All areas of fintech are changing fast. But it is in payments where the most groundbreaking changes are happening right now. After years of development, we finally saw the launch of FedNow last month (on time!) as this country begins its transition to instant payments in earnest.
My next guest on the Fintech One-on-One podcast is Stephany Orum, the CEO and Co-Founder of Orum. I wanted to get her back on the show (she was last on in 2021) to discuss FedNow and what it is going to mean for the payments landscape. Orum works with several banks that are part of FedNow and they provide an infrastructure layer for most payments rails.
In this podcast you will learn:
- How Stephany describes Orum today.
- How banks and fintechs should think about the various payments rails.
- An explanation of payments orchestration.
- Why FedNow is a game changer for faster payments.
- Some of the advantages of FedNow.
- Feedback from some of the participating banks operating in FedNow’s first week.
- Why it is more important for banks to work on receiving first for FedNow.
- How the mindset is changing inside banks towards a real-time operation.
- What the Fed has learned from the experience of RTP.
- Why interoperability between instant payment rails is inevitable.
- The role of the other types of payment rails.
- How banks and fintechs can combat fraud in an instant payments world.
- What it will mean for the country when most payments are instant.
Connect with Stephany on LinkedIn
Connect with Orum on LinkedIn
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- Find previous Fintech One-on-One episodes
Read the transcript of our conversation below.
Fintech One-on-One Episode 443: Stephany Kirkpatrick of Orum
SPEAKERS
Peter Renton, Stephany Kirkpatrick
Peter Renton 00:01
Welcome to the Fintech One-on-One podcast. This is Peter Renton, Chairman and co-founder of Fintech Nexus. I’ve been doing this show since 2013, which makes this the longest running one-on-one interview show in all of fintech. Thank you for joining me on this journey. If you liked this podcast, you should check out our sister shows the Fintech Blueprint with Lex Sokolin and Fintech Coffee Break with Isabelle Castro. Or listen to everything we produce by subscribing to the Fintech Nexus podcast channel.
Peter Renton 00:39
Before we get started, I want to remind you about our comprehensive news service. Fintech Nexus News not only covers the biggest fintech news stories, our daily newsletter delivers the most important fintech stories into your inbox every morning, with special commentary on the top story of the day. Stay on top of Fintech News by subscribing at news.fintechnexus.com/subscribe.
Peter Renton 01:03
Today on the show, I am delighted to welcome back Stephany Kirkpatrick, the CEO and co-founder of Orum. Wanted to get Stephany back on the show, it’s been a couple of years, but there’s been a lot of changes in the payment space. FedNow, just as we recorded, was out a week before this recording. So just a lot going on, wanted to delve deeply into FedNow what it means, how it works, the differences with RTP, when it makes sense to use it, and how it’s going to roll out. So we go into all those topics and more on the show. Now we also talk about the potential for fraud. Stephany was right up front about that and has some really interesting things to say there. And she also peers into her crystal ball to talk about what it’s going to look like when we live in a world of instant payments. It was a fascinating discussion. I hope you enjoy the show.
Peter Renton 01:10
Welcome back to the podcast, Stephany.
Stephany Kirkpatrick 01:22
Peter, So great to be back. Thanks for having me.
Peter Renton 02:11
My pleasure. So let’s let’s kick it off by just talking about Orum. How do you describe Orum today,
Stephany Kirkpatrick 02:20
Orum is the simplest API integration for fast, reliable payments. And under our single unified API, you can have RTP, FedNow, which of course we’re going to talk about today, ACH, same day ACH wires and more. There’s a lot that we’re doing in service of how we can expand capabilities to move money, and to do it in a way that rates instantly. So much of what’s become complex about money movement is the how and the how fast, and there are many different ways, right, as I just described, to get money from point A to point B in the US, bank to bank. And what’s core to Orum’s IP is the orchestration and routing, it thinks about speed, risk cost, just like Amazon gets that package to your front door, same day, and you can actually return something for a reason code called “didn’t arrive in time”. They’ve optimized everything for speed. And nobody really pays attention to whether or not it comes FedEx, UPS, postal service or even an Amazon blue van. And that’s very much like the same thinking that we’ve applied to money movement. And our unified platform, which does both bank transfers, and today also offers account verification, which we’ll talk about.
Peter Renton 03:28
Okay. So, you know, back in the old days, let’s say a decade ago, there was really if you wanted to move money most likely was ACH or wire. Now we’ve got a, there’s a huge number of payments rails, it feels with more coming on board, as we just said, FedNow is, is in the mix. I’d like to sort of dig in to the use cases and sort of the decision making that a fintech or a bank goes through in deciding what rails to actually send money down. Can…maybe maybe you could start with there’s a couple of different use cases.
Stephany Kirkpatrick 04:03
Sure. I mean, I think you’ve left out one key thing, which is checks, which of course we at Orum, don’t do, but the industry loves. And so I’m going to talk about that because I think ultimately, when a fintech, a bank, a financial services provider is thinking about rails, by and large, they’re not thinking about options and opportunities. They sort of live in a universe where the way it’s always worked is the way it’s always worked, right?
Stephany Kirkpatrick 04:28
ACH is 50 years old. It’s the workhorse of money movement, and it is a reliable way to move money, which is why trillions and trillions of dollars from payroll and wages, to government, you know, payouts and everything in between, still primarily uses ACH. So the workhorse aspect of it is, I think, an important starting point, which is that when banks and financial services providers think about alternative options, new and esoteric ways of moving money, whether that’s FedNow and RTP, which are official systems, or kind of more alternative things like Venmo, which really actually isn’t a bank transfer, but sort of feels like one, most banks haven’t put themselves in a position from a technology perspective to have choice. So it’s really a or b, right?
Stephany Kirkpatrick 05:18
Wires, which cost money, but they come with some certainty of no return risk, and ACH, which is cheap, on some level, and of course, a workhorse. So that’s where we come in and think about, gosh, what if it weren’t hard for anybody to get access to these modern payment systems? And to your point, you know, now there’s FedNow, RTP, there’s going to be more innovation and Zelle, Cash App, which reaches 50 million American households, while not officially a rail, is a pretty significant wallet infrastructure player today. And so I just think we’re gonna continue to see advancements, hopefully, and just different ways of thinking about money movement. Visa, just launched a you know, Visa+ peer to peer network product, the opportunity to move money is going to continue to be complex. And, and ultimately, I think, with diverse tools, what’s not so easy is for financial services partner to get access to everything.
Stephany Kirkpatrick 06:10
So one of the things we pride ourselves in is being a single point of access. Right? So then on the back end, when a new provider, new solution, new service becomes popular, available, worth using, it can become available through the existing integration. And so it’s an endpoint expansion. And then we really think about the intellectual property that goes into thinking about orchestration. And so you know, the answer isn’t straightforward. In fact, this is where most of the IP of Orum sits, both in the data network that we’re cultivating, and in the routing and orchestration layer to know when is it optimal? Let’s take a $500,000 transaction, you have basically all of the above choices, it could go RTP could go FedNow, it could go on a wire, it could go ACH, there’s different risk and cost controls. But there are other varieties of decision making patterns that we look for, in the case of RTP and FedNow, one of the first things is – is that bank that’s receiving that payment eligible for this kind of transfer? Then as simple as it sounds, to say, well, there’s, you know, a few 100 banks out of 1000s, systematically speaking, you need to have technology help make that decision, you can’t scale a room of humans in a banking back office. To quickly go look at the you know, Excel doc, that’s on The Clearing House’s website to determine if this payment can go RTP, right.
Stephany Kirkpatrick 07:27
And if left to kind of a traditional path, most banks do scale operations through manual intervention. Today, some of the best banks in the country that are on The Clearing House’s RTP products, allow a real time payment transaction for a large corporate through a treasury portal, which means that Peter, if you wanted to make an RTP transaction, you’d log in, you’d hopefully know Stephany’s name and account number and you’d individually send one instant transfer. If again, whether it’s with inside the bank, or if it’s at the corporate or the SMB, or the individual level, the idea that you’d have to manually intervene, to both decide how to make the money movement work, and then actually do the execution. I think it’s just it’s a bygone era. Just think about Amazon. When you’re at checkout, you have some speed choices, you could definitely go slower, and maybe sometimes even agree to get fewer packages or stops at your front door, which might be good for the environment, but might not be what you’re prioritizing in terms of speed of delivery. What you wouldn’t want to do is sit there and have to think about, would it be better if I pick UPS, but I get a slightly better cost or speed differential if I picked the postal service? Amazon does that for you so that the experience of making a decision about the most important decision is the one that you can focus on, I need this good. And here’s how fast I need it. And that’s exactly what we do for bank transfers. I think the opportunity is just endless to think about where orchestration and optimization are going to take us as we think about scaling operations, scaling through technology, and ultimately scaling horizontally, what will be and is already a growing portfolio of ways to move money.
Peter Renton 09:02
Right. So I just want to go back for a second and talk about orchestration. Can you define that precisely for our listeners? What is payment orchestration?
Stephany Kirkpatrick 09:13
You know, I think I have Stephany definition and an Orum definition, but I don’t know if it’s the industry definition. So I guess we’ll find out. But you know, my definition of orchestration is to first have a decisioning layer that knows what it’s optimizing for. So seeking the right data points of inputs, and then having the ability to look at alternatives, options, decide and ultimately in orchestration, execute, right. So it’s one thing to have potentially various pathways. That’s step one. It’s another thing to have information about what the pathways yield, that’s step two. And then the third and critical step is executing on the right pathway for that transfer, which could be very different than the next pathway for the next transfer and having that all scale within a technology system that sits at the epicenter of the payment layer, whether it’s embedded, which is where we find many, if not all payments these days, or whether that’s at the sort of final mile, where it’s getting routed up into the Fed or The Clearing House. Both places are places and points of optimization.
Peter Renton 10:21
Okay, so I want to dig into FedNow. It’s been two weeks now, two weeks or one week, I think it’s been one week, it feels like it’s been two weeks. So you were part of the pilot through some of your partner banks. What do you feel like is going to be the impact of FedNow? Is it the game changer that some people say? Or is it just really another incremental kind of movement here?
Stephany Kirkpatrick 10:49
Well, you know, it’s so interesting, I was just, you and I were chatting before we started recording, I was just in Mexico City, and I was there to be at a Fintech event and actually meet with a bunch of founders, all of course, you know, payments, folks. And so we were having quite a robust conversation about global payment systems Pix, being a pretty hot one in LatAm. And there was a ton of chatter in the local community in LatAm about FedNow. And so I think what’s very interesting is that the Fed’s approach to getting it live has involved a lot of marketing. And I think when I think back on The Clearing House’s launch of RTP, insiders were very dialed in. Payments nerds like me, were watching and tracking, but the headline worthy launch of RTP, I think, felt smaller. And so I think it’s just interesting that so much about FedNow is just the timing. It’s coming out in a much anticipated way. It’s coming out after, not before our global pandemic, in which domestically and internationally, we’ve really changed the way we think about what our expectations are for everything, but specifically money movement.
Peter Renton 11:22
Right, right, for sure. Do you know, like some of the banks you’re working with that are part of FedNow? Are they processing FedNow payments in the past week? I mean, are these things happening right now?
Stephany Kirkpatrick 11:52
So I think that’s giving, in some ways this idea that like, it’s the North Star, and it’s going to change everything we know about domestic money movement. I think it’s it is a game changer. One, it’s a great system, it’s similar, in fact, I think, to the untrained eye, almost identical to what RTP does for The Clearing House with a few minor technical differences. However, the focus of the Fed and the faster payments products from the Fed, are geared towards a different type of bank. And so when you zoom out and think about 10,000, financial institutions, many of whom are actually banks, so you think about coverage and ubiquity, having the top 20 banks and the coastal elite have instant payments, and everybody else not having it would be a really poor outcome for the development of the American wallet, for the small business owner, and for everybody. And so I think where the Fed has spent a lot of time is getting smaller banks who generally don’t have $75 million technology budgets to just make one new edition of rails to make it possible for them.
Stephany Kirkpatrick 12:54
So some of the advantages, it settles in the existing Fed Master Account that every small bank has access to. So there are some definite advantages, and based on the launch last week, and our analysis at Orum of how RTP banks, FedNow banks, and sort of the overlap looks, you’re getting about an 8% lift already, just from the initial cohort of FedNow banks, not including the large ones that are also on RTP. So when you’re thinking about hundreds of millions of American households, or business owners who are banking somewhere other than the top 20, an 8%, lift is a big lift. Is it 100% coverage? No, and I’m not sure we need to be at 100% coverage to believe that this is game changing. By having both networks live and having more and more abilities, at least right now on the push side, to deliver on an instant payment experience and really solve time to money in a way that’s economical, in a way that’s efficient. And in a way that creates new infrastructure so that financial services innovation, and fintech specifically, can not have to worry about things like speed, and they can build better products, because the speed is now enabled. And so I’m just super excited in general, about the progress that we’re making. And you got to take it as it comes. Right. I don’t think FedNow is by any means the last frontier of payments innovation in the US.
Stephany Kirkpatrick 14:29
Absolutely. Yeah, and you know, it’s so fun. I feel so lucky as a founder to be in a variety of different, you know, Slack groups and WhatsApp communities. And it’s really cool to see people screenshotting their lived experience, their bank providing them a button to push to do as a retail customer, an instant payment or seeing that they’ve received something instantly. So I do think, you know, though we’re only a week in, the fact that the Fed launched on schedule is I think a huge win, and there’s more to come right. Banks, through enablers and direct connections are working to get more and more coverage to at least receive, right, the biggest impact we can have in coverage is receive.
Stephany Kirkpatrick 15:10
Think about Apple Pay. Right? I am a runner, I put my watch on, I moved into, you know, a suburban area about six years ago. And I go out for runs and want to bring back, you know, chocolate croissants to my little kids as a treat. And the first few times I stopped at the French bakery, I have to have like cash stuffed somewhere on my body while I’m running. And now you know, I can drop in, pay with my watch and carry home a small bag and go on my way. It took years, many years for there to be really full ubiquity of Apple Pay coverage. And now other forms of Google Wallet pay. And I think that’s where we are with faster payments, and receiving the payment is step one, which is the simpler version of the two types of certifications that you can get within either the TCH RTP network or the Fed’s FedNow product.
Peter Renton 15:59
So that’s a really good point. So it sounds like banks are starting off the ability to receive – that makes sense – sounds like a lighter lift, but it’s not really going to become ubiquitous until the Send. Everyone does send and receive right? So are the banks you’re working with, like and others that you talk to, like, is it those that are just thinking about receive, is send, like on their long term plan? I mean, when are we going to see them both? Both come together, as I’ve heard a little criticism from, that have been written in the last week about so many banks just want to just want to set up for receive, they don’t care about send.
Stephany Kirkpatrick 16:37
I actually think that’s probably the way to do it. Because I think, you know, under the hood of the banking system, not that many banks actually do a direct transaction through the Fed or through The Clearing House. They correspond through bigger banks, all the send of transactions really rolls up into the top 20 banks. So is that the way we want it to be? Now, that’s a different question for a different podcast. But that is the way it currently works. And so I think as a result of that, the more banks that can receive, the more destinations you have for send. And the ubiquity comes. Now will more banks want to send? Perhaps. Is that the right investment? Maybe. I think it’s early days, and Greenfield may prove that there are other even more interesting options that come along. But ultimately receive is a very important capability. And when you think about it, like why is receive even hard?
Stephany Kirkpatrick 17:30
We’ll just back into, like, what does a nine to five bank operation look like? Well, it’s Monday through Friday, it’s set hours. And it’s on a core system that was designed with a batch based file system tied to the last most modern innovation, which was ACH 50 years ago. And so to up end 50 years of legacy technology. Okay, that’s one thing you can always you can just put money against that problem. It’s solvable. I think what’s even harder is actually to go from a five day a week, you know, branch based operation to a 24/7/365 operation, without scaling costs well beyond a threshold, that would make sense. I think that’s why receive does make sense first, and two, why I think you’ll find that, you know, the number of send banks may never get to the number of actual banks we have and perhaps that is the best answer for everybody, which is that you can have controlled cost centers around this 24/7/365 support that’s ultimately required. You know, as soon as you start doing million dollar transactions at 2am on a Sunday, that looks very different than doing a wire, you know, between nine and three, Eastern when the cut offs ends, for example.
Peter Renton 18:42
That’s a good point. So do you think the mindset inside banks has changed to 24/7 type operation? Because that’s what we’re getting now with, with FedNow that because, you know, for the longest time, banks have operated you meant, you know, the batch processing, it’s nine to five, Monday to Friday. Has the mindset changed, do you think, inside banking for 24/7?
Stephany Kirkpatrick 19:07
I’m not sure that in every bank, I would say, operationally that’s changed. But if you look at the number of banks who’ve gone from a website, with maybe no login, and everything branch based to a digital property, an app, a digital way of logging in, even opening an account, and I’m talking well beyond, you know, the Wells Fargo and Chases of the world and into the smaller banks, I think, yes, the concept of, you know, needing to think about, interact with and transact on a round the clock basis is definitely a new era expectation. So whether the transaction is complete or not, is a little bit different question then do people log in to a digital experience to think about an executed decision around their money via a bank partner?
Peter Renton 19:11
Really, really good point. So before we move on from FedNow, I just want to… I’d love to get your perspective. You said it’s very close, almost identical to RTP. What are the differences? And do you think the Fed deliberately made it so that it was very, very similar? I mean, they’re not interoperable? Right, then? You know, they are separate systems. What are the differences?
Stephany Kirkpatrick 20:00
You know, way, way back in time going back, couple tech companies ago I worked at a company called LearnVest and ran a number of things, but all of our operations for our customer facing portfolio, which included financial advice, and, you know, when we never had anybody asked me to talk to a financial planner? 9am on Monday. Do you know when we had everybody asking? 10am on Saturday. Holiday Mondays, right? Yeah. So the way humans think about their money and the way the financial system thinks about work hours have never really overlapped, right. And now we’re just in a digital era able to reach people better and differently. I think closing the gap on the actual execution of transactions in those off hours is a really powerful force multiplier. Imagine today, how much money still sits – trillions of dollars sits idle in checking, because the average American doesn’t want to have it in a higher yield savings, earning currently 4%, which is a lot for no risk. Because if at 10am, on Sunday, they had a sudden emergency, they couldn’t get it from Bank A back into their checking account. That holds us back as a society, from doing things that could actually build wealth and generational changes and how we think about money movement.
Stephany Kirkpatrick 21:29
Well, I think there are people more technically knowledgeable inside both organizations that would answer this better than I would. But I think, yeah to the question of did they build it to be very similar? I think the answer is yes. And I think there is an objective using the same ISO standard. And it’s a new messaging layer, that they would interoperate someday, I’m not sure that the ambition is within this decade. But I do think that there was at least some base level thinking. Why are they different? I mean, I think ultimately, you know, first to market has a lot of advantages. Second to market has advantages too. Being second to market, I think The Clearing House had an experience that the Fed attempted to correct for, which is to do more at the decisioning level, when a payment request is sent to a bank before the transaction completes. It’s my understanding that the FedNow product is actually messaging back. A Yes, no, like a go/no-go before the actual push of the money all within the same SLA. It’s a powerful difference, because it can mean the difference between sending and failing a transfer, it can change the dynamics of risk. And I think it’s something that was learned along the way in watching challenges that The Clearing House had when they were first to market. And, you know, for the US a very new way of thinking about settlement.
Peter Renton 22:47
Maybe this is something that you’re working on. But can we get to a point where someone is sending money in FedNow, but the receiving bank doesn’t have FedNow and then somehow you can kind of magically transform it into RTP as the sending network? Or is that really not possible, technically?
Stephany Kirkpatrick 23:04
Well I think you’re looking at the crystal ball for what Orum is thinking about working on. But interoperability becomes essential, right? I come back to Amazon, as you know, an easy example because if you’re not buying on Amazon, you probably don’t live in the US. And I think they have created interoperability between FedEx UPS, postal service, right. So the way the package got from the warehouse to the truck to my front door, might use multiple provider. I only maybe see the final mile if I happen to see who dropped it off. And as I think about what will be, in some cases, multi hop transactions, and another cases two legs of a transfer – a debit and a credit and using multiple systems or different banks for that, I think absolutely. That is what orchestration was designed to do and why Orum has chosen to focus on IP that’s at the intersection of bank and real agnostic thinking.
Stephany Kirkpatrick 23:57
Today, one of the holdbacks that we see with both of these instant settlement systems is that they are not live with what’s called a request for pay, which would be the equivalent of sort of a debit transaction, meaning if Stephany needs to pay Verizon, for her phone bill, normally, Stephany would set up a bill pay and push out money to Verizon. And what Verizon would like to be able to do is just say, let me send you a request when your bill’s due, you authorize it, and it will instantly transfer those funds. And so I think those are going to be some huge advantages. It feels like they’re probably still one to two maybe more years out on the horizon, as there’s some rulemaking between both networks that have been definitely putting constraints around adoption. And then there’s a further adoption challenge, which is now every bank, one needs to have an app, which maybe they do, maybe they don’t. Many more do than did before. And two, within that app, there needs to be some sort of experience to receive the message that there’s a request for pay for Stephany or for Peter, and then to execute it. So if there’s any, you know, ambitious founders out there listening in the Fintech ecosystem, I think the idea that you could streamline a user experience and sell it to banks and get them to be ready for requests for pay is definitely a powerful initiative that doesn’t seem like it’s been worked on. And the banks themselves, I think, are finding it hard, hard to figure out.
Peter Renton 25:20
Right. So what about the other rails that were that are out there, I mean Visa Direct has a lot of, a lot of people using it, then there’s some of the like the blockchain based rails like TassatPay the whole thing around USDF, and they’re not operating yet. But what do you think, is the role of these other types of payment rails?
Stephany Kirkpatrick 25:43
Well, I think like anything, when you open your wallet, what’s top of wallet, what do you pull out, you pull out a credit card, right? And I think the interesting thing about credit cards, when you walk into Starbucks, and you leave with your $4, or in this day in age, $11 is custom coffee. You know, let’s say was on Visa, you feel certainty that you got your coffee, Visa gets paid. Visa is actually getting paid by an acquiring bank, doing a big transfer settlement, maybe later today, but probably a few days from now, T+1 to T+3. So actually behind credit cards is essentially bank transfer settlement. And I think that’s not as well understood, because it feels instant. But what I do think is really interesting about that is because credit cards and debit cards are top of wallet for many, if not all Americans, we just have a habitual use of them. If I work in an onboarding flow to an application, and you asked me to just scan my debit card, I’d probably do that. In fact, lots of people do that. And now there’s another form of payment credentials in place. So that when orchestration, which includes decisioning, and executing a transaction is in play, there’s more choices, because it could be that an RTP would be ideal, but it’s not available with this bank. But there’s card credentials and push to card, OCT transaction on Visa Direct, or MasterCard Send could be a great way to do what would otherwise be, you know, fast but not instant, transfer, right?
Stephany Kirkpatrick 27:10
So the SLA from RTP and FedNow is about 15 seconds, you know, the card networks, it’s more like 30 minutes, same bank ACH is a few hours. If we’re solving for t+0, which is just it happens today, those are all good choices, also wire’s in the mix. So I think the complexity of the decision against what’s available will continue to be a growing problem. And that’s why as it pertains to orchestration, I’m just ultimately one, intrigued by the problem, because I think it wasn’t a relevant problem five years ago, and it’s like a much bigger problem today. And two, I think there’s a time and a place for certainly, you know, these card rails, and I, you know, listen, did we take a step back on the world’s or the US’s point of view on digital assets? Absolutely. Will we get back to a place where people are trying to transact with a stablecoin? Maybe. I remain really open and excited to see what innovation comes in forms of transacting that can all be rolled up into our API, and essentially be part of the portfolio of orchestration.
Peter Renton 28:09
Okay, so we need to talk about fraud, because there’s been a lot written about this. People are concerned that when you have instant payments, you have the potential for instant fraud. And, you know, I know that you’ve done some work here. How should sort of the banking executive or fintech executive think about the fraud when it comes to these instant payment systems?
Stephany Kirkpatrick 28:31
Well, I’ve got lots of answers here. So you’ll have to, you know, rein me in when we get off track on this one. But first of all, we are not the first country for better or for worse, in this case, for worse, to think about instant payments. There are many countries, some developed like Europe, some less developed Brazil, India, even Mexico has an instant payment system, where you can look to now years of history and say, well, what problems were encountered? You can even look at Venmo when it became highly popular, one of the biggest forms of fraud was device theft. You’re out for a walk in Central Park and somebody grabs your phone, and Venmos themselves the maximum and boom, frauds occurring in totally new and different ways. Is that a reason to stop innovating? I hope not.
Stephany Kirkpatrick 29:16
Let’s talk about ACH for a minute. We can spend a lot of time talking about will instant payments create more fraud. But I think if you understand ACH, and let’s talk about the ACH debit, right? There’s a bank transaction between, let’s say, Fidelity, and Stephany’s checking account at Wells Fargo and Stephany wants to move $500 from Wells Fargo into Fidelity, I initiate that transaction from Fidelity, Fidelity is going to debit my account. That’s a specific kind of transaction on ACH. And guess what? Might only cost a few pennies, and it might be slow, but it is one of the biggest areas of fraud because Stephany has 60 days to come back and say that wasn’t me. And that becomes an unauthorized return. So for 60 days, Fidelity, or other company in this scenario is carrying return risk. And they have about 48 hours and are ready to return the funds. And the fraudsters live and thrive in this part of the payments ecosystem, in part because there’s really no federal or state regulations that prohibit them from following through on these kinds of returns, they don’t go to jail, and they don’t, there’s just no headlines about it, nothing. It’s just great, the money got reversed. And we’ll figure out if it was a you know, really a fraudster or not.
Stephany Kirkpatrick 30:29
And so if you think about the number of financial institutions where there’s, you know, holes in the system, accounts that got opened, but aren’t funded or aren’t being used, people get controls to that, they go do ACH transactions, they reverse it, say it wasn’t me. And there’s just a vicious cycle of fraud. And yet, for 50 years, literally 50 years, we have allowed for ACH to be the workhorse. And nobody speaks of this type of fraud as a reason not to use ACH. Right? So I say that to be a bit controversial and saying like, of course, there will be some type of fraud, Venmo, and PayPal, and, you know, a variety of things we’ve become used to using, they all had to fight through this. Zelle is fighting through this. Some types of fraud, though, are all about social engineering, which is a wholly different problem than just simply payments, fraud, right? If you social engineered me to buy puppies, or meet you in real life, and send you all my savings, because we’re in a romance, that’s preying on a very different part of the human psyche than just payment risk. So I feel strongly that we should have fraud controls, I feel strongly that two of the big areas that should be heavily invested in are identity and fraud, so the payment innovation can continue. And I think when you pair those three things together, there’s a lot that we can do. And we should never stop innovating for the sole reason that risk doors are getting opened, because they’re already open today, in many ways.
Peter Renton 31:52
Exactly. Yeah. Good point. Okay, so last question. I want you to kind of peer into your crystal ball, if you would, like, what’s it gonna mean when we live in a world of instant payments, and there are other countries I live in my home country of Australia has been living with instant payments for, I think, a couple of decades now suddenly, a long time. How is that going to change the financial system in this country when everything happens instantly?
Stephany Kirkpatrick 32:17
It’s a huge question, Peter. So when I look into my crystal ball, I’m going to think about it from the perspective of a consumer because I think everyone listening has a lived experience in which it took an inordinate amount of time for money to get to them because the check was mailed to the wrong address. And then the fix was to overnight it somewhere else, or because of you know, the actual amount of time to get it from checking back to savings. So you can do escrow to buy a house, we all have lived experiences. So when I fast forward, and I think about what will financial services look like, in five to 10 years, I think that what we will find is one, a lot more money moves point to point, right? That it could be in my Venmo wallet, and it doesn’t need to go back to Wells Fargo to then get to my AmEx, which is like four steps that it really should take. So I envision AI enabled thinking about where is the dollar supposed to be today, less human intervention and thinking like, oh, shit, I forgot to pay my bill on time, much more optimization, and capabilities around optimizing where dollars sit, live, and should be at at any given time. A lot more advice capabilities that can be executed automatically.
Stephany Kirkpatrick 33:30
I see innovation around today, what we call “earned” and “early” wage access, both different forms of getting wages into folk’s hands, one more like a payday loan and one more like an advance, both have pros and cons. Would we have that in a world in which you have an option to take your paycheck daily? You may not choose it daily, you may not need it daily, just timing money is such a powerful thing. Why is my rent due on the first but my paycheck comes on the 15th? And why is that a me problem where I get you know, offended financially every time I’m slightly off in the timing, not even my spending. So those are kinds of things I think about I think about businesses and the supply chain, I think about everybody who lives on net 45 terms. And the only reason for net 45 terms is to wait for receivables so you can pay your payables. Imagine if you could speed it up even by a factor of two or three, the ability to have money more seamlessly received and then paid out. Just imagine the universe of not only financial services, but manufacturing, supply chain, the amount of finance think that lives in supply chain financing and factoring. We could be seeing totally different models emerge, some of which I think haven’t even been imagined yet. So I’m excited. When we have this podcast five years from now, let’s look back on this and we’ll see.
Stephany Kirkpatrick 34:53
Right yes, we do live in interesting times. Exciting times. Stephany, always great to chat with you. Thanks so much for coming on the show today.
Stephany Kirkpatrick 35:02
My absolute pleasure, Peter, thanks so much for having me.
Peter Renton 35:06
Well, I hope you enjoyed the show. Thank you so much for listening. Please go ahead and give the show a review on the podcast platform of your choice and go tell your friends and colleagues about it. Anyway, on that note, I will sign off. I very much appreciate you listening, and I’ll catch you next time. Bye! (music)
