When people talk about “payment rails,” they often visualize them literally, as if there were a private payments railroad or dedicated wires crisscrossing the nation. Actually, the rails are protocols and standards that enable payments of various types to travel and to get to the right places. But is that travel by phone lines? Internet? Fiber optic network?
“All of the above,” answers Peter Davey, a veteran payments expert.
When you get more advanced, as with the Real-Time Payment Network and the FedNow system, those protocols and standards travel inside “the cloud,” he adds. While automated clearing house payments travel in batches, payments sent via the two real-time protocols travel singly.
FedNow, which launched with early adopters in July, is built on Amazon Web Services’ GovCloud. The Real-Time Payment Network, which launched in 2017 —Davey was one of the original architects — operates on a private cloud but will likely shift in the near future to another form of cloud in order to improve financial institutions’ ability to connect to the system.
Answering the basic question about “payments plumbing” that prompted the explanation above was easy for Davey because he’s been working in payments and technology for nearly 25 years.
“It’s worthwhile having at least a cerebral understanding about how these things really do work, without having to know all the nitty gritty,” he says.
Davey makes it clear that he lives at the nitty-gritty level, but you don’t have to, to understand him. His handle on X, the social media network formerly known as Twitter, is “@paymentsjedi.”
The Payments Jedi Makes a Major Move
Until early September, Davey had served for almost seven years in innovation posts at The Clearing House, the payments company owned by 22 large and regional banks. His final title was senior vice president and head of product innovation and labs. Before that, he spent just over a decade as head of payment strategy, innovation and industry at Capital One.
In September, Davey made a move, joining an organization that works with financial institutions at the opposite end of the size spectrum: community banks and credit unions. He became a venture partner for payments and identity at the Alloy Labs Alliance, a consortium helping these smaller institutions expand their technological abilities in ways that would be difficult or impossible for them to do on their own.
He’ll spearhead all payments initiatives at the lab now. In taking this on, Davey became the executive in direct charge of developing the “Chuck” person-to-person payments system. The initial concept and group of participating institutions was unveiled in late 2021 by Jason Henrichs, the chief executive at Alloy Labs. Davey had been advising the Chuck project already and says it made more sense for him to come aboard.
While at The Clearing House, Davey says he began to think about accessibility to the payments system for smaller institutions and that led to his involvement with Chuck.
“One of the things that kept nagging at me as I was developing new capabilities was the inability to take advantage of that new technology for those who needed it most — the community-size banks and credit unions,” Davey says.
Chuck has been described this way: “With one easy integration, your customers will be able to send money to recipients using the payment networks and apps they desire.” But in talking with Davey, it becomes apparent that this could be only the beginning.
The Tech Considerations Behind the Chuck Payments Concept
Many community banks and credit unions don’t participate in digital wallets nor in the bank-owned Zelle P2P payment service. Concerns include the cost of participation in the networks and, for some, the feeling that participation amounts to supporting megabanks. Many think of these industry giants as archrivals.
Early on, Henrichs made the point that he thought the potential for Chuck was far greater than just “community banks strike back.”
The initial idea behind Chuck was to create an “open loop” payment platform where consumers and small businesses using accounts at institutions supported by the alliance’s technology could pick the path for their payments. Chuck was intended to reside within a financial institution’s mobile banking app to enable people to send and receive payments via other networks, including PayPal, Venmo, Square’s Cash App and Zelle. The intent was to be able to reach anyone on those networks from a community bank’s account and app. As envisioned, the system was also meant to connect to the RTP and FedNow networks, though the latter was still in development at the time.
When the development of Chuck got underway, Henrichs played down descriptions of the service as “the anti-Zelle.” Instead, he said, Chuck aimed to help smaller institutions level the playing field and to rethink payments for consumers. Small businesses were to come along a bit later.
Davey says he wants to build on the earlier work, which he describes as Chuck 1.0, to enable participating community banks and credit unions to go from the drawing board and into the field. Few small institutions have the expertise or budget to go it alone. In addition, their legacy cores make it difficult to hook directly into external systems that would connect the institutions to other payment platforms. Many can’t afford to make the switch to modern core systems.
A lot of work lies ahead. Alloy Labs must build technology to enable integration into multiple platforms and do this in a way that can be replicated easily. Davey says fintechs have been able to jump into new payments channels quickly because they begin with modern systems.
“Legacy technologies don’t lend themselves to being flexible in the new cloud-based, real-time architecture that everybody’s developed,” says Davey. “So one of the key focuses on our side is going to be how to make the integration simpler so they can start moving forward with new technologies and not have to worry about replacing their legacy technologies.” This will entail developing “middleware” to make old and new talk to each other.
Payments Prowess: A Community Banking Survival Skill
What makes this important is that smaller institutions — which have long depended mostly on lending to make money — need to generate revenue from the payments side of the business, Davey says. He believes the current profitability crunch that more institutions are going through will accelerate this shift.
“I see this as a 21st century problem” for community banking, says Davey. Most of the CEOs involved with Alloy are just coming to grips with this evolution in the business model, and as a group involved with the consortium they are generally a page ahead of the broader industry.
The growing availability of real-time payments services will usher this shift along. “Other platforms made this relevant and financial institutions now have to catch up,” says Davey.
“The PayPals, Venmos and Cash Apps of the world allow you to spend money like it is moving in real time, even though we know it isn’t. But now services like RTP and FedNow will allow institutions to level the playing field and really start moving money in real time.”
— Peter Davey, Alloy Labs
However, community banks and credit unions have to embrace the whole equation. Many using RTP and many early adopters of FedNow have opted for “receive only” status.
“‘Receive only’ doesn’t make them money,” says Davey. Customers will increasingly want to both receive and send in real time and this will mean catching up to that demand.
“So our focus is going to be on how to enable all these financial institutions to develop send-side products in the marketplaces where they’re involved,” Davey says.
Henrichs explains that the ultimate goal is turning the payments business from a cost center into a revenue center. Increasingly, he predicts, it won’t be a matter of choice. Both consumers and the small businesses that community financial institutions serve will want leading-edge payment capabilities, and if their bank doesn’t offer them, they’ll look elsewhere.
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Developing Chuck 2.0 — Not Branding It — Is the Focus
Asked for a timeline, Davey says he hopes to have a proof of concept for Chuck in the field within the next six months. From there it can be expanded, he hopes, to hundreds of institutions.
From the consumer perspective, the name “Chuck” may be invisible, not a brand seen among the icons on their phones, for instance.
And that not only doesn’t bother Davey, it’s rather more the point.
“I don’t think RTP, FedNow and Chuck should ever be sold as end-user products. At The Clearing House I always joked that if we really wanted to sell what we were doing, we never would have named it ‘RTP.’ Likewise on the Fed’s side, they never would have branded it as FedNow,” says Davey. “The names mean absolutely nothing.”
The 21st century business model for banking is all about embedding services, he adds. “If we can successfully embed what we’re doing into the tools that customers get from their financial institutions, you almost don’t need to sell it,” says Davey. “Customers should not need to know what’s in the middle of all this stuff. What they should know is that they’re delivering a message and moving money in real time to other parties and that those other parties have availability of those funds and can reconcile them appropriately.”
Early on, Henrichs had been talking about giving the Alloy Labs service something like the old “Intel Inside” labeling, perhaps “Powered by Chuck.” Marketers call this technique “ingredient branding.” Intel ditched its slogan in 2005, and Alloy Labs is also steering away from this type of branding.
Anonymity suits Davey fine. “I don’t want Chuck to become a household name like Zelle has become,” he says. “I want it to become a capability that we can embed in other sets of financial technology services so that financial institutions don’t have to sell it to customers.”
His goal is results rather than brand awareness.
“People like me understand this space really well,” says Davey. “I don’t need everybody to understand this space really well.”