they could, with a very high degree of certainty, I would think, know whether it's legitimate or not, and, and be able to, you know, other than, you know, the final couple layers, like we said, like making sure you have the right people approving a payment, um, you can be pretty sure about it before that you're going to get to that step.
Bob Stark: Yeah, I like that step a lot. I think most people that we work with are definitely appreciating those benefits because it really does improve the process, which everyone's looking for. Everyone's looking for efficiency and everyone's looking for greater security around their payments process. There's some check marks that are coming as a result. It sounds like it’s time to look ahead in our next segment: Report from the Future.
So, let me ask the question around international. You mentioned a couple of times and obviously my background, I know part of the answer to this already, even as a Canadian, I'm recognized that RTP in terms of the clearing house is it's a domestic network at this point, just like ACH is how do we deal with cross border? What's what's it look like right now? And then maybe. The next question. What's it going to look like in terms of making cross border payments a reality?
Reed Luhtanen: I think you already answered the short part of this though. What's it look like right now is today we've got the RTP network and for now there's, unless something has changed very recently and there's no way to take an RTP transaction and send it straight through to a foreign destination. Um, that being said, there are, there is work and thought underway on this front. And in fact, um, we have a cross border work group here at the FPC. So you kind of set me up to do a little more shameless self promotion, but, uh, they put out a paper earlier this year that, that takes that question and, and divides, divides their thinking into some different dimensions around speed and costs and ubiquity and transparency and risk, and then looks at different interoperability approaches. So you could have a bespoke approach where two networks say the RTP network in the U S and the planned faster payment network in Canada, um, work out a deal to figure this out somehow by you. and, and it works for those two networks, and, and only those two networks. Or you could have a centralized model where there's some hub in the middle that provides for this sort of translation activity, um, or they can have some combination of those two approaches. Uh, I would say it's pretty early days in terms of where we're going to land on this question. I think, um, one thing I try to caution people in lots of different avenues when it comes to payments is that you don't necessarily need to get to a single answer to a lot of these questions, but lots of different answers that can work for different applications in different use cases can be a good thing and can provide for the type of diversity of options that we need. And in such a complicated environment, when you're talking about just the U S it's complicated enough. When you start to talk about all these different jurisdictions with different currencies, um, It adds to that level of complexity in a way that doesn't necessarily lend itself to one single answer.
Reed Luhtanen: And this isn't a cross border example, but it's a big one that came up just very recently where it was announced that, um, Verizon has in place now a deal with Citibank. So anybody who's banking at Citibank can pay Verizon using this RF request for payment, uh, RTP transaction flow. Um, and to the point you're talking about, but that network doesn't have a hundred percent reach, but those are... Citibank is obviously a very large bank and Verizon's a very large biller. And so there is an answer to their question that doesn't necessarily have to answer every question.
Bob Stark: So an application of that, you can pay your cell phone bill.
Reed Luhtanen: Right.
Bob Stark: In real time, and you get a email from that case, Verizon saying, bill's ready pay now. And it's just simple and easy.
Reed Luhtanen: Right. And the payment you sent in is tied to that e-bill. So Verizon knows who it came from and what account to apply it to et cetera, all in real time.
Bob Stark: I guess then some of the efficiencies we're talking about for this is a C to B scenario, but nonetheless, it creates efficiencies. So that in this case, Verizon is able to reconcile that in their systems without any errors, without any concern. And you know that you just accepted that request to pay and you're done, they're done and you move along and you don't have to worry about it again.
Reed Luhtanen: Great. Everybody's happy the bill is paid and the phone keeps working, right?
Bob Stark: yeah. Which is kind of the scenario that we're all looking for on payments anyway. As we want it to be that simple and easy.
Reed Luhtanen: Yeah. Yeah. I mean, I think, you know, I guess it's trope at this point to say this, but, you know, we all want payments to be like they are when we do an Uber, right? Like you want it, you want to have the experience. And I used to, when I was at Walmart, I used to say, you know, nobody walks into a Walmart store thinking I want to pay for my groceries. Right. They walk in thinking they want to get their groceries. And the payment is a necessary final step before they can leave with it. And I think to the extent you can create this flow where it's the payment is part of an experience that is really more about Verizon saying, Hey, uh, Hey Bob, you owe us $50 for your, for your bill for the month. And you're saying, okay, you're right. I do. And it's, you know, one click on a button and the payment goes back, you know, along with your acknowledgement. And then like you said, you get an acknowledgement back immediately that says you're paid and you're good to go, which is what you want. You want to know that the bill has been paid and that you're not going to have your phone shut off.
Bob Stark: Yeah. That's exactly what I want. Those are all the things you just said, checked a lot of boxes there. So we're talking about this in 2021. When did we start to see the tipping point in your view?
Reed Luhtanen: We are already starting to see the tipping point for certain use cases. And we're seeing, like, I think the big one that comes to mind is, um, disbursements. So payroll, gig economy, government payments, things like that. I think, I think that's probably the lowest hanging fruit and we're that there folks moving very aggressively towards using these networks to facilitate those types of payments. Um, and I think as you sort of think about the different, the varying levels of complexity associated with different types of payments, we talked about B2B being one where a lot more sophisticated parties on both sides can lend itself to, you know, bespoke one-off deals like the Verizon one we talked about. Um, and then I think further down the road, it is going to be things that are maybe more mass market. Like what I talked about walking into a Walmart and being able to pay for something, you know, I think that's, that's so much more complicated than the other things we've talked about, um, in terms of the experience for the user and the connections between the different, uh, financial institutions and so on. And so I think, um, it, the answer, my answer is it's going to vary very much, depending on what use case you're talking about.
Bob Stark: It does speak to the fact there is adoption. And I think when most, especially in the corporate side, most CFOs and even treasurers, and certainly AP teams are thinking, oh, it's something that maybe that'll be ready for me in a couple of years. It's not there yet for what I'm looking for. But your point is that no, it's actually there and it's being used and you even mentioned, the gig economy as an evolving part of our payments that is a perfect use case for what we're talking about.
Reed Luhtanen: Yeah. Oh yeah. And I think if we've learned anything over the last, you know, couple of years, 18 months, um, it's that the changes that we've experienced were not really a change in the direction that things were going. It was an acceleration of trends that were already in place. Right. So I think, um, you saw an acceleration of people moving all kinds of different activities to being remote and being digital that used to be in person and be physical. Um, and payments has not been an exception to that. In fact, I'd say it's been one of the leading things affected by that. Um, if, if you were already anticipating a digital economy, you were in pretty good shape to adjust to what happened today. And I think that's going to be the case going forward too.
Bob Stark: I'm going to ask you a question that's a little bit predictive again, just to have some fun with it. If we look at, AFP does a nice job of assessing different payment methods and every year, I always look out for this particular payment report, because I'm curious as to how much less checks are being used for payables and receivables. A lot of organizations still use checks and there's a lot of reasons for that, but is this a great landing spot to when you want to digitally transform away from checks, to be able to use this instead?
Reed Luhtanen: Oh, absolutely. I I'd say that that's, you know, a top reason why this is going to be a win-win for the different parties involved in payments because, um, people generally don't like writing checks. I know for sure people don't like accepting checks. And honestly the financial institutions in between would much prefer something that is more automated and less labor intensive. It's expensive to process checks. Um, even though most of them get converted into ACH, there's still a cost associated with that, both in terms of, you know, error, but also in terms of the experience that their users are having on both ends. So I think everyone sort of would circle that one is like, yeah, we could probably, uh, you know, really, really reduce check writing. I, you know, I caveat that by saying really, really reduced because, um, it'll be a long time before we have the last check in, in, uh, the last check will be fraudulent.
Bob Stark: Yes. Fair point. I think that's a, definitely the right way to answer that question. But as we pointed out earlier, that small bit of remittance information that comes with the check, this is solved. Where a lot of organizations, they went from check to ACH. They suddenly had to create a different pathway to send the remittance information now that they don't with checks. And so that could be an impetus right there.
Reed Luhtanen: Yeah, absolutely.
Bob Stark: Hopefully under the last count I saw it was during COVID maybe hitting the 30 odd percent of payments by check from like 42%, I think right before COVID. So hopefully at some point in the next couple of years, we're into the 20% and checks can go away like they have. Honest, like ironically in some of their countries in Canada, barely use checks. certainly not a consumer standpoint in Europe. They pretty much didn't really adopt them in the same way as we did here. And so again, have evaporated by having more digital types of payments.
Reed Luhtanen: Yeah, but you just think about 30 plus percent. That's that's a lot of payments. So that's, it's, it's a lot of behavior that you need to change and you need to have not just the plumbing that connects the two bank accounts together, but also what's that experiential layer, what are those enabling capabilities on both ends that allow for that experience to happen? So the check writer is able to, instead of writing a check, push, send the payment in some other way. And the receiver of that payment is able to, in the same way they are familiar with the check writing experience today, they might not like it, but they know it's going to work and they know how it works. How you have those different experiential aspects built onto the ends to make sure that everybody is, you know, can habituate that and incorporate that into their process.
Bob Stark: You actually touched on a point I was going to ask as well, is around that change in thinking you pretty much have to have a mindset that I want to digitally transform how I'm paying and receiving to be able to be ready to move away from checks to something like digital real time payments.
Reed Luhtanen: Yeah, absolutely. And you know, you have to have not only the ability, but you have to, to your point, you have to have the desire and there has to be a reason why you're going to do. There has to be some, some incentive. And I, you know, I guess my view is that the efficiency gains ultimately are going to win out over, over the, you know, because we've always done it this way. Um, but that doesn't happen overnight.
Bob Stark: Well, speaking of, of, I guess we'll see bold changes in thinking if we look at digital or cryptocurrencies and how they're starting to, I don't wanna say take off. Cause that is, that would be a bold statement that really doesn't, there's definitely an element of our populous that's fascinated by digital currencies at this point in the conversation, but are a real-time payments an options for them, or are we just talking about Fiat currencies at this stage?
Reed Luhtanen: So today all of the services we've talked about are only transacting in Fiat. Um, now that sort of raises a few interesting questions. One of them is, you know, a Fiat currency could certainly be a digital currency. Um, at the same time, there's lots of chatter around central bank, digital currencies. Some other countries have implemented one or in the process of doing so. Um, so there's, there's, there's. Aspect of this. And actually, one thing that our cross border work group is looking at is how might digital currencies have a role in helping facilitate cross border interoperability among different currencies as a sort of intermediary step. Um, so that could be kind of interesting. And I think, I believe that's how a lot of, um, existing, uh, players say ripple is one example. They use a, they use a crypto in between, I believe, to bridge over their currencies, to, to provide for that cross border experience. So, uh, you know, uh, I agree with you that taking off is probably overstating where they are, because I think you're not seeing a whole lot of transacting happened with it, with the established big crypto's. A lot of people are treating them more as a place to invest, um, than they are as a transactional, um, you know, utility.
Bob Stark: Oh, definitely the utility is not there yet. Uh, for sure. I mean, it makes a lot of noise just because Bitcoin, we all think, oh, it was way down there. And I shook it off as a toy. And then it got more value and I wished I hadn't, and then it got more value, all those sorts of things, but you're right about that example, like ripple was the one that came to mind when you were talking, using XRP is just that literally middle part of the layer. They'd love to see utility and become it as a method of transaction where consumers are actually holding that in digital wallets. But the reality is that's, hasn't quite played out in the speed that they were thinking. That could be an avenue for sure.
Reed Luhtanen: And I mean, who knows? Right? I mean, any, any of these, if it finds the right use case and finds the right group of users to give it the, to get it over, whatever hump it needs to get over. You know, I mean, who knows, who would have predicted that, you know, WeChat would be one of the biggest payments players in China to your, to your point about the market there. Um, and you know, there's some, there's some big players in that space too,But, uh, some very large, you know, interests who are looking at that space and you never know who might make it click.
Bob Stark: Yeah, well, there's definitely a lot of reason to want to do payments differently. And I think that goes back to your original point. There's a tremendous amount of opportunity to say perfect payments, but certainly improve whether it's the speed, whether it's the remittance, which we talked a lot about, there are a tremendous amount of opportunities, both domestically and cross border. I think it's fantastic that the organization that you're leading is really looking at different pathways and different ways to benefit what not just corporates are doing, but also those C to B and B to C. I said both of them this time. I'm not forgetting anyone when I say that there's a lot of different groups represented that can benefit by what, uh, the FPC is doing. So maybe the, the last question I'll ask you is what's what's next? Like in terms of your different initiatives. Obviously you talked about looking at cross border, looking at potentially different adoptions. We see new rails like fed now coming in. What's the next thing that we can expect that the faster payments council is going to be able to provide guidance for?
Reed Luhtanen:I think a couple things. First of all, I'd say we have a, an obligation I would say, but a real opportunity also to help parts of the ecosystem find each other. Right. I talked about those necessary enabling capabilities in order to build out the experiences. Um, and so different folks, let's say you're a corporate, you've got a bank, but you need to identify different service providers to help you put together an actual offering that you can then show to you, whether it's your internal treasury team or, uh, customers, what have you. Um, and so what we're doing is we're building a, an online catalog that will allow different folks to say, Hey, I'm a, I'm a corporate, I'm looking for X or Y or Z, and provide you with, you know, overview and contact information and so forth for these different providers to help you sort of figure out who are the different people I need to be talking to, to try to figure out how do I piece this together and make it work for, for what I'm trying to achieve, whether I'm a financial institution or corporate, whoever I might be. So that's one thing. Um, I think the other thing for us is really leaning in on what are the different use cases that folks are trying to implement? And how can we be a place where those conversations are had with the diverse set of stakeholders we have? And ultimately you say guidelines or best practices can be published out for con for consumption by the broader ecosystem. So a couple of examples that come to mind, we have a real-time recurring work group, um, that's looking at how can we leverage this, you know, these real time payments to allow for recurring style type of payment. Think about, you know, there's myriad examples, right? Your payments to Netflix every month, or your deposit into your Goldman Sachs account. And how do you sort of pre-authorize multiple transactions that can, that you don't have to be involved with every single one every month. Right? You don't want to have to say, yep. I want to pay Netflix again every month. Um, and so how do we lean in on helping, you know, bring those different flows to light and then bring together the, the, the different, uh, attributes of the ecosystem from a financial institution and network technology and user perspective to make sure that it checks all the boxes that everybody needs checked.
Bob Stark: Yeah, that's valuable education. And I know, I mean, from the conversations we have on the corporate side, there's a lot of organizations that could benefit from just understanding, oh, I can do that. Whereas they just didn't necessarily have that awareness before. It's a great initiative that you're, that you're doing just to help more people, more organizations know about faster payments and what's possible already. Nevermind. Some of the things that are coming up.
Reed Luhtanen: Yeah, Bob, I totally agree with you on that point. And the one thing I would say is, uh, first of all, obviously we would love for those folks you're talking about to check out faster payments council.org and consider being a member. But even if, if membership isn't something that they've got the resources for, um, there's a ton of resources available in the knowledge center there that people can check out. So faster payments council.org, uh, is a great stop for people who are trying to get an understanding of all the things and a number of the deliverables I mentioned, or I'll post it out there for people. So that's a good place to stop.
Bob Stark: Yeah, that is a good resource. And having been aware of it myself, I can definitely attest to the fact there's a lot to learn. One thing, just to make sure that everyone understands is you can join this council, like you, you can definitely be part of this as opposed to just listening on the side, if you want to.
Reed Luhtanen: Absolutely. And I mentioned this at the stop at the top of the show, and it's a good thing to come back around to. We are inclusive of all people and all stakeholders who are interested in the payment system. So if you're interested in helping to shape and influence the future of payments in the U.S., uh, becoming a member at the FPC is a great option.
Bob Stark: Okay. I definitely agree and there's a few things that I have to admit. I didn't know, actually, probably more than a few things as we went through this conversation, but I think it was pretty eyeopening for anyone listening to this, whether they're on the B2C, B2B, or C2B, uh, sides of the equation. Uh, I think this was very intriguing and I thank you for your time and giving us a bit of wisdom as to what the faster payments council is focused on. And obviously some of the opportunities to come including greater adoption, uh, more interoperability, and being able to look at that cross border problem that many corporates think, oh, I wish I had a better solution for that. There are some better solutions coming.
Reed Luhtanen: Yeah, absolutely. Thank you so much for having me, Bob. It's been great and I hope your audience gets a lot out of this.
Bob Stark: Oh, thank you, Reed.
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