Link to the main Fed account to start B2B payments

If done right, the expansion of high-value real-time B2B payments will be a “huge game changer,” Reserve Trust CEO Dave Wright told PYMNTS, highlighting the multi-billion dollar opportunity. dollars that exist to digitize, modernize and democratize that in large part. untapped slice of the market.

“We focus quite heavily on B2B payments,” Wright told PYMNTS’s Karen Webster in a recent conversation, adding that the plan was to provide the same kind of “developer first” access to customers of PYMNTS. Reserve Trust that he did. done in the past with other deployments.

For example, said Wright, in the first few months after gaining master account status from the Federal Reserve in 2018, the main focus was on cross-border B2B payments outside the United States between foreign banks or brokers. who wanted to access US banking services. network to settle transactions. But now, he says, half of the business is domestic.

“A lot of the businesses that we’re looking to support you wouldn’t even consider to be payment companies,” Wright said. “These are just businesses that want to integrate payments into their products and services – and they include transportation companies and billing and payment companies.”

As Wright said, the company has the opportunity to straddle many corners of the payments landscape – as part of TCH’s real-time payments initiative, as part of the real-time payments roadmap. from the Fed and through partnerships with a number of FinTechs looking to innovate outside of these deployments, by connecting unregulated systems to regulated rails.

“We have the access that banks have, but we have the incentives and alignment that FinTechs have,” he said.

As has been widely reported, the Fed is considering the development and introduction of a “FedCoin”, mirroring the efforts of its peers around the world to develop central bank digital currencies (CBDCs).

“We know the Federal Reserve is going to have to switch to digital currency,” Wright said. “Our point of view is that we don’t know exactly how they’re going to do it. How they are going to act within the ecosystem, but the path of least resistance for them will be to maintain the status quo, to keep the banks as custodians of this digital currency.

By status quo, he expects the Fed to force banks and other major account holders (like Reserve Trust) to manage Know Your Customer (KYC) and Anti-Money Laundering (AML) and other aspects of compliance for FinTechs who wish to be part of this digital currency ecosystem.

Read more: Fed moves forward with exploration of payment rail

Connectivity to the Fed’s rails, Wright explained, fills a gap that has plagued FinTechs for more than a decade as banks lowered risk on their balance sheets and turned their attention to areas other than services. B2B.

As he explained, banks exist primarily as deposit and loan institutions and the majority of their money is made off-balance sheet. Helping FinTechs make payments is relatively lower on the priority list.

The slowness of banks to tackle B2B issues and the current limitations of their legacy technologies and systems “have created an opportunity to provide an alternative to traditional banks for partnerships in the payment system.”

Reserve Trust’s status as a private enterprise with primary trust account status represents “a legal and regulatory idea that had never been explored before,” he said. It’s a disruptive model, Wright told Webster, a model that has taken shape over several years. The company has worked with the Fed’s banking division and with regulators in the years since it was founded in 2016 to become a depositary-less Colorado chartered trust company.

Enter the main account

Digging a little deeper, the main account allows Reserve Trust to process payments directly with the Fed; its clients store funds in deposit accounts which, in turn, are backed by the main Reserve Trust account.

Funds are transferred using an Automated Clearing House (ACH), Fedwire, SWIFT and other payment infrastructures.

The goal, he said, is for Reserve Trust to expand and democratize access to the payments system, which has so far been filled with winners and losers that banks have largely chosen.

“The reality is that Stripe is quite big. They have strong relationships with a number of banks and they can run the ship to a certain extent, ”Wright said. “We really see ourselves as feeding the next thousand people who want to get into this, who can’t get a Wells Fargo or a Chase or a Goldman to pick up the phone when they want to have access.”

But by connecting to Reserve Trust’s application programming interfaces (APIs) and cloud-based payment systems, FinTechs and small banks can offer payment functionality integrated into their own services. They connect to these rails – thanks to the main account support of Reserve Trust – without having to partner with sponsor banks or correspondent banks.

Fresh funds, major projects

Looking ahead, Wright said the company plans to use some $ 30 million in a recent fundraiser to enable a wave of hiring, to bolster its operations, compliance and engineering teams. in order to cope with a growing backlog of customers in an evolving payments landscape with increasingly larger players.

Investors included QED Investors with participation from FinTech Collective and Ardent Venture Partners and Flywire CEO Mike Massaro. Wright noted that many investors in the most recent cycle invested in Reserve Trust because of the “personal pain” they experienced in the frictions of cross-border payments.

See also: B2B FinTech Reserve Trust Secures $ 30.5 Million Investment

The urgency is there to digitize B2B payments, of course, which are still dominated by paper checks. There are billions of dollars in inefficiency and countless wasted hours of employee time in a corner of the payments ecosystem that, in the United States alone, is worth up to $ 21 trillion a year. .

Recent data from PYMNTS shows that up to 42% of B2B payments are made by check, making it the most popular payment method.

See also: Why paper checks are still a factor in B2B companies’ payment optimization plans

With the additional complexities of exchange rates (FX), currencies and compliance processes, cross-border payments are marred by even more friction.

“I look at the accounting group of our own company and the time and effort we put into processing invoices and payments. [from other companies]”he said, highlighting the untapped market potential:” Multiply that by millions of companies around the world. “