Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.
Chana Schoenberger (00:00):
Hi, I'm Chana Schoenberger. I'm the editor-in-chief of American Banker. I'm here at Digital Banking in Florida 2025, and I have here with me on stage Sal Karakaplan from The Clearing House. Thanks for coming in.
Sal Karakaplan (00:12):
Of course. Thanks for having me, Chana.
Chana Schoenberger (00:14):
Absolutely. Okay, so question for you. We interviewed you at the end of 2024 and you told us that you thought instant payments would be a big trend for this year. How is that going?
Sal Karakaplan (00:25):
It's going well. So I think the market is showing clear demand for instant payments and the clearing house is leading through that. We have now more than 98% of all instant payments in the country bought from volume and value perspective. And when it comes to reach, it's one of the things that we look at. There are a few metrics that we're very happy about. First of all, the service is open to all banks of all sizes and we are now approaching about thousand banks that is using RTP.
Chana Schoenberger (01:05):
Out of 4,500 banks in the country.
Sal Karakaplan (01:07):
That's correct, that's correct. And of those a good 90% are less than 10 billion in assets size and about 170 of them are credit unions. So we are getting a very good reach in the market that translates into about 71% DDA reach, demand, deposit account reach in the country. But our corporations who put these into actual use cases tell us that in certain use cases they get up to 90% DDA reach. So the trend is there. The market is showing demand and RTP showing its reach in terms of volume and value. In Q1 of this year we had a hundred million transactions, RTP transactions, which was 163 billion in value.
Chana Schoenberger (02:05):
Wow.
Sal Karakaplan (02:06):
So we're very happy about that. We are averaging a little over 1 million daily average transactions and our value is around 5 billion daily average. We have seen as high as an 8 billion value as a maximum daily and then 1.6 million transactions a day. And those transactions are being done by about 300,000 corporates and more than 5 million consumers.
Chana Schoenberger (02:37):
Wow.
Sal Karakaplan (02:37):
So big reach and good volume. And then in terms of use cases, we are seeing a lot of, to me use cases you sending from your brokerage to your checking or vice versa, you sending money from your wallet to your checking. We see what we call B2C business to consumer disbursements as a use case. So a loan disbursements can given directly to the consumer or to the dealer. That's a use case that we're seeing. Merchant settlement is another use case we're seeing earlier. Wage access is another one. So I think, I don't know who made that prediction, but whoever did it I think is showing up pretty strongly early this year.
Chana Schoenberger (03:28):
Interesting. Yeah. As I've been speaking to bankers at this conference, a number of them have highlighted instant payments as a trend that they see that more consumers and more businesses are asking for it.
Sal Karakaplan (03:38):
Yeah. Yeah. We're happy. But it's still very early innings, very, very early innings and there is a lot more potential. Obviously we all know how big the US market is in terms of payments, so there is a lot more runway to go, but we're happy where we are.
Chana Schoenberger (03:58):
Okay. No, that makes sense. I feel like there are a number of countries that have gone even farther in instant payments and I mean I think many of the Asian countries do this. They've been doing it for many years.
Sal Karakaplan (04:08):
No, that's correct. I mean, I think there are countries that are started earlier have gone faster, but as you know, and every country is different. Payments to a degree is a very local business because the settlement rails in each country is different. Government's attitude against payments is very different from country to country. Some of them actually take the lead and mandate things. US is not that kind of a setup. We are very much of a market driven bottom up and let's go find why this product should exist kind of mindset. And that's also taking a bit longer. But we're happy where we are.
Chana Schoenberger (04:51):
Great. Great. Okay. No, makes perfect sense. Okay. So what are you guys at The Clearing House up to right now and what do you see as your most important areas now?
Sal Karakaplan (05:02):
Yeah, look, The Clearing House is still shaping then it always does and still shaping the future of payments by collaborating and engaging with the entire ecosystem. What does that mean? That we always talk to the banks of all sizes. We talk to corporates and understand their needs. And we also talk to digital intermediaries and digital players understanding their needs as well. So collaboration and engagement is critical on how we shape the future of payments. There are a couple of things that I will lean in. One of them is kind of continuation that we just talked about, which is the execution. We still need to tightly execute against the RTP approach.
(05:52):
There are many other use cases that we need to lean into and many other kind of ecosystems that needs to show up. So that engagement is there. We're trying to understand how the product is being used, how can it be better, what other products, what are use cases are merging. In addition to that, underneath this collaboration and engagement in a framework is one of the areas that we're looking at is fraud and scam. So as we know that this is something that is there from an instant payments perspective, we have seen very favorable numbers so far. But we're trying to see if there are other ways where we can help the banks in the fraud and scam perspective in the RTP in a product. Because we sit in the center as a network, we have certain information on both sides that could be helpful. So our teams are working through that and understanding the needs and the market and see if there's a solution and a service that we can just kind of extend to the market and make that even better than what it is today.
Chana Schoenberger (07:10):
Yeah, the scams and frauds are very scary, at least where they affect consumers. And there are a number of pretty scary business ones as well that are becoming prevalent.
Sal Karakaplan (07:19):
Yes. It's the reality of payments. Every payment method has fraud, and it is well managed I think across all payment rails by all participants. But it's never zero. It is something that you manage well. Instant payments, being new to this market obviously attracts frauds, but I think the ecosystem and the banks actually did a pretty good job in the last couple of years in understanding it and making changes to address it. But as we said earlier, it is still early innings and you need to be very diligent on this and you need to stay ahead of everybody else. So that's the approach that we're taking and trying to see if there are other things that we could do to help everybody.
Chana Schoenberger (08:14):
Great. Great. Okay. So the Clearing House is owned by the biggest banks. How do you work with them and is that changing at all?
Sal Karakaplan (08:22):
Look, the Clearing House is open for business for all banks of shapes and sizes. We do not differentiate any bank in any shape or form. We go to market for all banks of shapes and sizes. We pride ourselves on two things that we shape the future of payments and we deliver safe, secure, and resilient payments infrastructure. You can't do that without engaging all the banks in the country. We are now up more than 1100 banks as customers across all of our solutions. And we talk to them all the time. And as I mentioned earlier, we also talk to corporates and the digital players. But in our vision of connecting the economy and making life simpler and more modern, we don't differentiate with banks as long as I have been at TCH, it's always been about how do we shape the future of payments and how do we connect the economy? And we do that from the largest to the smallest.
Chana Schoenberger (09:39):
Okay. What is the coolest thing you've seen recently outside the organization?
Sal Karakaplan (09:45):
So I'm going to cheat on this a little bit. The coolest and the most interesting for me right now is this solution that we're working on called DDA Token Service.
Chana Schoenberger (09:59):
Okay.
Sal Karakaplan (09:59):
So as you know, open banking has been a big trend in the US.
Chana Schoenberger (10:05):
Yes. It, they've just decided they're not going to enforce it. But banks were going down that path anyway. So we are mostly hearing that banks are going to continue.
Sal Karakaplan (10:15):
That is correct. So you're absolutely right. I was about to go there. So regulations were a bit of a start and a stop and so on and so forth. But regardless of that, as consumers engage with third parties and give their consent for their data to be shared, the consumer data is being shared across the sphere. And this new service that we have, which is called DDA Token Service, actually tokenizes the routing number and the DDA number when it's being shared by the third parties. So the third parties are not getting the real account number and the routing number, but they're getting a masked one. And that obviously protects the ecosystem, but it also gives control to the end user because through their banks, they can very quickly turn that connection on and off because of the token. And it sits at the heart of, again, our purpose of safe and reliable payments.
Chana Schoenberger (11:14):
So this is in the sense that if I am about to fill in my email on a transaction I'm doing on my iPhone, Apple will ask me if I want to mask my email at that moment.
Sal Karakaplan (11:26):
Very similar in the spirit. And so you establish a new relationship with a digital intermediary, we won't give a name, but you click on it and they rely on a data aggregator to go get that data from the bank, mostly through APIs, sometimes screen scraping, but hopefully that's going to slowly get out of the ecosystem. And when that is happening, that is being, to your point, sent in a masked manner. And when there's a payment initiation done with that, either ATP and ACH transaction or an RTP transaction, that payment transaction is done via these mask numbers as opposed to real numbers.
Chana Schoenberger (12:07):
So if the other party is fraudulent or is stealing it, then we can turn that off right away and it won't affect the rest of my account.
Sal Karakaplan (12:16):
That is a hundred percent exactly. Value propositions, meaning if that happens, you can turn it off. So the bank doesn't need to go replace the entire DDA account with new numbers, which obviously would change the everyday life of the consumer or the small business for that matter, which in no bank wants, that is a bad experience. And when customers have bad experiences, usually they tend to attract at a higher rate than not. So the business case there for the banks is let's secure the ecosystem and if something happens, we can react to it very quickly. And once we do, then we avoid a bad customer experience.
Chana Schoenberger (12:56):
Sounds good.
Sal Karakaplan (12:57):
So we're seeing a very healthy demand for that service from mostly regional banks. We have already a couple of live customers and a few others are coming in next week, next year. And we expect, as to your earlier point, we expect open banking to even further progress with or without regulations. We think that this is going to be a good feature.
Chana Schoenberger (13:25):
Okay. Great. Well thank you so much. Enjoy the conference.
Sal Karakaplan (13:28):
Thank you. Thanks for having me.
