If you were looking for another reason to appreciate core banking infrastructure, here it is.
The buzz within the payments arena may be about instant payments, where we are and where we’re headed with the FedNow® Service now a year old.
But as Galileo Financial Technologies Chief Product Officer David Feuer told PYMNTS, same-day, faster wire transfers are set to help transform a broad line of business and consumer use cases with real-time notifications.
FedNow uses the real-time, 365/24/7 always-on availability of APIs to, as Feuer put it, “modernize our decades-old ACH infrastructure, which is largely based on file transfers.”
However, in surveying their own corporate clients’ needs, Galileo concluded that familiarity is lacking with FedNow, including how to use it and how to connect to it.
“We’re committed to becoming a full-service partner for FedNow,” Feuer told PYMNTS.
To that end, Galileo announced last month that it is offering wire transfer capabilities to FinTechs. Through its wire transfer API, Galileo connects FinTechs working with Community Federal Savings Bank to Fedwire, which processed more than 193 million wire transfers last year.
Fedwire has historically been the backbone for high-value, time-critical transactions and is where the Federal Reserve has accommodated real-time settlement of funds for banks, businesses, government agencies and certain consumer transactions, Feuer said.
“While FedNow brings this real-time API nature” to transactions, “it’s still at the end of the day using Fedwire, which is terrific because as we build this wires functionality on top of Fedwire, we can add FedNow as an iterative feature set on top of it and not have to completely rebuild our connectivity to the Fed,” he said.
“Creating a developer-friendly interface in front of Fedwire makes it much more easily consumable and quick because it’s bringing that speed of API to a system that wasn’t always API-enabled,” he added. “Being able to provide APIs in front of it and getting that wire sent very quickly and settled very quickly really brings that physiological safety to the customer where they know the transaction has occurred and settled and is irrevocable.”
In terms of functionality, recipients can get their funds on the day they are sent, with each transaction undergoing what the company termed “rigorous validation processes,” ensuring the safety and integrity of the money being transferred.
Asked by PYMNTS how the availability of these streamlined transfers may impact various transactions, Feuer offered an example where a consumer uses a wire transfer to buy a home.
“It’s usually quite a bit of money,” he said, as individuals and families make down payments. “And being able to transfer that money in a way that’s fairly instant so that the counterparty can immediately see that the money is there and available … is key to purchasing a home.”
Once the down payment is recognized and appears with speed in the recipient’s coffers, it’s easier (and faster) for the rest of the transaction to go through, and for the property to change hands.
On the commercial side of the equation, the broad reach of wire transfers can improve the dynamics of vendor/supplier payments — where six- and seven-figure transactions are common.
“The assurance of a same-day secure transfer is crucial so that there’s not this risk window where, for instance, a supplier has shipped product, but the payment for that product is in jeopardy or can be recalled,” said Feuer. “We’re seeing a bevy of use cases across both consumer and commercial, and of course, both deposits and lending, where wires is proving to be this really sticky enabler of use cases for those segments.”
Feuer said the partnership model is important, given that only licensed, chartered banks can access Fedwire and FedNow. Galileo provides the link between FinTechs and a sponsor bank to access Fedwire.
The FinTechs, he said, partner with Galileo to build a risk model on top of ACH payments so they can make funds available quickly, having reduced the risk of those transfers — funding accounts in real time.
Looking ahead, as ACH wires speed up, “the security challenges with wires don’t go away — they just shift,” Feuer said.
Security concerns have shifted to business email compromise, including determining if the wire is being sent to the intended party — emphasizing the value of account ownership verification and returns handling, he said.
Feuer noted that Galileo provides its partners access to advanced technologies, which ensures funds are securely and quickly flowing to the correct parties.
“We provide an elegant API on top with notifications” of transaction flows, he said, “and then we send those transactions to a sponsor bank that submits them directly to Fedwire. It really reduces some of the integration complexities we tend to see with integrating directly with the sponsor banks. Many of our neobank and FinTech clients want to move very quickly at sort of internet speed — and not necessarily at ‘traditional bank’ speed.”
“Being able to partner with our sponsor banks to bring that speed while keeping that security and risk management in place is something that is key to them and allows them to move very quickly and launch these sorts of features in internet time, and not necessarily over many, many months or even years,” Feuer said.
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