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Industry roundup: 7 January

Nacha’s Faster Payments Playbook for Corporates coming soon

Two years ago, Nacha's Payments Innovation Alliance launched the Faster Payments Project Team to play a role in helping organisations gain clarity on faster payments. Its mission was to provide tools to help financial institutions and business end users shape their faster payments strategy. This work continues today.

So far, the Project Team has completed two resources for the industry:

  • Faster Payments 101– This educational primer is designed to help small- to mid-sized financial institutions understand their faster payments options in the marketplace.
  • Faster Payments Playbook for Financial Institutions – Launched jointly with the Faster Payments Council, the Playbook is an online educational and decisioning platform designed to help banks and credit unions develop a faster payments strategy.

This year, the Project Team started work on the Faster Payments Playbook for Corporates. This second version of the online Playbook focuses exclusively on helping businesses navigate the changing faster payments landscape. The goal is to release the completed corporate tool to the industry during the first half of 2021. 

The Payments Innovation Alliance has also announced it has expanded the ACH Quick Start Tool, an online educational resource designed to help small and medium-sized businesses more readily understand and use ACH to make and receive payments for an array of use cases. The tool has been updated to feature information on business-to-consumer (B2C) payments. ACH enables a business to push money to a consumer's account. The most common form of a B2C payment is direct deposit. Businesses can also use this method to pay customers for various reasons, including a business refund of an overpayment, or an insurance payment, among other examples.

 

MAS project on responsible use of AI and data analytics reaches milestone

The Monetary Authority of Singapore (MAS) has announced the conclusion of the first phase of its Veritas initiative. Veritas, which is a part of Singapore’s National AI Strategy, aims to provide financial institutions with a verifiable way to incorporate the FEAT (Fairness, Ethics, Accountability and Transparency) principles into their AI and data analytics solutions.

This first phase saw the development of the fairness assessment methodology in credit risk scoring and customer marketing. The Veritas Consortium, comprising MAS and industry partners, also published whitepapers on the fairness assessment methodology and the open source code of these two use cases.

The two whitepapers detailed a five-part methodology to assess the application of the FEAT fairness principles in the two use cases. The methodology addresses the implementation challenges in the responsible use of AI and data analytics, and provides an actionable approach for financial institutions to validate these solutions. The open source code of the two use cases has been made publicly available to help the wider AI and data analytics community in adopting the fairness assessment methodology and spur industry development. MAS said these will benefit customers by improving the fairness of financial services delivered by AIDA systems.

Phase Two of the Veritas initiative will look into developing the ethics, accountability and transparency assessment methodology for the two use cases in Phase One. Phase Two will also include use cases for the insurance industry.

For the insurance use cases, the Veritas consortium will focus on the fairness assessment methodology for predictive underwriting, and develop the ethics and accountability assessment methodology for fraud detection: 

  • Fairness is a key consideration in the course of underwriting for insurance companies. The Veritas consortium will focus on enhancing the fairness assessment methodology applicable to the predictive underwriting for life and health insurance products.
  • Fraud detection and identification of suspicious customer claims are key activities in claims processing by insurance companies. Traditional fraud detection is resource intensive and insurance companies can employ AIDA to enhance their fraud detection capabilities and efficiency.

 

US banks approved to use stablecoins for payment activities

The Office of the Comptroller of the Currency (OCC) in the US has published a letter clarifying national banks’ and federal savings associations’ authority to participate in independent node verification networks (INVN) and use stablecoins to conduct payment activities and other bank-permissible functions.

“While governments in other countries have built real-time payments systems, the United States has relied on our innovation sector to deliver real-time payments technologies," said Brian P. Brooks, acting comptroller of the Currency. "Some of those technologies are built and managed by bank consortia and some are based on independent node verification networks such as blockchains. The President’s Working Group on Financial Markets recently articulated a strong framework for ushering in an era of stablecoin-based financial infrastructure, identifying important risks while allowing those risks to be managed in a technology-agnostic way. Our letter removes any legal uncertainty about the authority of banks to connect to blockchains as validator nodes and thereby transact stablecoin payments on behalf of customers who are increasingly demanding the speed, efficiency, interoperability, and low cost associated with these products.”

The agency letter concludes a national bank or federal savings association may validate, store, and record payments transactions by serving as a node on an INVN. Likewise, a bank may use INVNs and related stablecoins to carry out other permissible payment activities. In deploying these technologies, a bank must comply with applicable law and safe, sound, and fair banking practices.

Engaging in INVN within the federal banking system may enhance the efficiency, effectiveness, and stability of payments activities and achieve the benefits of real-time payments already enjoyed in other countries. For example, such activities may be more resilient than other payment networks because of the decentralised nature of INVNs, which allows a comparatively large number of nodes to verify transactions in a trusted manner. An INVN also limits tampering or adding inaccurate information to the database because information is only added to the network after consensus is reached among the nodes validating the information.

The statement from the OCC also notes that banks must also be aware of potential risks when conducting INVN-related activities, including operational risks, compliance risk, and fraud. New technologies require enough technological expertise to ensure banks can manage these risks in a safe and sound manner. Banks have experience with managing such risks, which are similar to those of other electronic activities expressly permitted for banks, including providing electronic custody services, acting as a digital certification authority, and providing data processing services. Among the compliance risks, banks should guard against potential money laundering activities and terrorist financing by adapting and expanding their compliance programs to ensure compliance with the reporting and recordkeeping requirements of the Bank Secrecy Act and to address the particular risks of cryptocurrency transactions.

The OCC concluded by saying banks should develop and implement new activities consistently with sound risk management practices and should align with banks’ overall business plans and strategies.

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