Part of Our Money20/20 Interview Series
By John San Filippo
Money20/20 USA, the fintech mega-conference, was once again held in Las Vegas, this year from Oct. 23-26. And once again, Finopotamus was onsite talking with industry leaders about a wide range of topics. These interviews are captured in this series of articles.
Finopotamus spoke with David Grindal, ACI Worldwide’s vice president of solution consulting in charge of the Americas to get a deeper understanding of the latest developments in instant money movement.
Finopotamus: First, please tell us a little about ACI Worldwide.
Grindal: ACI is a software vendor in the payment space. Our solutions are quite broad, so they cover everything from retail cards, credit card and debit card payments, the issuing of credit cards and debit cards and payment tokens, the authorization of the acquiring of those transactions. At an ATM or at a store or at an e-com site, the switching, the authorizations on the bank side, fraud detection on all of that – that’s retail. On the wholesale side, we do wire payments. We're the largest vendor of buyer payment software in the U.S. About two thirds of all Fedwire payments go through our ACIS wire payment engine. Our third segment is bill pay.
Finopotamus: Where does ACI Worldwide touch credit unions?
Grindal: We generally reach Tier 1 and Tier 2 financial institutions (FIs) as direct customers, so we have some larger credit unions, including SchoolsFirst Federal Credit Union and Golden 1 Credit Union. Also, several processors that serve credit unions run ACI software. In Canada, for example, the two largest processors that serve the credit union movement both run ACI software. We serve about 900 credit unions in the U.S. and Canada, either directly or indirectly.
Finopotamus: Where does RTP (Real-Time Payments, an instant money movement network created by The Clearing House, or TCH) fit into everything you just explained?
Grindal: RTP is mostly in the banking segment, but we'll end up selling it to merchants, as well. We provide software that does FI connectivity to the core networks. In the U.S., that’s RTP, that's Zelle. And we are on the pilot list for FedNow (an upcoming network that will compete with RTP, created by the U.S. Federal Reserve). In fact, we participated in the Faster Payments Task Force. I was ACI's rep on the Faster Payments Task Force a couple years ago that recommended the creation of FedNow. We'll be live when FedNow goes into pilot.
Finopotamus: We’re talking about Zelle in the context of real-time payments, but isn’t Zelle just a messaging system where funds are settled a day or two later via ACH?
Grindal: That's absolutely correct. When you're the recipient of a Zelle transaction, your credit union tells you David sent you a hundred dollars. They drop a hundred dollars into your account, so you have immediate access to it. From the user's point of view, it was real-time. But the money goes over ACH at night. That's between the financial institutions. All that said, Zelle will eventually move to RTP.
Finopotamus: Just to be clear, please explain the difference between RTP and FedNow.
Grindal: They provide almost exactly the same service, but the service is provided by different institutions. They're both ISO 20022-based. (ISO 20022 is a multi-part international standard prepared by the ISO Technical Committee TC68 Financial Services. It describes a common platform for the development of messages.) They are both immediate. They both have finality, meaning there's no such thing as a refund or a void. It's like a wire transaction. When it's done, it's done. It's irrevocable.
The only difference is that the RTP system was built by a private entity called TCH. They own it. They operate it. They charge fees for it. Whereas FedNow was created by the Federal Reserve. Both systems address the same capabilities, the same markets. In practice, it looks like FedNow might be more suitable for smaller institutions, and that's because of the ownership structure. If you’re a small CU and you’re using RTP, you are literally paying your competitor to process for you and handing them data about your member.
Finopotamus: Since RTP and FedNow are both based on ISO 20022, will they be interoperable?
Grindal: There will need to be something. That's an absolute fact. The Faster Payments Task Force rated interoperability as one of the key criteria for faster payments to succeed in the U.S. In the same way that Visa will switch a MasterCard transaction, there's going to have to be some kind of a bridge. They haven't designed it yet or built it yet, but there is going to need to be one.
Finopotamus: As instant payment technology becomes more widely adopted, how do you see it being used?
Grindal: Great question. There's a large number of individual use cases where things are a little bit easier with an immediate payment. For example, if your credit card bill is due on the 15th of the month, you can wake up on the 15th, pay it and it’s in your credit card company's coffers on the last possible day. So, it actually helps you manage your cash.
There are some business use cases where you need to know that you've been paid with finality. It could be a delivery. Some states have regulations around paying for certain things like delivery of liquor. You have to be paid at the time it's due. You can't invoice later. There are a lot of little use cases, but in general, the ability to pay faster smooths the process.
A huge growing use case for RTP right now is immediate payroll for gig economy workers. It's things like paying an Uber driver at the very end of his shift as opposed to getting his money a week later. There are some firms that used to do that, but they'd factor it. They'd charge you 2% to pay him immediately and then they'd make the 2% as their revenue. But now, if I've got casual labor – say I’m a construction company and I just hire casual laborers. I don't have people on a steady payroll. I can pay them using RTP and they're paid at the end of their shift.
Finopotamus: Any closing comments?
Grindal: We talked a lot about U.S. domestic immediate payments, but you have to recognize this is a global trend. The entire European Union has an immediate payment network called SEPA Instant (also called SEPA Instant Credit Transfers or SCT Inst). It's a global phenomenon.