Speaking on a panel Tuesday at the SWIFT Business Forum in New York, Richard Dzina, senior vice president and product manager, wholesale product office for the US Federal Reserve Bank of New York, began by saying that there are two themes that are paramount to the current payments landscape: real-time retail payments and the evolving security landscape. These were the two key themes the Fed focused on in its recent whitepaper.
Dzina noted that there are several factors driving real-time retail payments, including the unprecedented volume of technological innovation, the changing nature of commerce, and the influx of new entrants into the marketplace. “We are rapidly progressing in all forms of human existence to a form in which real-time is essentially the expectation,” he said. “I do not think market infrastructures or payment services will be immune from that transformation.”
Regarding security, Dzina noted that “public confidence is the anchor on which all payments systems ultimately rest.” He stressed that, like all corporates and banks today, the Fed is giving security the attention it deserves.
“I think we’re in a pretty dire situation,” Dzina concluded. “Increasingly, the conversation needs to shift to technologically diverse, and off-network solutions when it comes to cyberthreats. These are certainly themes that are occupying a preponderant attention within the Federal Reserve.”
Panel speaker Edmund Esch, managing director, USD Clearing product management, BNY Mellon Treasury Services, noted that the single biggest factor his bank is facing currently is the movement towards real-time payments, which is being driven by corporate clients. “This movement towards dispersal of information that used to be from a bank-to-bank perspective is now being pushed out towards the other parts of the value chain—from the originator of the payment to the beneficiary of the payment,” he said.
“The latency period from the pressing of a button to the clearance of the payment and then back to the originator of the payment is going to get shorter and shorter,” Esch added.
Russ Waterhouse, executive vice president product and strategy, The Clearing House (TCH), noted that, for many years, there have been arguments against real-time, such as US retailers already having a real-time system (debit), a lack of consumer demand and a question of who will foot the bill. “I’m pleased to say that debate has evolved,” he said.
Waterhouse commended the Fed for its work that over the last year and a half, engaging with the payments community to understand what the future of retail payment should be in the US. He noted that the push for real-time has partially due to banks falling behind, while non-bank providers have been offering many peer-to-peer (P2P) solutions that provide the “illusion” of real-time payments.
Additionally, TCH is focused on security. “Safety in this ecosystem is paramount,” he said. “Three years ago, a number of our banks were thinking about the mobile and how it might evolve. They came up with tokenisation as a solution – how they could take the [primary account numbers (PANs)] out of that ecosystem and replace them with digits that are really useless to a fraudster.”
So while Apple Pay may have really brought tokenisation into the mainstream, it is not a new idea. What makes Apple Pay’s approach to it so appealing – even though a recent report indicates that Apple Pay is seeing a rise in fraud due to criminals adding stolen card details into the system – is that the consumer never has his or her card number in the phone. Instead, that information only exists in the secure element.
Waterhouse noted that tokenisation can actually further the real-time effort. In October, THC and its member banks announced plans to build a real-time payments system, to meet businesses’ and consumers’ expectations in the current environment. The system will route payments based on tokens that cannot be used to debit accounts, thus senders and receivers will not need to provide sensitive bank account details.
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