EXCLUSIVE: “Time I$ Money” – Chetan Cariappa, Volante Technologies in ‘The Fintech Magazine’

As FedNow drives an instant payments revolution in the United States. Chetan Cariappa, North American Account Manager at Volante Technologies, assesses the impact.

In a ground-breaking development that could reshape the landscape of financial transactions in the United States, the instant payment infrastructure FedNow launched on July 20, 2023.

A response to the private instant payment system created by The Clearing House (TCH) in 2017, FedNow marks a significant step towards banks, credit unions, and financial institutions of all sizes being able to offer customers account-toaccount transfers, be that P2P, B2C or C2B, and have those funds settle within seconds.

Despite leading the world in umpteen ways, when it comes to fast payment systems, the United States has been slow. But back in the early 2000s homegrown fintech Volante Technologies was already pushing the transaction envelope.

Its state-of-the-art transformation and mapping platform ‘caught on like wildfire with all of the big Tier 1 banks at the time’, according to Chetan Cariappa, Volante’s North American account manager. And when The Clearing House chose Volante, along with a handful of other providers, to facilitate the first real-time payment in the United States on the TCH’s RTP system in 2017, the company’s pedestal in the payments hall of fame was secured.

It had helped bring about the first new core payments infrastructure in the US for more than 40 years.

“A lot is going to change in the payment industry in the US from now one”

The Clearing House went on to establish a stronghold, working with the financial institutions that custody close to 90 per cent of all US demand deposit accounts. However, the long-anticipated instant payment alternative created by the Federal Reserve has now finally hit the market.

Since 2019, the Federal Reserve has been building its own instant payment infrastructure that could allow eligible depository institutions of different sizes across the US to provide instant payment services to one another in a peer-to-peer fashion. Through financial institutions participating in the FedNow service, businesses and individuals could thus send and receive instant payments between one another democratically.

In the face of the rising popularity of C2C, B2B, and B2C non-banking real-time payment platforms like PayPal and Venmo, FedNow can give financial institutions the tools necessary for them to compete. Thanks to its role as a participant in the FedNow’s pilot programme, where it helped shape the product’s functions, provide input into the user experience, ensure readiness for testing and was the first to experience the FedNow service before its general availability, Volante Technologies has been able to closely observe FedNow’s development.

Cariappa says: “It’s been a great journey. As a company, we are serious about being at the forefront of payment innovation and have learned a lot from our real-time experiences with The Clearing House, as well as with many banks in Europe, Mexico, Saudi Arabia, and other countries.

“Added to this was the chance to participate in the creation of FedNow, which is very much the new kid on the block. I think a lot is going to change in the payment industry in the US from now on.”

By the beginning of October, 108 institutions were sending and receiving on the FedNow network with 21 financial institutions providing liquidity and settlement services, and 20 service providers supporting payment processing in the instant payments infrastructure.

They include community banks and large lenders like JPMorgan Chase, Bank of New York Mellon and US Bancorp. Notably, the US Treasury Bureau of Fiscal Services is also using FedNow to distribute government payments to more than 22 government organisations, showcasing the service’s practical applications in the public sector.

A challenge that Cariappa is interested in keeping an eye on is the one that Volante’s Cloud-native and API-first solutions deal with implicitly. Namely, the complex demands that ISO 20022 puts on instant payments networks. He explains that, at present, the industry is in ‘a coexistence period’. The old and the new systems live together, but need to migrate data between each other – reverting data back to legacy format, if necessary.

Consequential data loss or mismanagement issues are therefore a serious concern. But Cariappa is confident that FedNow’s incorporation of data elements, tailored to enhance the efficiency and security of transactions conducted through its system, will prove to be sturdy.

There are a lack of statistics on the percentage of US banking payments that are currently real-time, let alone the number going over the FedNow instant rail, making it difficult to assess its success – and to figure out whether these payment methods are solving problems for users. But statistics are, in any case, only part of the story.

How other platforms respond to the arrival of this ‘new kid’ will be a better indicator of FedNow’s impact. That, and if users perceive it to be broadening financial access for ordinary people, will be the real tests.

What happens next?

We spoke to Nadish Lad, Managing Director, Global Head of Strategic Business at Volante, about how technology will shape future payments

THE FINTECH MAGAZINE: What will be your biggest technology takeaways from 2023?

NADISH LAD: It’s impossible to narrow down to the singular! One is that banking infrastructures are going to need changes to be able to support real-time payments, since so many of the existing systems need upgrades and replacements to become real-time compliant.

I have also seen that a lot of the fraud systems will need to be upgraded, too, to be able to best support both the data migration path and the exposure that will come from operating 24/7/365. The challenges around the migration path are complex, and not for the faint-hearted.

But there is a lot of revenue that banks can take advantage of by biting the transformation bullet, and I think the advantages to getting on to real-time far outweigh what the challenges might be.

TFM: Is there one technology that can help overcome the real-time challenges?

NL: A tool that I really see smoothing the gaps between innovating and collaborating between the banks, fintechs, and paytechs is API technology because it provides a standardisation with strong security authentication with so much simplicity and speed. It speed-drives innovation and problem solving.

“An API for each payment capability is a nightmare. One that can accommodate all of these is the magic wand”

APIs have been around for a long time, and the fintech industry’s adoption of the technology as an ease-off mechanism isn’t novel. But I am paying particular attention to the rise and convergence of interest in single-usage APIs for multiple capabilities. Because, ultimately, an API for each payment capability is a nightmare. One that can accommodate all of these is the magic wand.

TFM: Where will payments be in the next five years?

NL: A lot of AI, blockchain and machine learning technology is going to really kick in within the payment world by then, and I think consumers’ expectations will be the surprisingly strong driving force, thanks to the amount of pressure they put on their banks.

I’m also conscious of the knock-on effects we’ll observe from the proliferation of real-time payments, like seeing a decline in cheque usage as a form of payment, for example. It’s already begun, but an aggravator of that will the fact that real-time gives you much faster fund access.

Probably the strongest prediction, or evolution to watch out for is the economical play occurring with the transformation of payment-as-a-service mirroring banking-as-a-service. Because a key point – at least in the banking world – for the past few years has always been capex: where you pay something, acquire a product, maintain it, and pay for the maintenance.

With payments-as-a-service however, you are converting that capex to opex, where you are paying for what you use. And this is a much easier method for banks to track, whether it is transaction-based, payment type-based, or otherwise.

The whole ROI model will become more predictable by essentially moving to payments-as-a-service, rather than a speculative discounted cashflow analysis of the ROI.

This article was published in The Fintech Magazine Issue 30, Page 34-35