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Illustration: Christopher T. Fong/Protocol

Real-time payments meets reality

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Friday: real-time payments get real, we check the math on Apple Pay, and Coinbase backs an OFAC lawsuit.

Off the chain

Something’s off with the math in these breathless reports claiming Apple Pay has overtaken Mastercard in transaction volume. I traced the statistic to its source — it hopped from a Statista report which was then rehashed by TradingPlatforms and recycled from there to Apple news sites like Cult of Mac. No one stopped to ask: Aren’t most Apple Pay transactions also Mastercard or Visa transactions? While Apple’s done a good job getting iPhone users to sign up and link a (Mastercard or Visa) card to their account, very few iPhone users actually use it for in-store payments, according to PYMNTS. If Apple Pay were actually doing $6 trillion a year as claimed in these estimates, I’d think it’d disclose that number, as well as break out the interchange it was making on transactions as a material figure. And Visa and Mastercard would probably disclose how dependent they were on Apple. You’re not hearing those disclosures, so you should question these numbers.

— Owen Thomas (email | twitter)

Real-time meets reality

The way consumers and businesses make payments is changing quickly, so I pulled together a panel of payments experts Thursday to discuss the trend toward real-time payments. Established financial institutions, startups and policymakers are trying to keep up with the changes, with regulators trying to protect consumers while not clamping down on innovation. The latter part is crucial, since the U.S. is already well behind some other countries in modernizing its payments infrastructure.

Real time is becoming more and more of a reality. RTP, Zelle and other networks offer instant or near-instant payments today, and FedNow is promising to broaden access to real-time rails next year.

  • RTP, the real-time payments system run by The Clearing House, launched about five years ago to address some of the shortcomings of the ACH system.
  • ACH payments are sent in batches only at certain times, which isn’t ideal for certain kinds of transactions. (ACH is still the largest payment method, and has added more batch windows and doubled its same-day transfers in Q2.)
  • “It's really hard to take a batch system and have it work in a real-time world,” James Colassano, SVP of product development and strategy at The Clearing House, told me. TCH built entirely new rails for RTP.
  • RTP is designed to address the demands of consumers who are growing used to getting immediate payments. “If you want to be able to have a delightful customer experience, you can't wait for a batch run at the end of the day, or for transactions to settle two days later, right?” Colassano said.

Here comes the Fed. The Federal Reserve is building its own real-time payments.

  • The Fed has been talking for years about plans for FedNow, its own real-time payments system, but it only recently set a timeline for its launch next year. Whereas RTP is run by TCH, which is owned by a group of large banks, FedNow will be run by the Fed.
  • The upside of having two systems: competition breeds innovation and also gives the financial system some redundancy. The downside: Banks, fintechs and tech providers will have to build and maintain code for two separate systems, meaning double the engineering effort, said Sara Xi, chief product officer at Prime Trust.
  • One big criticism of FedNow is that it won’t be interoperable with other systems. Colassano pointed out that interoperability is easier to achieve with batch processing than with real-time systems.
  • Yet Zelle, another real-time system that’s more of a consumer brand, is having some success. Zelle and TCH announced a deal last year to clear and settle some Zelle transactions on the RTP network, which suggests that interoperability can be achieved. Zelle, which is run by Early Warning, a company owned by a different bank consortium, recently passed 5 billion transactions and $1.5 trillion moved.

Is crypto the answer? Not for the moment.

  • Using blockchains to send stablecoins across borders is another potential way to speed payments, said Sara Xi, chief product officer at Prime Trust.
  • But Colassano said TCH doesn’t have immediate plans to use blockchains to provide cross-border transactions and has to take into account its bank owners’ priorities.

“Safety and security first, before technological efficiency,” Colassano told me. “So as we look at opening up corridors, as we look at opening up alternative ways of distributing, there might be great technologies. But I've heard this term a lot — it's used a lot in the fintech world: ‘Fail fast.’ That's not a term we use. We have to take a very measured approach.”

— Tomio Geron (email | twitter)


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On the money

A White House report concluded crypto mining is a threat to climate goals. The report said the U.S. must take action to mitigate the climate impact of crypto production, including by collecting more data on power usage and working with states and the crypto industry to set standards.

The U.S. recovered $30 million in crypto from the Axie Infinity hack. Chainalysis said in a blog post it played a role helping U.S. law enforcement and other crypto organizations recover the funds from North Korea-linked hackers.

Polygon is shrugging off crypto winter with a hiring binge. The company, whose software makes transactions on the Ethereum blockchain more efficient, plans to hire about 200 people for teams that operate from remote locations around the world before the year ends, human resources head Bhumika Srivastava told Bloomberg.

Robinhood is introducing an Investor Index. Instead of the value of customer holdings, Robinhood looks at “conviction,” a measure of how much an investor has allocated to a particular stock.

FTX is taking a 30% stake in Anthony Scaramucci’s SkyBridge Capital. The exact terms were not disclosed, but a portion of the new funding will be used to buy $40 million worth of cryptocurrencies as a balance sheet investment, according to a statement from the companies.

Coinbase spins up a lawsuit

Coinbase is funding a lawsuit against the U.S. Treasury Department's Office of Foreign Assets Control for sanctions against Tornado Cash issued last month.

The lawsuit, filed Thursday in a Texas federal court, alleges that the government exceeded its authority to block financial transactions benefitting terrorists. According to a blog post published by the company Thursday morning, the Treasury Department’s sanctions instead “harm innocent people, remove privacy and security options for crypto users, and stifle innovation.” Six individuals are plaintiffs; two of them are Coinbase employees.

The Treasury Department sanctioned Tornado Cash on Aug. 8, arguing the cryptocurrency mixing tool, which the company says is useful for ensuring users' privacy, was used to launder over $7 billion. At least $455 million of that money was stolen by the Lazarus Group, a North Korean state-sponsored project, the government said.

Read the full story on

— Veronica Irwin (email | twitter)

The big event

The SALT NY conference kicks off Sept. 12, with 2,500 investors, entrepreneurs, policymakers and industry leaders gathering at the Javits Center for three days of collaboration focused on disruptive innovation. Protocol senior editor Owen Thomas will moderate a panel on the future of bitcoin and ways to grow the network sustainably. Learn more and register to attend.


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Thanks for reading — see you Monday!

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