LOST PINES, Texas—With the first new payment rail in 50 years now in place and building market acceptance—and expectations—credit unions might want to put some “instant” in their responses now if they haven’t already, according to one person.
Implementation of instant payment isn’t as “onerous” as many CUs might expect, said Brad Ganey, SVP/chief operations officer with Catalyst Corporate, who outlines below why CUs need to adopt instant payments, what retailers and small business increasingly expect, and why the issue is about more than just another product offering and needs to be viewed holistically.
Ganey sat down with The CU Daily during Catalyst’s recent Strategic Summit in Texas.
The CU Daily: During a meeting like Catalyst’s Strategic Summit, what do you hope to convey related to payments and why credit unions should be paying attention?
Ganey: It’s about how credit unions view payments. We have the first payment rail in 50 plus years since ACH from the Federal Reserve (Fed Now), and you can’t ignore that. It’s not just a new payment rail, it’s the advance that also leads to not just domestic (payments), but international (payments).
You have to step back and look at the world, which is already there on instant payments. The U.S. (lags) because it has so much infrastructure and traditional payments and it’s always going to take longer. With instant payments we are trying to get a full understanding to credit unions…that it’s not just about instant, it’s 24/7/365 and has a much larger format that allows for a tremendous amount of information to flow with the payment.
If you really start to think about that and dive into that, it is going to change commerce. This is about eight years in the making. The Federal Reserve wasn’t originally intending to be in the business but we pushed them. We said we need more than just one provider. I’ve been in payments since 1986 and it’s always the banks and credit unions pushing retailers. Can you adopt this? Can you adopt that? It always takes longer because you always get that resistance from the retailers of what’s in it for me?
I know the volumes aren’t what people are looking for immediately and I can’t tell you when those are going to come, but I can tell you I expect them to really ramp up over the next year, because the really large banks are now onboarding and deploying even more. That means they’ll deploy to and enable their large customers and corporations.
Different credit unions are going to see different impacts at different times, but they need to understand the wave that is coming.
The CU Daily: Do credit unions see the future of payments as clearly as you do?
Ganey: Some do and some are getting there. We want to help walk them along this path and to see that it’s not just that I need to get plugged in and I need to connect to the rail; it’s that it truly needs to be looked at from a holistic, strategic perspective. It’s not just another cost to (the) business. I truly think this will be revolutionary to business, and if it’s revolutionary to business, it’s revolutionary to consumers, which means it’s revolutionary to financial institutions.
The CU Daily: How is it revolutionary?
Ganey: Because of the dramatic change, because it’s 24/7/365, and because of the amount of information that can accompany that payment.
It’s not really that banks care most about the direct, the immediate settlement; that’s more meaningful to consumers. But on the retail side, I’ll give you an example. One area where we are seeing tremendous movement is in indirect lending. You’re looking at connecting 14,000 different auto dealers through our relationship with Origence and CUDL to Fed Now, and so many of those (auto retailers) are owned by larger corporations. So, that’s meaningful dollars when you look at, ‘OK, today I get my money vs. maybe two to three days from now when I get it at the close of that loan.’ That’s meaningful dollars in interest to those corporations.
We’ve already seen the Tesla example where credit unions…started losing deals to those who are providing instant payments to Tesla. That’s where we were able to enable that through FI Connect.
The other way it’s going to be revolutionary is, say, you can close on a house and you’re no longer susceptible to the Fed wire windows. Think about a Hawaiian institution that can be cut off from a commerce perspective because they’re so far from the East Coast, and it’s always been about East Coast timing for systems closing for the day. Now, they don’t close. I think that’s where it’s going to be revolutionary.
As business sees this more and more, and some of this will take time as people have to develop the applications and the businesses have to adapt, but they’re going to be very motivated to do so. Certainly, the retail side will be very motivated to do so, because you’re killing interchange (expense) from their perspective.
The CU Daily: What information accompanies the payment?
Ganey: This is ISO 20022 format, which is the same format the Fed just took with Fed wires, so that’s where you start seeing that bigger picture fit.
You can think about it in terms of the traditional format. When you send the payment you just get this a little bit of general information, such as who’s this payment going to and what’s the reason. All of a sudden with this format it is significantly more. You could do a full invoice. You can be sending both the invoice information along with the payment information all at the same time.
As large corporations started enabling this and people started writing to that application, and they’re doing it now, it takes some time. That’s some of the lag you see. People are realizing you can get so much information to ride along with the payment versus the traditional world. That can happen anytime, any day, all those components together, and that’s what we want credit unions to understand from a vision perspective: how much that’s going to change commerce and change the demands on them as an institution.
The CU Daily: If I’m the CEO of a midsized credit union and I already have a lot on my plate and few resources, why should I prioritize instant payments?
Ganey: The first point I’d make is this is not a heavy IT lift. This is one of the lightest lifts you’ll do from a project implementation standpoint. A lot of people believe a lot of integration is required and it’s going to be a huge lift, but that work has been done, that integration has been done before it ever gets to (the credit union). It’s not this huge, onerous project that some people may envision. That’s going to vary, obviously, but I think it’s one of those things you shouldn’t let be an inhibitor to talking to us and finding out the reality of that. In most cases, people are very pleasantly surprised.
The second piece is credit unions are all about members and you never want to stand in the way of your members receiving a faster payment when they really need it at a critical time, knowing that if they had gone down the street to the bank they could have gotten the payment instantly. You just never want to be in that position.
We’re all about member support. I can’t tell any individual credit union when it’s going to be most critical, but it’s not critical until it is, such as in a disaster situation and FEMA is making instant payments. So, at all of those financial institutions that are enabled, those people are getting their money before their members.
It’s not just a disaster situation. We’re seeing a huge uptick in organizations paying their employees immediately. It’s not just the Ubers of the world. We’re seeing more of those in real-time. We’ve got more and more people living paycheck to paycheck. This is another enablement of that and, again, I think it’s about that member support.
The CU Daily: There is some investment involved. Where’s the ROI?
Ganey: Payments are a cost of business in providing that benefit to your members. There’s a piece of that that never goes away with any payment.
The exciting things we’re seeing now is what we’re deploying on the ‘send’ side and some of the applications where there is a much more efficient process.
Again, when I say look at it strategically, it’s not just strategically related to Fed Now and RTP, but this is a good time to reassess how are we doing all our payments. We have brought platforms together so that you can log right into Catalyst Online and in a single platform (a credit union) can see their ACH activity, their Fedwire activity, all their Fed Now and RTP activity. We also couple that with the new digital solution that we launched this year that can take the place of Zelle and it could also bring in Fed Now. It can lower their losses, and it gives them disbursement capabilities if they’re supporting small and medium-sized businesses.
So, that’s where you start getting the monetization.
Credit unions are filled with micro-businesses and now we can put this in their hands and this digital solution that in provides for disbursements and requests for payments and things of that nature, and that small business can get paid instantly.
We’re creating a path to the monetization of it
The CU Daily: Is this invisible to the small business?
Ganey. Yes. Our application is a card dynamic digital payments platform, because it literally nests inside your mobile and online applications. Then the credit union can just decide which aspects of the platform they want to launch.
It’s sitting inside that from a member’s perspective. They’re logging on online or they’re on their phone and all of a sudden now they have these new features and different methods in which they can make payments
The CU Daily: If I’m a credit union, what do I need to do to move forward?
Ganey: Sit down with your account executive. So many credit unions rely on us. They’re doing this once, we do it every day. We like to say we answer your questions for you before you know have them. When you reach out to us we can walk you through and help you and can also consult with you on how to think about this strategically.
A lot of credit unions may simply start off with, ‘Let me just do receive only now.’ More and more we’re seeing credit unions that want to send or receive day one and that’s fine. We’ll talk you through those nuances.
We’ve got your packet prepared: Here’s what the implementation looks like, here’s what the cost is, here’s the timeline you can expect. And we cater that to each digital provider, as well as each core.
I think that’s the thing that helps with this not being an onerous process. We’ve taken this approach of ‘Let us kind of step you all the way through this and here’s what to expect.’ We just kind of hold your hand all along the way.
