Five Payments Takeaways from Money 20/20

From cryptocurrencies to API banking to payments fraud detection, this year’s Money 20/20 conference in Las Vegas had a major focus on fintech innovations. With over 12,000 attendees and 3,000+ companies, the conference continues to be one of the most prominent events in the payments and banking world.

Although this wasn’t my first Money 20/20, it was my first time attending as VP of Payments Strategy for Kyriba. As such, I thought it would be fitting to share some of the key takeaways from the conference.

1. The fintech industry needs regulations to innovate responsibly.
There was a healthy balance of innovators and regulators at the conference. The Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Consumer Financial Protection Bureau (CFPB) shared their views across many sessions, and roundtables. The Fed sponsored a booth at the conference inviting open dialogue with banks and fintech alike. Fintechs, even in the hitherto wild west of cryptocurrencies, recognized the importance of regulations.

It was noted that the core ideas behind some of the fintech innovations are not new. In the session “Ask the Fed,” Christopher Waller, a member of the Fed’s Board of Governors, compared Stablecoins to the private commercial bank notes that were in circulation until 1935. My hypothesis on Stablecoins’ potential for cross-border payments was echoed by many presenters, particularly Jess Houlgrave from Checkout.com and May Zabaneh from Paypal during the “Crypto for Payments” session.

Key Takeaway: U.S. regulatory stance suggests that decentralized and traditional finance will coexist. There is a strong case for Stablecoins addressing challenges associated with cross-border payments.

2. Central Bank Digital Currencies (CBDC) get a dose of skepticism.
The skepticism about CBDC came from none other than the Fed. It is well known that many at the central bank are “not big fans” of the idea of CBDC. The “Ask the Fed” session gave a perspective on why financial inclusion or faster/cheaper payments don’t justify the need for CBDC. In the context of the U.S., only 4.5% of U.S. households are unbanked. The majority that stays out of the financial ecosystem do so on purpose. Real-time systems like RTP® and FedNow^SM can address other potential benefits of CDBC such as speed, transparency and control.

Key takeaway: The debate on CBDCs in the U.S is far from settled. If the U.S. were to launch a CBDC, it would likely be an account-based model intermediated by financial institutions. I plan to specifically address the topic of CBDC in a separate blog due to its breadth and depth.

3. Fintechs in the U.S. will need banks as intermediaries for the foreseeable future.
Unlike the central banks in the UK and Europe, the Fed is not expected to give fintechs direct access to its master accounts any time soon. Direct access to the Fed’s master accounts can give fintechs unfettered access to the U.S. payment rails, with only a fraction of the regulatory burden associated with getting a banking license. On its own accord, the Fed has taken baby steps in this direction with its guidance on reviewing requests to access Fed accounts and payment services.

Key Takeaway: Fintech innovations will continue to happen in partnership with the banks unless the U.S. House of Representatives amends the Federal Reserve Act.

4. FedNow^SM is slated to shift the adoption curve for real-time payments.
The Fed hosted an invitation-only roundtable for U.S. Faster Payment Council members, which I had the opportunity to join. During the session, the Fed tested the waters with the participants on the extent to which it should play a public utility role vs. being prescriptive about areas such as end customer experience. The discussion was focused on the request for payment (RFP) feature for invoice and merchant payments. It was clear during the roundtable that FedNow is benefiting from lessons learned from other systems (e.g., Brazil’s Pix) that have successfully launched RFP.

Key Takeaway: FedNow^SM is on track for launch in mid-2023. This new payment rail from the Fed will be accessible via Bank APIs. RFP will be launched as part of the pilot with key capabilities like payment acknowledgement, the ability to confirm the payee’s ability to receive RFP. Unlike ACH, and like wires, FedNow^SM will rely on the industry participants to enable interoperability.

5. Payments fraud continues to take center stage as fraudsters get sophisticated.
The conference dedicated a whole “Financial Crimes and Fraud” track focused on the evolving fraud vectors and how solutions are addressing fraud challenges. There was a significant emphasis on synthetic identity fraud, which according to the Boston Fed resulted in approximately $20 billion in losses in 2020 for U.S. financial institutions.

Key Takeaway: To effectively tackle fraud and fortify data security, corporations must use a common language. The Fed’s Fraud Classifier is a simple framework that helps corporations understand which fraud scenarios apply to them, and how leading fraud solutions can help mitigate those scenarios.

There was so much more to tell. As my thoughts unfold, I plan to write more blogs reflecting the latest payment trends and fintech innovations. If you are interested in all things payments, then you are welcome to follow me on Linkedin, or simply visit our blog section regularly.