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Industry roundup: January 31

The U.S. Treasury is considering alternatives to ID.me after privacy concerns

After some legislators elevated privacy concerns, the U.S. Treasury is now considering alternatives to the facial recognition technology of commercial provider ID.me to verify the identity of online taxpayer accounts. In November 2021, the Internal Revenue Service publicized that it would change to identity verification, in 2022, to access online services such as tax records and child tax credit information using ID.me technology. The procedure entails importing a "selfie" image to create an ID.me account. There was great interest in this process as the IRS launched its annual tax return filing season.

The IRS stated that Americans are not required to take a selfie in order to file their tax return. Furthermore, the IRS is researching methods to enhance the filing process in a safe and secure manner.

The ID.me company stated last week that its technology meets the guidelines of the National Institute of Standards and Technology and provides three ways to verify identity. Additionally, ID.me commented that it provides digital ID services to 10 federal agencies, including the Social Security Administration, the Department of Veterans Affairs, and 30 states in the United States.

The Treasury further commented that the lack of funds to modernize the IRS information technology system forced it to rely on ID.me and other third-party services.

FedNow pricing approach established by the Fed

The Federal Reserve Board announced a pricing approach for FedNow instant payment services. To help financial institutions and their service providers plan to implement the FedNow service, Ken Montgomery, Interim President and Chief Executive Officer and FedNow program executive, Federal Reserve Bank of Boston, commented that the Fed is providing comprehensive information on the pricing approach prior to the launch in 2023. The industry contributions continue to help address immediate payment needs, further define pricing approaches, and move forward towards launching the service, added Montgomery.

The 2023 FedNow service pricing, to be released in late 2022, is currently anticipated to include the following pricing and other fee information:

  • A US$25 monthly FedNow Service participation fee for each routing transit number (RTN) that joins in the service to receive credit transfers.
  • A fee of $0.045 per credit transfer to be paid by its sender, including returns.
  • A fee of $0.01 for a request for payment (RFP) message to be paid by the requestor, including both requests for a new payment or funds to be returned. For example, a participating financial institution can send an RFP via the FedNow service to another participating financial institution to request payment of a bill, invoice or other amount owed by the receiving financial institution’s client.

The planned FedNow service credit transfer transaction amount limit is $500,000. However, participants have a $100,000 limit by default and have the option to adjust up or down. The Federal Reserve will continuously evaluate the credit transfer limits and adjust as necessary.

According to Montgomery, the input from financial institution clients and pilot programme participants help define pricing and transfer limits for FedNow services to achieve the goal of accessible and competitive services that support a variety of use cases and innovations.

For more information on FedNow services and instant payment resources, please visit FedNowExplorer.org.

Central Pacific Bank launches banking-as-a-service initiative with Swell.

Central Pacific Financial Corporation (CPF), the parent company of Hawaiian-based financial institution Central Pacific Bank (CPB) will continue its banking-as-a-service initiative with equity investment in Swell, a new Colorado-based financial technology company. Swell is expected to launch a retail banking app that combines checks, loans and more into a single integrated account by mid-2022. CPB will serve as a bank sponsor. However, there will also be collaboration between Swell and Elevate Credit, a provider of digital lending solutions. Furthermore, the banking-as-a-service initiative was developed based on CPB and Swell’s successful product development strategies and all-digital checking account, Shaka, which opened more than 3300 accounts since the launch in November 2021.

David Morimoto, Senior Vice President and Chief Financial Officer, CPF and CPB, commented to the Pacific Business News (PBN) that banking-as-a-service has become an increasingly important concept in recent years, especially since the pandemic. Morimoto stated that there are fintechs requiring a sponsor bank on the mainland and that banking-as-a-service can provide this. Furthermore, fintechs themselves are offering banking services throughout the country, although they are not banks, commented Morimoto. They are, nevertheless, able to provide bank products with other financial organizations as a bank sponsor. The last several years have seen financial technology companies gain traction, as their superior user experiences have helped them acquire customers. Morimoto further commented on financial technology companies continuing to create innovative state-of-the-art technology, such as the mobile apps, to generate more customers.

CPB will become a sponsor bank and will utilize fintech’s expertise to effectively evolve in line with the US banking market. Hawaii's population is less than 1% of the US population, and CPB will use banking-as-a-service as a way to effectively integrate into the US banking market. CPB has been analysing fintechs over a long period of time to create a differentiated model focused on profitability.

Henceforth, CPB has invested approximately US $1.5 million in sweat equity over the past nine months, and could potentially invest another $500,000 in late 2022. Swell is currently undergoing independent consultations with third-party investors to raise a series A round of funding. Details of the ownership structure will be released once complete.

Arnold Martinez, President and Chief Operating Officer, CPB, commented to PBN that other banks are partnering with fintech companies on the mainland, but CPB's approach is unique in that various community banks offer only products and services to fintechs where CPB launched a digital checking product (Shaka) in November 2021 as the beginning to revolutionize the digital banking landscape.

Developing digital banking in Brazil through the ICICB Group

Digital banking continues to evolve around the world. The ICICB Group, a banking and investment services organization, plans to expand the digital economy in Brazil by establishing a digital bank in the country. The public will benefit from digital banking services by transitioning from in-person banking transactions to digital transactions.

According to the press release, the ICICB Group has an extensive track record of creating innovative businesses and products from initial strategy to technical development with strict discipline and speed. The ICICB Group CEO commented that the new stage of innovation supports Brazil’s major institutions and industries in driving business. Furthermore, the Brazilian population will benefit from simple, quick and secure collection of funds globally. The ICICB team expects to complete all pertinent developments in the digital banking ecosystem with a planned release date by the latter half of 2022.

ICICB is dedicated to growing technology-oriented projects that mirror the transformation of the digital world. Furthermore, ICICB provides customized financial services to customers requiring a more competitive method and diversification to fulfil their digital objectives. The group’s initial strategic plan will include a wide array of services in Brazil, such as the ability to convert balances from one fiat currency to another, crypto exchanges, decentralized crypto wallets and other potential product offerings. The planned summary includes a high level of process automation, web-based services and APIs that facilitate the structure of cross-institutional products and transactions. Companies will be able to use big data and AI to more accurately predict future trends and changes while obtaining a better understanding of their customer’s motives and aspirations.

Furthermore, the ICICB Group leverages its expertise in global investment and labour markets to assist customers and partners in reaching their full potential. The group also combines its fundamental business and significant projects in the banking and financial sectors with the use of innovative technologies. Additionally, the group integrates hands-on content, real-time projects, and effective acumens from across the industry to streamline digital transformation and accelerate their client’s efforts.

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