Payments are humming across a variety of rails to countless businesses and consumers at any given moment in the U.S. With so many available payment methods, end users, and use cases, the payments landscape can be a tangled web of rules and regulations.
It also can be a challenge for industry stakeholders to navigate the often complicated payments world, prompting calls for a simplified and automated process for exchanging payment-related information. Financial institutions of all sizes and specialties, as well as payment processors, emerging fintechs, and many others would benefit from such a process.
With a large cross-section of the payments world in need of a solution, Nacha has responded with Phixius, an online platform that brings together technology, rules, and participants to streamline and modernize how payment information is exchanged. Nacha plans to make Phixius available to early adopter organizations in May 2020.
To learn more about Phixius, PaymentsJournal sat down with George Throckmorton, Nacha’s managing director of Strategic Initiatives & Network Development.
During the conversation, Throckmorton spoke about the current issues with exchanging payment information, how Phixius addresses these pain points, and why Nacha is well positioned to lead these modernization efforts.
A solution to a problem 10 years in the making
The payments industry has contended with an inefficient means of exchanging payment-related information for at least a decade. Yet, the problems do not lie in “making” the payments.
“It’s not just about the routing of payments. I think that’s a misconception,” said Throckmorton. “When we talk about payment-related information, it’s about the authenticity and richness of that information.” Bundled into the authenticity of the data is a range of important aspects of making a payment, including invoicing, compliance data, and payment remittance.
One central issue connecting all of these aspects is a lack of automation. “When payment information is exchanged today, it’s very manually intensive,” said Throckmorton. Companies often rely on phone calls, emails, and even the U.S. Postal Service to exchange the relevant information. These methods are slow, prone to human error, and costly.
The lack of standardization is another problem that organizations encounter while attempting to exchange payment information. “How I get that information, the formatting, and which channel it comes in also add complexity to the process,” explained Throckmorton.
A related issue is also the lack of interoperability. Over the past decade, different players in the industry have set up proprietary directories that are very effective in supporting the exchange of payment-related data. However, these directories often do not connect with each other.
“So if I want to exchange information with others that are not in my particular network or solution, that’s where it becomes more difficult,” said Throckmorton. Small to medium-sized organizations are particularly affected by interoperability issues because they often can’t participate in multiple networks or solutions.
The last issue identified by Throckmorton was fraud protection. Ensuring that the information is reliable and accurate is of crucial importance for all of the parties to a transaction. One common fraud vector is to send a business a request to change information to later defraud the business. To validate that the request is indeed authentic, companies often rely on manual checks, such as a phone call or email, to verify the user’s identity.
Phixius solves pain points by utilizing emerging technologies, rules, and industry participants
After surveying all of these problems, Nacha began developing a solution. The company hired technology partner Ernst & Young LLP (EY) to help develop a product that could be brought to market. In 2019, Nacha developed and demonstrated a proof of concept to the industry, and after reviewing and incorporating industry feedback, Nacha developed Phixius.
“It’s a platform for the secure exchange of payment-related information,” said Throckmorton.
He stressed that Phixius is not a directory. Instead it is platform to enable interoperability that utilizes emerging technologies – including distributed ledger, RESTful APIs, and cloud-based environments – to allow its users to more easily and securely exchange information without centralizing data.
Phixius also supports real-time alerts and messaging, allowing payment information to be securely changed. For example, a business can change payment instructions and every organization that has previously received information will immediately be notified of the change, said Throckmorton, noting this reduces fraud such as business email compromise.
“There is no directory or database in the sky that everyone is going to, and creating risk,” said Throckmorton.
Phixius also supports real-time alerts and messaging, allowing payment information to be securely changed when needed. For example, “people can change bank accounts and they can change their preferences on what they want for remittance,” said Throckmorton, noting that these changes can occur in real time.
Underlying Phixius’ effectiveness is a set of participant rules. “We all have to agree that we’re going to act the same way, we understand the transactions we’re going to exchange, and what those mean,” explained Throckmorton. To this end, Nacha developed and now oversees a set of operating rules that govern the platform, covering issues ranging from liabilities to warranties. These rules provide confidence and certainty to everyone connected to the platform.
The last aspect of Phixius worth noting is its network of participants. Social media platforms become more effective when more people are a part of the network, and Phixius is no exception.
However, the platform is designed such that only financial institutions and service providers are directly connected. In turn, these businesses provide products and services to their clients, meaning that Phixius “requires a smaller number of endpoints to create value for all the businesses,” noted Throckmorton.
After determining the viability of Phixius as a solution to problems surrounding the exchange of payment-related information, Nacha did consider whether it was best suited to develop and govern such a platform.
The feedback Nacha received from the industry was a resounding yes. Besides serving as the steward of the ACH Network and being responsible for writing its rules, Nacha also has decades of experience successfully navigating broader payments issues.
Nacha regularly convenes diverse organizations to enhance and enable electronic payments and financial data exchange within the U.S. and around the globe. Through the development of rules, standards, governance, education, advocacy and thought leadership, Nacha works with industry stakeholders to advance the modern ACH Network and drive innovation by pursuing new ways to connect people, businesses and payments.
“Nacha also has been heavily involved in industry-wide API standardization efforts with organizations around the globe, including those in Europe and in Asia Pacific and with support from the industry launched Afinis, a membership organization whose goal is to further API standardization in the U.S. and participate in global collaboration.” explained Throckmorton.
Afinis is a membership organization with the singular goal of creating API standard products. For the past two years, Afinis has been successfully working with the industry to develop and test APIs and understand what steps are needed for their widespread adoption.
Throckmorton put it simply: “We have brought the industry together many, many times.” With Phixius, Nacha is planning on bringing the industry together yet again to modernize and provide much needed interoperability for payment information exchange.”