EXCLUSIVE: “Now, Now, Now!” – John French; Honore Afene and Daniella Ribeiro, UL Solutions in ‘The Fintech Magazine’

Three payments specialists from UL Solutions – John French, Honore Afene and Daniella Ribeiro – discuss the growth of instant payments and the potential of FedNow

THE FINTECH MAGAZINE: What is the history of UL Solutions and how is it involved with payments?

JOHN FRENCH (JF): UL Solutions has been in the safety industry for more than 100 years. We certify many of the familiar items that you have in your house today – it could be a TV or a fridge. As for the connection with payments, have you ordered something online in the last 24 hours, perhaps paying with your phone or maybe even using a smart watch?

Who would have imagined, just 10 years ago, that we could make payments using a watch? There are so many different payment avenues today. We make sure they are safer, that your money is going securely from A to B, and nothing interferes with that.

“There are so many different payment avenues today. We make sure they are safer”

John French

HONORE AFENE (HA): What we do for payments is similar to what we do for many other industries: namely, confirm safety and inspire confidence.When you make a payment, an online payment, or in a store, it has to be trusted. We provide that trust by working with merchants, acquirers, and issuers to secure the payments ecosystem.

TFM: FedNow, which launched recently in the United States, is among a growing number of instant payments systems worldwide. What do instant payments mean for financial institutions and customers, and how do you think they will develop?

DANIELLA RIBEIRO (DR): Instant payment systems mean instant settlement and clearing. Money will be available immediately, which is a huge shift and in countries such as Brazil and India, and across Europe, where these payments are already available, it has been transformative. We’re a little bit behind in the US, but we are catching up!

The main use case so far for FedNow is account-to-account payments, enabling you to pay anyone directly, making things really easy in our daily lives. But there are endless other possibilities. Think about all the things connected to payments, such as taxes and insurance, and the change brought about by ISO 20022, which adds to the mix and increases the potential.

HA: Instant payments and real-time payments are terms that are often used interchangeably, meaning that settlement is completed immediately. However, this is a common mistake, because real-time payments are already here and might refer to a transaction that could pend for two to three days. That’s a big delay and it’s the opposite of an instant payment where we’re talking just seconds once I’ve initiated the payment.

Instant settlement will unlock new services, too, because the ISO 20022 message format is the underlying technology. It brings additional data and improves processing and versatility, offering so much more for payments.

Take FedNow where account-to-account – sometimes called peer-to-peer – is a key use case, but it’s not just peer-to-peer between two consumers, it might also be between businesses and consumers. And another clear use case for instant payments is payroll. Because we’re not using batch payments, your employer can pay you immediately, which is a game-changer for temporary workers.

JF: Account-to-account payments move money directly from one account to another without the need for intermediaries or payment tools, such as cards. I’m in the US, but originally from the UK. When I send my nieces back home some money, it will go directly to them from my bank account. That’s instant payment, instant settlement – and instant cross border.

“In countries where instant payments already exist, such asBrazil and India, and across Europe, it’s been transformative for payments. We’re a little bit behind in the US, but we are catching up”

Daniella Ribeiro

TFM: How is UL Solutions helping to smooth the way for instant payments?

DR: Having learned from similar implementations elsewhere, we understand the importance of onboarding customers and verifying identities. Education must come first because we are also changing the message type and the whole industry is affected, so the benefits must be made clear. We offer training and can help financial institutions navigate the switch to instant payments. We also have a readiness programme to specifically enable connections to FedNow.

HA: We’ve learned from those implementations in Brazil and Europe, which helps with the implementation of FedNow use cases. It’s essential that institutions understand the technology before making any business decisions about the use cases for instant payments. That’s why we place the emphasis on education so that financial institutions and other players understand the use case and can then move safely to the design and implementation.

Everything you develop must be tested and we have the tools to do that. For example, with EMV migration, our test platform enables merchants to customise, according to their needs. They might use our platform to design a regression programme and find bugs and defects before deploying. Merchants can test their solutions, their implementations, and deploy early, and, most importantly, they can deploy safely.

Previous experience has also helped us on the fraud learning curve. Although some fraud might be specific to a region, it’s an indication of what we might encounter in a year elsewhere. This is the knowledge that we bring to the US market because we can design the system according to what we know might happen, and thus mitigate risk.

You need to understand and develop the use cases, then implement and test them. This is a key part of the architecture update for FedNow, and understanding the steps is how we help our partners. Our advisory team is at the heart of successful transformations like these.

TFM: We understand you have a three-step approach to payments transformation. Could you explain what each step does?

HA: Education is the first step. Then there is acceleration, which is for those who already know about instant payments and just want to comply with FedNow, for example. They need to understand to troubleshoot, for instance, the test cases that they have implemented and they can leverage our platform and knowledge to do that.

The third step is called the masterclass, and it is purely education about ISO 20022 and what the use cases are. Clients can select which steps apply to their needs.

“It’s essential to understand the technology before making any business decisions about use cases”

Honore Afene

TFM: How do you see the future playing out for digital payments?

HA: Thanks to all the progress we’ve made with digital identities, we will strengthen authentication and improve security in the payments ecosystem. Think about it: if we know who you are in the digital world, it means we can safely unlock some services and provide more access.

For example, if we know that a customer is over 25, it means they can order age-restricted items. So, secure payments built on digital IDs will be increasingly important over the next couple of years.

DR: Instant payments will impact a lot of what we are doing, and how we are doing. There‘s a big crossover with the use of electronic ID, for example – in many countries you can already make instant payments using your biometrics.

The shifts will be slightly different, depending on the market. We see Europe, for example, is working towards a domestic payment scheme. Here the focus currently is on instant payments and FedNow.

JF: FedNow is going to have a huge impact. It was one of the hottest topics at Money20/20 Vegas this year. It’s going to be revolutionary. But payments are a moving target, they are always evolving, always changing. We just have to keep up.

This article was published in The Fintech Magazine Issue 30, Page 36-37