Day one of the NACHA Payments 2019 conference threw me right back to 2010 when it seemed that half the sessions at any conference you went to were about mobile payments. In those days, it was the telecoms that were breathing down the financial institution industry's neck, but oh what a difference nine years can make. This go round, it's all about faster payments, loosely defined as real-time payments and it is THE hot topic. We all know faster payment schemes are in operation all over the world but unlike mobile payments, this is a more iterative change to the market.
On the face of it, the use cases are all converging around commercial payments and why not? Ground zero for inefficiencies, commercial payments are ripe and riper for innovation. As a commercial analyst pointed out to me, about 1.5% of all commercial payments are on cards, so that leaves a lot of green space and monetization opportunities. There's money in them there businesses and the chase is on to get some of it, but doing that won't come easy. As one panelist stated, a lot of corporates still think "checks look good". Inertia - sigh.
But dig a little deeper and you'll find consumer payments in there as well, just not where you might expect them to be. This is where the big retailers show up and as I've written before, will leverage these new faster payments rails as soon as they're ready for business. The retail wallets are in place and just waiting for the market to stabilize. When that happens, and it will be soon, look for the major retailers and merchants to jump on as fast as they can.
In the meantime, the banks and credit unions that are or have implemented faster payments are primarily receivers. Originating these payments are another matter and there is a relatively steep learning curve and the inevitable operational impact. Nothing moves quickly in the banking industry.
One of the most interesting sessions I attended was on the cannabis industry and how an Oregon credit union has cracked the code to deliver banking services to them. It was a fascinating look at an emerging industry that is the counter balance to digital payments - it's all cash. Listening to what this organization and the state treasury had to setup in order to manage this business and take in all that cash was eye-popping.
For example, the credit union deploys one FTE for every 40 cannabis accounts. At start-up, the ratio was 1:15. That's a lot of overhead. The branches that take in deposits from these businesses need three cash pick ups PER DAY. The state treasurer had to reengineer their tax department and consolidate its operation into one central location to accept cash tax payments from cannibas businesses in order to effectively manage risk. The credit union claimed they have taken $600 million dollars of cash off the streets. That's a lot of payments.
If there was ever an opportunity to create an e-money solution, this is it.
Distributed Ledger Technology (DLT)
At one of the most poorly attended session was discussed some of the most important infrastructure changes to take place in the industry in many years. 50% of the session's participants claimed their institution's were implementing some kind of DLT, but 10% said they had a good understanding of DLT. That seemed like a potentially risky disconnect to me. Interestingly, it was a health care company, Anthem, that led the discussion about implementation. She pointed out the best practice for defining which processes are good candidates for a DLT solution. They are:
- A complex utility problem that impacts a large group
- The current process is paper-intensive
- Identity management/authentication is required
Frankly surprised that there weren't that many attendees for something this important, but it's a wonky subject and doesn't have a lot of flash and sizzle. What is more approachable is the concept of "smart contracts", something that is in use today and can actually be built on a number of platforms, not DLT-dependent.
That's the round up from Day One. Come back tomorrow for my Day Two notes from the field.