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George Doolittle, Wells
Fargo Bank
Steve Mott, Better Buy
Design
Ken Isaacson, Federal Reserve
Bank of New York
Improving Profitability and Managing Risk
Global Payment Issues & Trends February 2014
Industry Issues
Transparency
Global Regulatory Activism
Platform Efficiencies
Sanctions Management as a
Critical and Competitive Advantage
The Battle for Liquidity
Flight to FX Payments
3
Application Promotion
Management
The Value of Data
Discretionary v. Non- Discretionary Development
Correspondent Banking or Vendor
Management
4
Some of the Detail…
Industry Initiatives:
•eInvoicing
•Payment Reference Data
•Data Repositories
•LEI-Legal Entity Identifier
•Off-shore Clearing Sites
•CNY-CNH
•Character Sets
•ISO 20022 Migration
•Settlement? PvP, CLS, RTGS, Netting, CCP
AML/T &TE:
•FATF.. Beneficial Ownership
•Sanctions Management
•FinCEN…Reporting
•Trade Products
•Extensions …Human Slavery, Tax Evasion, Corruption, Gambling
Competition:
•Market Infrastructures
•Money Remitters
•Non-Banks: e.g. Telecoms, Web Players, Retailers
•Central Banks
•Cyber-currencies
Regulation:
•DFA e.g. 1073
•OCC on TPP
•FATCA
•Basel III
•BIS-CPSS
•Living Wills-Resolution
•FSA-CP 09/16
•PSD II
•Internationalisation of RMB
•Account Portability
•Faster Payments
Payment
SWIFT Business Forum—NY 2014 Payments Industry Perspectives
Work Session Steve Mott, Principal—BetterBuyDesign
4 March 2014
5
Payments Industry Perspectives
1. Fraud problem no longer swept under the rug
2. The politics of payments complicates investment decisions
3. Technology confusion and disruption abounds
4. Bank-based payment structure/infrastructure faces digital transformation
5. Crypto-currencies (e.g., bitcoin) emerge as ‘secure pipes’(?)
6
Target: A Game-Changer?
7
Rescator.la: For Your Everyday Fraud Needs!
8
Is an ROI Motivation Lacking?
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
U.S. Counter. Global U.S. U.S.-Banks U.S.-Merch Other Merch Interchange Charge-offs
$ Billion
$ Billion
9
EMV Cost
Sources; Nilson Reports, Moebs, Payments Source, industry reports
PCI: Misbegotten Effort?
• MAG survey: PCI costs from 2004-2009 were $20B (Tier 1 extrapolated to all)
• US card fraud in same period was $13.9B (45% of global)
• Fraud soaring again (2011-2013)
10
And Total Fraud is Rising Again (oops…)
11 Source: UK Payments Council
Too Many (Uncertain) Technology Choices
12
Mobile Prepaid
P2
P
Re
al-t
ime
D
eb
it
Digital Payments
Digital: Converging Payment Families
13
Big Digital Players Loom Large
14
Future Role in Faster/Near-Real-Time Payments
• Fed: Apply to faster, near-real-time payments initiative?
• Leverage open source code to modernize ACH system – “ACHCoin”?
• Upgrade EMV to real digital payment form?
Crypto-Currencies Emerge
• Miners
• Exchangers
• Wallet Providers
• Payment Processors
• Merchants
• Others
Implications for Banking Industry
• Merchants and corporate customers will soon be asking for support—what do you do then?
• If the ‘pipe’ of the future for transferring value is based on mathematical cryptography rendered in software, who provides the layers of necessary supporting infrastructure?
• If regulated financial institution accounts will comprise the vast bulk of digital funding transactions, which network is best suited to ‘insulate’ the pipe while providing ubiquitous access?
Applications for FIs/Treasury Departments
• International transfers?
• Intra-company transfers?
• Tax ‘protection’ events and activities?
• Avoidance of repatriation complications?
• Procurement in ‘sensitive’ countries?
• Foreign exchange arbitration/protection?
• Hedging (including against central banks)?
• Secure, ubiquitous pipe for ISO20022?
18
Steve Mott’s Contact Coordinates
dba CSI Management Services, Inc.
1386 Long Ridge Road
Stamford, CT 06903
and 1214 Querida Drive
Colorado Springs, CO 80909
(o) 203.968.1967
(c) 203-536.0588
email: [email protected]
website:www.betterbuydesign.com
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Steve Mott BetterBuyDesign
19
© 2014 Federal Reserve System. Materials are not to be used without consent.
Advancing the Federal Reserve
Financial Services Strategic Direction
Payment System Improvement
Consultation Paper Responses
and Additional Research
Presented to: SWIFT New York Business Forum, March 4, 2014 Presented by: Ken Isaacson, Senior Vice President, Federal Reserve Bank of NY
© 2014 Federal Reserve System. Materials are not to be used without consent.
Discussion Agenda
• Federal Reserve Overview and Strategic Focus
• Consultation Paper and Responses
• Additional Research Activities
• Staying Connected
• Questions
21
© 2014 Federal Reserve System. Materials are not to be used without consent.
Provide financial
services to depository
institutions and U.S. government
Establish and execute U.S.
monetary policy
Supervise and regulate financial
institutions
Federal Reserve Banks Overview
22
Mission
•To foster integrity, efficiency and accessibility of the U.S. payment system
Vision
•Payments are safe and efficient
•End users can select payment options with attributes (e.g., speed, convenience, cost, security) that meet their needs
• Incentives promote efficient selection and use of these options
Role
•Act as a major service provider to the interbank market
•Collaborate with industry and emphasize innovations in electronic payment systems
…to maintain a stable financial system and contain systemic risk
© 2014 Federal Reserve System. Materials are not to be used without consent.
• Maintain and enhance FRB network security
• Enhance understanding of end-to-end security
• Collaborate and promote industry best practices
Safety and
Security
• Develop solutions to enhance payment speed
• Understand market demand for faster payments
• Continue migration of paper to electronic Speed
• Develop solutions to promote efficiency
• Understand needs and barriers
• Promote standards adoption to improve efficiency Efficiency
End-to-End Strategic Focus
23
© 2014 Federal Reserve System. Materials are not to be used without consent.
Payment System Improvement –
Public Consultation Paper
• The paper sought the input of payment system providers
and end users on:
– Payment system gaps, opportunities and desired outcomes
– Potential strategies and tactics to shape the future of the U.S.
payment system
– The Federal Reserve Banks’ role in implementing these
strategies and tactics
In late 2013, Federal Reserve Banks solicited comments on a Payment System Improvement – Public Consultation Paper.
24
© 2014 Federal Reserve System. Materials are not to be used without consent.
25
Payment System Improvement – Public
Consultation Paper Industry Response
• ~200 written responses • Review responses at:
FedPaymentsImprovement.org/user-submissions/
© 2014 Federal Reserve System. Materials are not to be used without consent.
26
Additional Research Activities
End-User Research on Demand for Select Payment Attributes
Real-Time Alternatives Assessment
Payments Security Landscape Study
Electronic Payment Order (EPO) Exploration
© 2014 Federal Reserve System. Materials are not to be used without consent.
27
Additional Research Activities
End-User Demand for Select Payment Attributes
• Usage and awareness of various payment instruments
• Importance/meaning of speed to end users; differences by use case
• Importance of other key features (e.g., ubiquity, account masking)
• Appeal of faster payments and willingness to pay fees
Objective: To further explore end-user demand for select payment attributes
• Focus Groups
• Discrete Choice Testing
• Concept Testing
Qualitative and quantitative research
© 2014 Federal Reserve System. Materials are not to be used without consent.
• Define the features and functionality required in an enhanced system
• Identify feasible alternatives for achieving the desired features and functionality
Objective: Assess alternatives to improve the speed of U.S. payments, including the exploration of a near real-time retail payment system
28
Additional Research Activities
Real-time Alternatives Assessment
© 2014 Federal Reserve System. Materials are not to be used without consent.
• Enhance understanding of end-to-end security
• Collaborate and promote industry best practices
Objective
• Secondary research review to provide insight into potential gaps or opportunities
• Case studies to analyze payment networks in relation to control structure components such as network governance, payments data storage, incentives and standards
• Review of current industry activities focused on enhancing payment security
Study Components
29
Additional Research Activities
Payments Security Landscape Study
© 2014 Federal Reserve System. Materials are not to be used without consent.
30
• Identify barriers and risks preventing the evolution of an EPO and identify use cases that would drive design of a potential industry EPO solution
Objective
• Drafting use-case specific work flows that contain details of the key elements that would drive EPO solution design
• Defining parties involved in creation and transfer of EPOs and defining responsibilities and relationships between parties
Activities
Additional Research Activities
EPO Exploration
© 2014 Federal Reserve System. Materials are not to be used without consent.
Additional Sources of Information
Retail Payments Study
• Collected the number and value of noncash payments, cash withdrawals and deposits, and unauthorized transactions
• Estimated the distribution of checks by counterparty and purpose to better understand payment trends
ISO 20022 Business Case Assessment
• Engaged a consultant to evaluate the business case for or against adopting ISO 20022 payment messages in the United States
• Sponsored the assessment with X9, NACHA and The Clearing House
31
© 2014 Federal Reserve System. Materials are not to be used without consent.
Next Steps
32
• Continue payment industry collaboration efforts to encourage and document interactive dialogue on the U.S. payment system gaps and opportunities, desired outcomes and possible solutions that improve speed, efficiency and security.
• Use Consultation Paper industry input and additional research insight to inform FRFS future plans and actions and identify areas where collaboration with industry or independent industry action would be useful in the implementation of U.S. payment system improvements.
• Define and prioritize U.S. payment system improvement initiatives that advance the speed, efficiency and security of payments and communicate these plans in a white paper expected to be published in the second half of 2014.
© 2014 Federal Reserve System. Materials are not to be used without consent.
33
Staying Connected
Visit FedPaymentsImprovement.org
Visit us at Fed and industry forums • E.g., NACHA Payments 2014, Sibos 2014, the Chicago
Payments Symposium, Money2020 and the AFP annual conference
Subscribe to receive strategic direction updates from the Fed • FedPaymentImprovements.org/subscribe