Real-time payments will make weddings completely different. Or at least it may make paying for them different.
"For an early stage startup, being on the hook for something like $25,000 is a really big deal for us," said Alex Nikityuk, founder and CEO of Maroo, a two-year old firm that manages payments for weddings and events. The company is often in a position of fronting payments to suppliers while waiting for the couple to pay. He hopes that real-time processing — and security technology that can prove the identity of the recipient — will make it possible to eliminate the risk they face by floating such large payments.
Maroo is an early user of Verify, a product from Orum, which it designed using the FedNow real-time payment rail. The system determines within 15 seconds if a bank account is open and valid before initiating a payment. The technology attempts to address a
"In real-time money movement, the status of a payment is its status right now," said Stephany Kirkpatrick, CEO and founder of Orum. "Most of the processes to vet payees are clunky and take too much time."
Orum uses FedNow's rail to send account information and other data for the payment's recipient back to the payor via a webhook, or an automated message sent to a unique URL when certain conditions are met. Since nearly all U.S. financial institutions have relationships with the Federal Reserve, these webhooks allow users' bank accounts to be vetted in seconds.
"The customer doesn't need to be involved in the verification process this way," Kirkpatrick said.
Nikityuk hopes the technology will enable funds to flow from a betrothed couple's family through Maroo to suppliers. Maroo is an early real-world example of how real-time payments can make transactions seamless, as long as any fraud or mistakes in the processing can be spotted and fixed in less than a few seconds.
"That's a worry when a wedding is on a Saturday, and everyone involved in the wedding needs to get paid," Nikityuk said, adding that he gets erroneous payment alerts "frequently" using older methods, and some payments take up to a week to clear.
Verify's other users at launch include companies that need to verify bank accounts before processing payments to restaurants, retailers, college cost management plans and other enterprise users.
Can verification be faster?
Orum works with both FedNow and The Clearing House's RTP network, and is one of
The real-time networks do not perform confirmation of payee or similar identity risk functions. Orum's clients use its product to vet payees, normally for first-time recipients.
Verify is designed to vastly reduce the use of small micro-deposits, usually a few cents, that have been used for years to determine if the recipient of a transfer is legitimate upon onboarding. For real-time payment processing at scale, that is not adequate if more transactions are first-time payments to new payees, according to Kirkpatrick. "People have to find the pennies. It's too slow," she said.
Verify can also replace the use of batched historical data to vet payees, which does not always reflect current changes in an account, according to Kirkpatrick.
"With the inexorable move toward faster payments, it's more necessary to have this type of technology. You don't have two or three days to do these checks," said Mick Fennell, business line director of payments at bank core technology company Temenos. "So it's important to do this vetting in real time."
As real-time payment schemes advance globally, similar payee-confirmation services are starting to crop up. In Singapore, federated cross-border payments identity network
Temenos will likely connect to services in different countries that expedite confirmation of payees, though it is not working with Orum at this time. The Temenos Exchange is a marketplace of fintechs that the core vendor works with on banking and payments-related projects. If Temenos does work with Orum, it would be listed on this exchange.
A new ID market
Despite the concern, real-time payment fraud rates are still low. For the RTP network it's 0.1%, of all real-time payments according to Lee Kyriacou, vice president of real time payments at The Clearing House. The U.K. benchmark for real-time payments fraud is 0.2%.
"It's not unsafe," Kyriacou said. "But people need to get used to a system that has irrevocability. So you need to know who your receiver is."
Real-time networks are following a similar pattern to other payment technology in that the goal is to get new innovations to market as soon as possible and worry about fraud losses later, said David Mattei, strategic advisor for the fraud and anti- money laundering practice at Datos Insights, adding that this will create a market for similar products.
"Fraud losses are negligible at the moment, but they will start to increase as there is more consumer and business adoption of real-time payments," Mattei said. "A wild card in this scenario is what regulation may come out regarding fraud liability to the consumer, business, the sending institution, and the receiving institution. And your viewpoint will dictate the type of solution you need to deploy."
The sending institution needs to monitor for possible scam activity and whether the sender of the funds know the owner of the account to which the funds are being sent, while the receiving institution needs to detect possible bad accounts on its books and abnormal inflows of funds, he said.
"Basic checks such as strong KYC measures, synthetic identity checks and others are solutions that can be deployed today. The vendor community is hard at work to bring more robust solutions to market," Mattei said.
