U.S. Federal Reserve Takes No Position On Its Real-Time Payments Report

Tom Groenfeldt

After years of study, conferences, prodding, engaging consultants, trying to embarrass banks at how far the U.S. payments system lags behind other countries, and deflecting attempts at analysis paralysis, the U.S. Federal Reserve System has published a lengthy report with 10 recommendations for making payments faster (in effect, real-time) – and immediately noted that they didn’t reflect any position held by the central bank.

The report’s recommendations are:

  • Establishing a formal governance framework
  • Establishing rules, standards, and a baseline set of requirements for the faster payments system that would enable payments to cross solutions securely and reliably, and ensure that end users have predictability and transparency in certain key features pertaining to timing, fees, error resolution, and liability
  • Evaluating laws and regulations affecting payments and payment service providers to ensure that they are suited to the unique characteristics of real-time payments
  • Developing a design for faster payments solutions to interoperate via directory services
  • Requesting the Federal Reserve develop a 24x7x365 settlement service
  • Requesting that the Federal Reserve explore and assess other operational role(s) it might need to play to support ubiquity, competition, and equitable access to faster payments.
  • Developing methods for fraud detection, reporting, and information sharing to continuously advance the safety and security of the faster payments system
  • Creating advocacy and education programs to support broad adoption
  • Researching cross-border payments to identify and address gaps and barriers to enabling faster payments for this use case
  • Continuing research on emerging technologies to deepen understanding of the risks they may pose as well as the benefits they may offer, including the potential for serving underserved end users and use cases

The recommendations come from the Faster Payments Task Force, a group of more than 300 participants from banks, corporations, consultancies, technology firms, non-bank payment providers, government bodies, and consumer groups that have been working on the recommendations since May 2015.

The oddity of the current state of the American political system is reflected in the structure of the task force and its report. In the face of politically powerful banks that were reluctant to spend money on updating the payment systems – an expensive project with no immediate and obvious return on investment – the Fed’s role has been to convene meetings and point out the problems created for consumers by slow payments, such as financial penalties or utility shutoffs unless they drive to a utility office to pay in cash.

The Fed hired McKinsey & Co. to conduct an extensive study to get the discussion started and then again to evaluate proposals submitted to improve the payments system. It has acted as a catalyst and brought together payment participants including users, banks, tech companies, retailers, consultants, and academics.

Yet the introduction to the report includes this disclaimer: “This report is a product of the task force and does not reflect the official views or positions of the Federal Reserve System.”

The absence of a central authority directing the development of a real-time payment system for the U.S. helps explain the report’s heavy use of terms like stakeholders, collaboration, and interoperability. Faster payments will probably come to the U.S. through several providers, and one of their challenges will be to make payment channels work together without active oversight of a regulator.

Just look at how many of the 10 recommendations are aimed at the gaps and shortcomings of a decentralized operating model with multiple players.

The report notes that a multi-provider system does raise some concerns:

“While the eventual number of solutions in the market cannot be predicted, it is desirable to broaden the reach of all solutions by enabling faster payments transactions to cross between them,” the task force noted. “Technical and business process issues can inhibit this interoperability. In addition, solutions may have different rules, policies, and functionality resulting in variations and ambiguity in the end-user experience.”

Security is also of a concern when several companies are involved in the solution.

“When multiple solution operators pass payments and share information, a security weakness in any one solution makes the system as a whole more vulnerable.” The report refers to this as a “market-driven approach to payment system innovation that avoids government mandates” and said it “believes its efforts demonstrate that such pro-competitive, voluntary collaboration is possible and can serve as the foundation for the work that lies ahead.”

It doesn’t cite any other country that is using voluntary collaboration to achieve real-time payments.

The new systems, running on an international standard for payments known as ISO 20022, will combine billing, information, and payments in a way that today’s systems don’t. In the words of the report: “it will benefit businesses and government agencies by delivering real-time, data-rich payments that enable straight-through transaction processing from the point of invoice generation to final reconciliation.”

Sean Rodriguez, the faster payments strategy leader for the Federal Reserve System, had initially been concerned about a task force with 300 members, although much of the work was done by a smaller committee.

“We had no idea of whether we could work together and be productive,” Rodriguez said last week after releasing the recommendations. “It could not have worked out better. People showed up with big ears and smaller mouths and listened to one another’s viewpoints. The 124 points of what we as U.S. payment stakeholders want was inspiring.” The goal of the task force is for banks and businesses to be ready to receive real-time payments by 2020.

The next step is to key up new working groups to focus on gaps that need to be addressed to meet a goal of real-time payments by 2020.  The groups will focus on domestic payments before they look at cross-border, he added.

“I couldn’t be more proud of the people who came together to move the ball forward with effectiveness criteria which will serve the market well,” Rodriguez added. He complimented participants for the time they spent thinking of giving the country and industry stakeholders a goal within three and a half years.

The task force report is available at FasterPaymentsTaskForce.org.

Traditional banks are having a hard time keeping up with changing technology. Check out 4 Top Challenges Facing The Banking Industry Right Now.

Comments

About Tom Groenfeldt

Tom Groenfeldt is a freelance reporter who focuses largely on finance and technology including trading, risk, back-office systems, big data, analytics, retail banking, international banking, and e-commerce. His work appears in several publications, including Forbes.com in the U.S. and Banking Technology in London. In 2015, he was named to the “FinServ 25,” the top 25 top global influencers in banking, by The Financial Brand.

Transformation Ahead, Part 2: 10 Trends Shaping The Future Of Finance

Randy Garrison

Part 2 of the 4-part “Transformation Ahead” series

I am seeing several key trends that are poised to make a major impact on the future of the finance organization. As I wrote in the first blog in this series, CFOs must be prepared to adapt to these changes, beginning with Trend #1: the evolving role of finance in supporting and executing business strategy. 

Following are three additional trends that CFOs should consider, along with examples of leading finance organizations that have embraced change in these areas.

Trend 2. Finance organizations will implement finance platforms, not ERP software.

The introduction of in-memory database technology allows businesses to gain insight from massive volumes of data while using systems for both transactional and analytical purposes. Thanks to these developments, financial ledgers are becoming data platforms for both transactional and analytical processing.

Platforms are being delivered with additional intellectual property as add-on capabilities. For example, professional service firms such as PwC, Deloitte, Ernst & Young, and Accenture are including their IP into applications built on SAP Cloud Platform. By extending the original capabilities of the platform around tax optimization or profitability analysis, this IP will broaden the choice of solutions and increase the speed and depth of functionality for finance organization.

When choosing financial solutions, executives must consider the openness of the platform and the availability of these advanced capabilities. CFOs should look beyond the immediate product features and functions and choose a financial solution based on the strength of a vendor’s platform and ecosystem.

Trend 3. Critical financial processes will be highly automated.

“Lights-out finance” will be part of every CFO’s future. Accounting that runs 24/7, using technologies such as artificial intelligence, will allow nearly full automation in traditional processes such as record-to-report, procure-to-pay, and order-to-cash. The need for shared service centers will shrink dramatically, allowing companies to redeploy scarce human capital to support high-value-added activities. Business networks will also digitize the information flow between companies and suppliers without breaks.

At SAP, revamping our finance processes helped us steer business model innovation beyond ERP. We have implemented several automated technologies that reduced the percentage of expenses dedicated to back-office, transactional costs from 65% to 40%. Automation also helped us lower the cost of finance as a percentage of revenue.

Trend 4. Finance will own true enterprise risk management.

Considering the incredibly high stakes of failure, it’s not surprising that finance would become the owner of enterprise risk management. Fortunately for CFOs, technology is increasingly enabling enhanced insight into the organization, removing silos and creating a true enterprise-wide view of the business that supports risk mitigation.

As this technology matures, proactive risk management strategies will become common, and they will be driven by requirements at the supervisory board level. This will not be limited to an enterprise view. As business networks become increasingly prominent, the view of enterprise risk management will extend throughout a company’s ecosystem, further enhancing capabilities in this critical area.

In my next blog, I’ll look at analytics, continuous processes, and automation – major developments that will disrupt finance. You can read more about finance solutions at www.sap.com/cfo.

Follow SAP Finance online: @SAPFinance (Twitter)  | LinkedIn | FacebookYouTube

Comments

Randy Garrison

About Randy Garrison

Randy Garrison is vice president, Global Line of Business Finance and Head of Value Advisory at SAP. The LoB Finance organization is responsible for the full suite of SAP solutions for the Office of the CFO.

Randy has held several roles at SAP, most recently in leadership within SAP’s Services business. In these roles, he has led both large and small teams focused on analytics strategy, data strategy, business transformation, Big Data, and so on, focused on the implementation, adoption, and value realization of SAP’s products.

Randy is a Certified Public Accountant, Certified Management Accountant, Chartered Global Management Accountant, and a member of the AICPA and the Institute of Management Accountants.

He is married with five children ranging in age from 32 to 7 years old. Personal interests include golf, hot air ballooning, anything the kids do.

Rise Of The Digital Conglomerate In Asia

Koert Breebaart and Scott Russell

Asia’s conglomerates are at an inflection point. From South Korea’s chaebols and Japan’s keiretsu to India’s business houses and Southeast Asia’s family-owned multinationals, these large groups have exceptional track records of success. However, they now find themselves competing for customers, capital, and talent in a very different and globalised environment.

Despite most Asian conglomerates working hard to improve operational efficiency and the quality of their products and services, new challengers – including agile online retailers such as Alibaba and Amazon, and global digital-powered entities like Google and Tesla – are fast disrupting markets, with new ways of selling and making decisions. Conglomerates face a stark choice: disrupt or be disrupted.

At the same time, rapid technical and social innovation is highlighting the need for continuous innovation. As technology plays a bigger role in their day-to-day lives, consumers want to shop for products and services that are personalised, transparent, convenient, and available on demand. Customer expectations, in other words, have never been higher.

Global market trends are also inescapable. With prices for commodities such as oil and minerals fluctuating, many Asian conglomerates are under pressure to reimagine their business models to open new revenue and profit sources as old ones close.

Some conglomerates have already adapted, successfully deploying digital technology to engage in new ways with customers, streamline operations, and optimise business outcomes. However, many are still yet to transform their operations for the digital age. To maintain and grow their competitive edge, Asian conglomerates should consider transforming key aspects of the business value chain by:

  • Evolving customer engagement and commerce to drive growth
  • Enhancing workforce engagement across employees and contractors to drive profit
  • Enabling superior business and supplier collaboration to drive down spend across direct materials, indirect spend, and travel
  • Optimizing the extended supply chain by harnessing the Internet of Things (IoT) to better connect assets, products, and equipment – increasing cost savings and enhance the customer experience
  • Providing real-time intelligent insights by bringing together business transactions and insights to drive more informed decision-making

Download our white paper “Rise of the Digital Conglomerate In Asia” to learn more. If you are interested, we are happy to demonstrate how SAP is uniquely positioned to help you with a powerful end-to-end enterprise platform, capable of digitising every business process across 25 industries. 

Comments

Koert Breebaart

About Koert Breebaart

Koert Breebaart is the Digital Leader and Vice President for the Conglomerates Industry Business Unit at SAP (Asia-Pacific and Japan). He leads the industry through value management, customer co-innovation, digital transformation, and business process performance improvement programs by developing road maps, reimagining business models, and reducing costs with digital technologies. On top of his expertise, Koert is also a passionate writer who consistently pens his thoughts and experiences in articles. He is the author of the book “5 Steps to Customer Centricity,” and the Director of the short documentary “Social Entrepreneurs: New Heroes of the 21st Century.”

Scott Russell

About Scott Russell

Scott Russell is the President and Managing Director for SAP Southeast Asia (SEA). Russell is responsible for business strategy, operations, P&L, and sustainable growth for SAP across SEA. He leads high-performing teams across Singapore, Malaysia, Thailand, Indonesia, Philippines, Vietnam and other emerging markets in SEA. Russell has more than 20 years of experience in the IT industry spanning across software, cloud and services. Russell has helped hundreds of companies leverage leading enterprise software including cloud solutions and providing expert guidance to achieve their business goals. Before joining SAP, Russell was with IBM Global Business Services, where he led the Systems Integration and Application Maintenance business for IBM Australia New Zealand and the Managing Partner for IBM in Thailand and Vietnam previously to that. Russell is also a respected thought leader and a regular speaker at seminars and conferences, including the World Economic Forum on ASEAN and Bloomberg ASEAN Business Summit. He has been featured in numerous media, including CNBC, Bloomberg TV, Channel NewsAsia, Nikkei Asian Review, Business Insider, Business Times and many others. Russell is passionate about helping companies leverage technology innovation by converting business strategy into successful execution with cloud and software solutions.

Human Skills for the Digital Future

Dan Wellers and Kai Goerlich

Technology Evolves.
So Must We.


Technology replacing human effort is as old as the first stone axe, and so is the disruption it creates.
Thanks to deep learning and other advances in AI, machine learning is catching up to the human mind faster than expected.
How do we maintain our value in a world in which AI can perform many high-value tasks?


Uniquely Human Abilities

AI is excellent at automating routine knowledge work and generating new insights from existing data — but humans know what they don’t know.

We’re driven to explore, try new and risky things, and make a difference.
 
 
 
We deduce the existence of information we don’t yet know about.
 
 
 
We imagine radical new business models, products, and opportunities.
 
 
 
We have creativity, imagination, humor, ethics, persistence, and critical thinking.


There’s Nothing Soft About “Soft Skills”

To stay ahead of AI in an increasingly automated world, we need to start cultivating our most human abilities on a societal level. There’s nothing soft about these skills, and we can’t afford to leave them to chance.

We must revamp how and what we teach to nurture the critical skills of passion, curiosity, imagination, creativity, critical thinking, and persistence. In the era of AI, no one will be able to thrive without these abilities, and most people will need help acquiring and improving them.

Anything artificial intelligence does has to fit into a human-centered value system that takes our unique abilities into account. While we help AI get more powerful, we need to get better at being human.


Download the executive brief Human Skills for the Digital Future.


Read the full article The Human Factor in an AI Future.


Comments

About Dan Wellers

Dan Wellers is founder and leader of Digital Futures at SAP, a strategic insights and thought leadership discipline that explores how digital technologies drive exponential change in business and society.

Kai Goerlich

About Kai Goerlich

Kai Goerlich is the Chief Futurist at SAP Innovation Center network His specialties include Competitive Intelligence, Market Intelligence, Corporate Foresight, Trends, Futuring and ideation.

Share your thoughts with Kai on Twitter @KaiGoe.heif Futu

Tags:

Finance And HR: Friends Or Foes? Shifting To A Collaborative Mindset

Richard McLean

Part 1 in the 3-part “Finance and HR Collaboration” series

In my last blog, I challenged you to think of collaboration as the next killer app, citing a recent study by Oxford Economics sponsored by SAP. The study clearly explains how corporate performance improves when finance actively engages in collaboration with other business functions.

As a case in point, consider finance and HR. Both are being called on to work more collaboratively with each other – and the broader business – to help achieve a shared vision for the company. In most organizations, both have undergone a transformation to extend beyond operational tasks and adopt a more strategic focus, opening the door to more collaboration. As such, both have assumed three very important roles in the company – business partner, change agent, and steward. In this post, I’ll illustrate how collaboration can enable HR and finance to be more effective business partners.

Making the transition to focus on broader business objectives

My colleague Renata Janini Dohmen, senior vice president of HR for SAP Asia Pacific Japan, credits a changing mindset for both finance and HR as key to enabling the transition away from our traditional roles to be more collaborative. She says, “For a long time, people in HR and finance were seen as opponents. HR was focused on employees and how to motivate, encourage, and cheer on the workforce. Finance looked at the numbers and was a lot more cautious and possibly more skeptical in terms of making an investment. Today, both areas have made the transition to take on a more holistic perspective. We are pursuing strategies and approaching decisions based on what delivers the best return on investment for the company’s assets, whether those assets are monetary or non-monetary. This mindset shift plays a key role in how finance and HR execute the strategic imperatives of the company,” she notes.

Viewing joint decisions from a completely different lens

I agree with Renata. This mindset change has certainly impacted the way I make decisions. If I’m just focused on controlling costs and assessing expenditures, I’ll evaluate programs and ideas quite differently than if I’m thinking about the big picture.

For example, there’s an HR manager in our organization who runs Compensation and Benefits. She approaches me regularly with great ideas. But those ideas cost money. In the past, I was probably more inclined to look at those conversations from a tactical perspective. It was easy for me to simply say, “No, we can’t afford it.”

Now I look at her ideas from a more strategic perspective. I think, “What do we want our culture to be in the years ahead? Are the benefits packages she is proposing perhaps the right ones to get us there? Are they family friendly? Are they relevant for people in today’s world? Will they make us an employer of choice?” I quite enjoy the rich conversations we have about the impact of compensation and benefits design on the culture we want to create. Now, I see our relationship as much more collaborative and jointly invested in attracting and retaining the best people who will ultimately deliver on the company strategy. It’s a completely different lens.

Defining how finance and HR align to the company strategy

Renata and I believe that greater collaboration between finance and HR is a critical success factor. How can your organization achieve this shift? “Once the organization has clearly defined what role finance and HR must play and how they fundamentally align to the company strategy, then it’s more natural to structure them in a way to support such transformation,” Renata explains.

Technology plays an important role in our ability to successfully collaborate. Looking back, finance and HR were heavily focused on our own operational areas because everything we did tended to consume more time – just keeping the lights on and taking care of our basic responsibilities. Now, through a more efficient operating model with shared services, standard operating procedures, and automation, we can both be more business-focused and integrated. As a result, we’re able to collaborate in more meaningful ways to have a positive impact on business outcomes.

In our next blog, we’ll look at how finance and HR can work together as agents of change.

For a deeper dive, download the Oxford Economics study sponsored by SAP.

Follow SAP Finance online: @SAPFinance (Twitter)LinkedIn | FacebookYouTube

Comments

Richard McLean

About Richard McLean

Richard McLean, regional CFO for SAP Asia Pacific Japan, oversees all key finance and administrative functions for field and regional headquarters, supporting more than 16,000 employees. He has more than 20 years of experience in senior finance roles with leading global companies across a range of industries, including financial services, investment banking, automotive, and IT. He joined SAP in 2008.