FSI Member Spotlight, Episode #6: Innovation & Adoption Challenges in Fintech
For this recent FSI Member Spotlight, Lance Vaughn, Praxent Senior Director of Innovation, interviewed Peter Davey, Senior Vice President and Head of Product Innovation at The Clearing House, a bank consortium of the top financial institutions in the United States. Peter also serves on the Board of Directors as Strategic Advisor to ePayResources and has more than a decade of experience as Head of Payment Strategy, Innovation, and Industry at Capital One. In short? Payments innovation, strategy, and new and emerging technologies are Peter’s bread and butter.
Peter and Lance delve into the history of The Clearing House, with Peter referring to the consortium as “the oldest company that almost no one knows.” In fact, The Clearing House is 166 years old. Being in the business of clearing and settling an average of 2 Trillion dollars a day, perhaps no news really is good news. The Clearing House provides innovative products to the financial services industry, based on a foundation of responding directly to the evolving needs of customer banks and owner banks — this before the Federal Reserve had even been developed. Speaking of the Fed, The Clearing House more recently had a leadership position on the Fed’s Faster Payments Task Force. This resulted in a system funded by the top 25 financial institutions towards the advancement of the entire US economy. The Clearing House is also responsible for developing the first real-time payment system and making it available over the past four decades to every financial institution in the US. In short? Responsiveness is key to innovation — and The Clearing House’s historical efforts clearly demonstrate that innovation existed long before it became a buzzword.
Peter refers to Chris Skinner when summarizing that, in effect, “financial institutions were built for an industrial era in a paper-based economy.” When this knowledge is applied to an examination of the digital transformations that have occurred in the banking industry, it reveals a gap between how financial processes function and how industry professionals and customers alike are able to react to that gap between paper and digital. Peter emphasizes that not only is responsiveness key to addressing these evolving consumer needs, but rapid responsiveness — driven by the universal human desire for communication and affirmation of responses being received. Recognition of this drive has resulted in just the sort of rich communications mechanisms that Peter and The Clearing House have built within the RTP network. All wrapped up in three words? Control, transparency, and security are the name of the game when it comes to what businesses and banks alike expect from a robust payments system.
Peter acknowledges that a major challenge related to the adoption of new technologies is that financial institutions aren’t fully fluent in our digital society yet. While some banks, particularly neobanks , are fully digital, over 10,000 banks out there simply rely more on their legacy systems than on full digital fluency. As we know, these legacy systems can slow the progression towards digital — and toward fully integrating into the RTP network. With all the tools and systems already available for banks that are able to overcome their legacy hangups, still more are on the horizon. Lance brings up FedNow, an emerging program which is meant to enable faster end-to-end payment services. The motivation behind all this is to allow the private market to address the need for a new payment system, while also allowing for competitive differentiators to emerge. RTP is currently at about 57% of the total US deposit base, working with core providers towards over 70% of the US deposit base, and aiming towards 80% in 2021. So, while Peter would hesitate to summarize their ultimate aim as ubiquity, it’s clear that RTP is aggressively moving to address the needs of what is now, clearly a digital society.
- The Clearing House is a 166 year old consortium of major banks that has acted both in competition and collaboration with the Federal Reserve towards addressing the evolving needs of the market.
- Rapid communication and response is a human need which has resulted in great innovations across the financial services industry, including the Real Time Payment system (RTP).
- A major challenge in achieving full digital fluency, including the adoption of RTP, is the reliance of some 10,000 banks nationwide upon outdated (read: paper-based) core legacy systems. It is only a matter of time, in our fully digital society, that these banks address this need and integrate.
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