Building a Faster Safer Payment System Pay CLT

Building a Faster, Safer Payment System Pay. CLT Meeting November 4, 2016 Dan Gonzalez Vice President, Payments Industry Relations © 2016 Federal Reserve Banks. Materials are not to be used without consent. 1

Strategies for Improving the U. S. Payment System Paper Five desired outcomes developed with extensive payment stakeholder input Speed Security International Efficiency Collaboration © 2016 Federal Reserve Banks. Materials are not to be used without consent. 2

Mission and Objectives of the Faster Payments Task Force Identify and evaluate approach(es) for implementing a safe, ubiquitous, faster payments capability in the United States Represent… views on future needs for a safe, ubiquitous faster payments solution Assess… alternative approach(es) for faster payment capabilities Address… other issues deemed important to the successful development of effective approaches © 2016 Federal Reserve Banks. Materials are not to be used without consent. 3

Faster Payments Task Force Composition Consumer Interest Organizations Government-End User 3% 2% Business End Users 4% Small Financial Institutions 9% Other Industry Segments 28% Medium Financial Institutions 14% Total Registrants: 315+ Large Financial Institutions 8% Non-Bank Providers 32% © 2016 Federal Reserve Banks. Materials are not to be used without consent. 4

Task Force Work Overview The Faster Payments Task Force work is helping to accelerate and enhance implementation of realtime payment capabilities in the United States RECOMMENDATIONS AND NEXT STEPS Facilitating successful implementation of faster payments Available on Fed. Payments. Improvement. org SOLUTION PROPOSALS • Demand for an end- CAPABILITY SHOWCASE • Faster payments QUALIFIED INDEPENDENT ASSESSMENT • Assessing proposed solutions against the effectiveness criteria CHALLENGES AND OPPORTUNITIES • Barriers and opportunities within the payment industry to-end faster payment system in the United States components available in the marketplace EFFECTIVENESS CRITERIA • Potential faster payment system features To be published in the first half of 2017 © 2016 Federal Reserve Banks. Materials are not to be used without consent. 5

Faster Payments Effectiveness Criteria Ubiquity U. 1 U. 2 U. 3 U. 4 U. 5 U. 6 Accessibility Usability Predictability Contextual Data Capability Cross-Border Functionality Multiple Use Cases E. 1 E. 2 F. 3 Fast availability of Good Funds to Efficiency Safety and the Payee Enables Competition Security Effectiveness Scale Capability to enable valueadded services S. 1 Risk Management E. 3 Implementation Timeline S. 2 Payer Authorization • Very effective – Within 1 minute. E. 4 Payment Format Standards • Effective – Within 30 minutes. Effectiveness Scale S. 3 Payment Finality E. 5 Comprehensiveness • Somewhat effective – Within 1 hour. S. 4 Settlement Approach E. 6 Scalability and Adaptability • Not effective – Over 1 hour. S. 5 Handling Disputed Payments • Very effective – Within 2 and seconds. E. 7 Exceptions Investigations F. 1 Fast Approval S. 6 Fraud Information Sharing • Effective – Within 5 seconds. Process Effectiveness Scale F. 2 Fast Clearing S. 7 Security Controls • Somewhat effective – Within 1 minute. F. 3 Fast Availability of Good Funds S. 8 Resiliency • Not effective – Over 1 minute. to Payee • Very effective – Less than 30 minutes and otherwise fully satisfies these S. 9 End-user Data Protection criteria. F. 4 Fast Settlement among S. 10 End-user/Provider Depository Institutions and Regulated • Effective – Less than 2 hours and otherwise mostly or fully satisfies Authentication Non-bank Account Providers these criteria. G. 1 Effective governance S. 11 Requirements • G. 2 Somewhat – No later than end of Participation day and otherwise partially, Inclusive effective governance F. 5 Prompt visibility of payment status mostly, or fully satisfies these criteria. Speed (Fast) F. 2 Fast Clearing F. 4 Fast Settlement among Depository Institutions and Regulated Non-bank Governance Legal L. 1 L. 2 L. 3 • Not effective – Next day or longer, or does not otherwise satisfy these Legal Framework L. 4 Data privacy criteria. Payment System Rules L. 5 Intellectual property Consumer Protections © 2016 Federal Reserve Banks. Materials are not to be used without consent. 6

Capability Showcase • Short industry videos of capabilities that could support end-to-end faster payment solutions • Capabilities may support one or more of the Effectiveness Criteria • Offers opportunity for capability providers to collaborate • Educates task force on marketplace capabilities © 2016 Federal Reserve Banks. Materials are not to be used without consent. 7

Proposal Submission and Assessment • Any Faster Payments Task Force member was eligible to submit a proposal for an end-to-end payments solution • Assessment undertaken by Qualified Independent Assessment Team • Qualitative assessment against the Effectiveness Criteria • Task force will provide commentary on the assessments and proposals © 2016 Federal Reserve Banks. Materials are not to be used without consent. 8

Task Force Commentary Period Overview Phase 1: Education • Build understanding and confidence in assessment process Phase 2: Dialogue and Commentary • Facilitate understanding, dialogue and response to proposals Phase 3: Insights and Implications • Share outcome of assessments to drive insight for report recommendations © 2016 Federal Reserve Banks. Materials are not to be used without consent. 9

Challenges and Opportunities Work Group • A “Challenges and Opportunities” work group was formed to support development and delivery of the final report. • Sub-work groups determine information gaps and conduct deep dives on assigned challenges and opportunities. © 2016 Federal Reserve Banks. Materials are not to be used without consent. 10

Final Report • QIAT Assessment • Task Force Community • Challenges and Opportunities Work Group • Task Force Review • Effectiveness Criteria • Capability Showcase Final Report Inputs • Release One • Landscape and Benefits • Task Force Background and Process Overview • Release Two • Proposals and Assessments • Challenges and Opportunities • Recommended Next Steps Phased Release Strategy © 2016 Federal Reserve Banks. Materials are not to be used without consent. 11

What to Expect Next Task Forces Review Solution Proposals and Preliminary Assessments • Proposals offer models of what an end-to-end faster payment system in the United States could look like and will show each proposal measured up against the various effectiveness criteria Part One of the Final Report • Describes the task force history and background, including the process undertaken to identify and assess faster payments solutions Part Two of the Final Report • Includes a discussion and assessment of the specific proposals and identifies strategic issues deemed important to the successful development of faster payments in the United States. © 2016 Federal Reserve Banks. Materials are not to be used without consent. 12

Secure Payments Task Force Mission and Objectives Work to reduce fraud risk and advance the safety, security and resiliency of the payment system Advance areas of focus for payment security and priorities for future action to enhance payment system safety, security and resiliency Advise the Fed on payment security matters Coordinate with the Faster Payments Task Force to identify solutions for any new or modified payments infrastructure © 2016 Federal Reserve Banks. Materials are not to be used without consent. 13

Focus Areas Nov 2016 Mar 2016 Information Sharing for the Mitigation of Payment Risk and Fraud Data Protection Work Group Chair: Nancy O’Malley, Master. Card Work Group Chair: Glen Ulrich, U. S. Bank Work Group Chair: Reed Luhtanen, Wal-Mart Stores, Inc. Work Group Chair: Victoria Strayer, TSYS Identification and adoption of payment identity management practices to mitigate existing and anticipated fraud vectors Improve the awareness, implementation and exchange of fraud and risk information both domestically and crossborder Identification and adoption of frameworks / methodologies for protecting sensitive payment data at rest and in transit Identify opportunities for more consistent interpretation and application of payment laws and regulations to enhance payments system security Payment Identity Management Feb 2016 June 2016 © 2016 Federal Reserve Banks. Materials are not to be used without consent. Law and Regulation Coordination 14

Accomplishments To-Date Collaborated on the Faster Payments Effectiveness Criteria Ongoing Support of the Evolution and Adoption of Standards Enhanced Federal Reserve Payment Security Research Identified and Advanced Work on Payment System Security Focus Areas Launched Survey to Solicit Industry Feedback on Work Group Solutions © 2016 Federal Reserve Banks. Materials are not to be used without consent. 15

Join the Community at Fed. Payments. Improvement. org! Receive information on task forces and work groups, invitations to live/virtual events, surveys and other online feedback opportunities. @Fed. Pay. Improve Fed. Payments Improvement © 2016 Federal Reserve Banks. Materials are not to be used without consent. 16