Putting Banks On The Fast Track Toward Faster Payments

As consumers adapt to the conveniences new technologies offer them, their expectations surrounding speed, reliability and efficiency increase for all areas of their lives – including personal banking. The same person for whom it’s intuitive to order an Uber with a swipe of their finger or ask Siri to forecast the weather, is also likely to expect his or her financial transactions to process seamlessly, as quickly as possible.

At the intersection of banking and technology is the Office of the Comptroller of the Currency – the U.S. Treasury bureau in charge of regulating and overseeing national banks, federal savings associations, and federal branches of foreign banks. As a member of the FED’s Faster Payments Taskforce as well as several working groups, the federal agency is supportive of a secure and reliable payments ecosystem in which rapid transactions can thrive.

PYMNTS.com recently caught up with Kathleen Oldenborg, Director for Payment Systems Policy for the OCC, about where the future of faster payments is headed and what the agency’s role is in getting it there.

The banking and tech bond

The relationship between payments and technology is a long-standing, and arguably natural, one. Digital advancements have been influential in shaping the processes and infrastructure of the banking world, Oldenborg explained.

“The banking system has a history as a leader in adopting new technology and implementing systems to meet the needs for efficient delivery of products and services,” Oldenborg said. “The changing needs and demographics of the customers they serve have also been a key driver in the evolution of the banking business.”

In a world where banking apps are increasingly used by both consumers and businesses, and checks can be deposited via smartphone camera, faster payments is the next frontier for regulators and issuers. “Faster payments represents the natural progression of developments in technology, the delivery channels available to the system, and client expectations,” she said.

The need for speed necessitates enhancements to security

Oldenborg explained that banks entering the largely uncharted territory of instant transactions are met with numerous challenges, mostly pertaining to risk management and consumer authentication. Banks will likely need to directly embrace cutting-edge methods of authentication, including solutions like tokenization and biometrics, while placing an increased focus on fraud detection and prevention. Another key component is customer education, she said.

“Internal system modernization may be needed, as well as recognition of the potential new impacts that a faster turnaround will have on credit, operational, liquidity and compliance risks,” she said.

As the OCC works with the Federal Reserve and other institutions to establish a framework for these transactions, the agency is also identifying faster payments’ biggest threats.

According to Oldenborg, today’s most significant threats are the unlawful use of the payments system for illegal business and fraud.

“The pace of change in the technology and the challenge of business processes and controls to keep up with those changes is also a prime concern,” she said. “By focusing on sound policies, procedures, and processes, financial institutions may reduce the potential harm arising from these risks. Financial institutions should utilize sound risk management to identify, monitor, and mitigate fraud risk.”

Although existing OCC regulations are still considered applicable to banks implementing faster payments, Oldenborg acknowledged that new rules will likely emerge as needed.

“As the new systems are implemented, and best practices are developed and recognized, some additional guidance may become required, especially those rules that may be more prescriptive and do not allow for a broader interpretation that can apply to newer products and processes,” she explained.

The future of faster payments

As faster payments continue to grow in accessibility and use, and cement the relationship between banking and technology, digital solutions will keep playing a major role in the financial ecosystem.

According to Oldenborg, it’s too early to confidently speculate on the future of the faster payments rails system, though she believes it will likely be enhanced down the line.

“We will probably emerge with a more cohesive and interoperable set of systems (or rails) that will allow greater flexibility. For those that remember the early days of computer programming when a single program of code was replaced with iterative, module-based coding and how it revolutionized the business of application development,” she said.

Whatever the faster payments infrastructure looks like a few years in the future, one thing is fairly certain: Improvements to speed and efficiency have the potential to completely transform the banking industry.

“I have no doubt that we are entering the next phase of this evolution when open architecture, apps, and APIs will transform the payments business as it now exists. Each delivery channel and system (ACH, real-time payments, mobile, wire transfers, or the card networks) currently plays an important and distinctive role in the payments ecosystem. How this will all shake out is anyone’s guess at the moment,” Oldenborg said. “However, the magnitude of change brought about by faster payments will allow the financial industry’s capabilities and options to better serve customers, companies, and communities.”

Look for transformation, going on around you – now.

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About The Tracker

The PYMNTS Faster Payments Tracker, powered by NACHA, is your go-to resource for staying up to date on a month-by-month basis. The tracker highlights the contribution of different stakeholders, including institutions and technology coming together to make this happen.