Real-time e-payments? 2 D.M. firms make their pitch
The Federal Reserve wants to speed up the rate of money transfers in the U.S., and two Des Moines-area companies think they have the solution.
Financial technology startup Dwolla and payment processor Shazam Network have submitted proposals to a Federal Reserve task force charged with figuring out how to move money at a quicker pace.
Industry experts say such as system would help consumers and businesses better manage their money. If people can more quickly see how much money they’ve spent or have available, they can make more educated spending choices, they say.
Dwolla's proposal suggests the company's FiSync technology — it's a real-time payments system it set up in 2012 — as a model for what a similar network could look like nationwide.
"When the rules are being created, Dwolla wants to help influence those, because we think we have an incredibly unique perspective as a provider of a current faster-payments system in the U.S. today, but also, we actually serve customers that use these systems and build technology on top of it," Dwolla CEO Ben Milne told The Des Moines Register.
Shazam's proposal focuses on the network it has built and the services it provides to customers, which include real-time options. Chief Information Officer Terry Dooley said the company has an advantage because it has the infrastructure of a faster network.
Customers of Shazam, founded in 1976, are mainly community banks. The company processes 100 million transactions a month.
The Federal Reserve's Faster Payments Task Force held its first meetings last year, bringing together hundreds of industry stakeholders that include banks, payment processors, companies and more. The task force has focused on coming up with standards that faster networks should abide by, such as specific levels of speed, security and efficiency.
A faster payments system is seen as a way to upgrade how money is moved in the U.S. That includes the use of the Automated Clearing House, which moves more than $40 trillion a year on its network. Most ACH transactions are settled the next business day.
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Dwolla landed a seat on the task force's 18-member steering committee, as did Mechanicsville-based Bridge Community Bank. Johnston-based Shazam and Des Moines-based TMG Financial Services are members of the larger task force.
“In many ways, all we’re trying to do is emulate the check system, but make it faster and without paper,” Bridge Community Bank CEO Bob Steen said.
Proposals have to compare against 36 "effectiveness criteria." For example, “very effective” proposals have to guarantee that consumers can have available money within one minute. “Effective” proposals have to guarantee good money within a half-hour.
Just as technology has made real-time interaction available in other industries, consumers are expecting the same out of their finances, said Connie Theien, director of Payments Industry Relations for Federal Reserve Financial Services.
"They want to know what funds they have available at any given time, and they want to know that what they’re looking at in their balance is accurate, that it’s not off because something that they paid two or three days ago hasn’t cleared yet,” Theien said.
For example, Theien said restaurants that get most of their business on weekends may not see money in their bank accounts until the following Tuesday. A real-time system, she said, could help restaurant owners better manage their accounts.
Jordan Lampe, Dwolla's spokesman and head of policy affairs, said a nationwide real-time payments system could integrate into technology services. It could allow Uber and Lyft drivers to be paid instantly once a rider leaves a vehicle, or allow consumers to see how much money they are spending on energy just by looking at their thermostats, he said.
But Milne and Dooley said consumers may not notice changes.
"From a consumer perspective, I don’t think they’ll notice a whole lot of difference because, to them, it’s already real-time," Dooley said. The noticeable difference, Dooley and Milne said, will be how a faster system affects businesses.
Theien said the Federal Reserve task force has received more than 20 proposals. They include one from The Clearing House, a banking association owned by the nation's largest banks, such as Bank of America, Wells Fargo and U.S. Bank.
The task force will review Dwolla and Shazam's proposals and give feedback on the companies' technologies.
The process is not aimed at picking one winner, Theien said. Instead, it's designed to motivate discussions and provide feedback to companies on how to improve their suggestions.
A final report is expected by early to mid-2017.
A Dwolla update
Dwolla CEO Ben Milne wrote a blog post Monday as the company announced that it had submitted a proposal to the Federal Reserve's Faster Payments Task Force.
In the post and during an interview with The Des Moines Register, Milne said the company has seen 30 percent revenue growth month over month for about a year. The company has surpassed 1 million account sign-ups, he said.
Milne credited the growth to Dwolla’s introduction of white-label products it is selling to other companies, such as financial technology firms. Through the white-label service, Dwolla is offering software it has built so its clients don’t have to build it on their own, he said.