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The speed of change occurring today in the American payments ecosystem is unprecedented. Think of all that has happened in the last 18 months:
Earlier this year the Federal Reserve released the second part of its long-anticipated report from its Faster Payments Task Force. The report outlines a path to modernizing the U.S. payments network by 2020.
The Clearing House’s Real-Time Payment System has just come online after two years of development, opening the floodgates for Real Time ACH.
NACHA is marching forward from same-day credit ACH transaction, launched last September, to sub-10 second debit transaction, putting pressure on legacy systems, while setting an aggressive expectation for the industry.
Fintechs like Venmo, PayPal, and TransferWise have revolutionized peer-to-peer payments, capturing a latent market beholden to slow ACH processing. They’ve set the bar for customer expectations, and the American banking industry is rapidly responding.
Over the past 18 months, and accelerating into this year, everything in the payments ecosystem has changed. Banks are now expected to settle transactions faster than ever before, putting new pressure on existing platforms and processes. Further complicating the issue is the fact that as the speed of payments increase, so does the speed and complexity of payment fraud.
So here we are. Financial Institutions are scrambling for the necessary infrastructure, innovation and expertise to support the new world of faster payments.
Having seen the writing on the wall, IBM began collaborating with The Clearing House and the Zelle network to figure out how to help customers manage these changing market dynamics. At Money20/20 this week, IBM announced that it has integrated its Financial Transaction Manager (FTM) software within Zelle’s payment network.
This big step forward allows customers of banks that use FTM to have immediate access to the Zelle network, to send and receive money in minutes.
While seemingly daunting in scope, the potential of this connected, high-speed payments network allowing all U.S. banks to begin dealing with real-time payments is achievable with the right approach to making hardware, transactional cost, and security blend seamlessly together.
In addition to supporting traditional distributed hardware platforms, IBM is uniquely positioned to take advantages of history’s most enduring computing platform: the mainframe. What might be a little-known fact is that the vast majority of financial institutions in North America run massive amounts of transaction processes on IBM mainframes. Solutions running on IBM Z Systems have the necessary computing power, speed, security and connectivity to host payments workloads. With October’s announcement of FTM for ACH and Real-time payments now supported on the mainframe—with very strong integration capabilities to legacy settlement systems—this new solution is facilitating a better way to tackle the real-time payments challenge.
Given that mainframes have always had the computing power, security, and capacity to run payment workloads, why haven’t we seen widespread adoption in the past? The answer comes down to cost. Historically, mainframe software costs are based on consumption usage models—how much compute power and capacity are they using across the subsystem stack. Banks have become very good at predicting daily consumption usage, but payment volumes introduce unpredictable spikes, throwing a wild card into the equation. From one day to the next, a bank could see spikes in payments, so their consumption usage could go outside the expected range, adding significant cost to the system.
In October, IBM introduced a new pricing model that mitigates the risk of consumption spikes. The model prices payments by transaction, not on the consumption used by the transaction. This makes running real-time payments on Z Systems much more economically viable.
More and faster digital transactions, means more and faster payments fraud. Via IBM’s Safer Payments solution, fraud detection is now possible with ever increasing accuracy and in sub-second timeframes. Safer Payments is powered by an Artificial Intelligence (AI) engine which learns and optimizes its fraud detection algorithms as it processes more transactions. This allows the system to detect emerging fraud patterns and adapt to them in a way that traditional manually trained systems would otherwise miss. Safer Payments is unique in the industry because as fraud detection goes up, false positives come down. In the emerging world of real time payments, real time fraud detection is a must.
We’re thrilled by the new integration of FTM with the Zelle network because it means a better delivery of service to end-user customers, lower costs to banks, and stronger protection against fraud. In this rapidly changing landscape of payments, innovative enterprise thinking builds the right solution for modern banking.