PhotonPay, the stablecoin-powered operating system for global payment infrastructure, unveiled its dual-rail recurring system.

Designed for emerging agentic commerce use cases, the system enables businesses to manage recurring payments across both fiat and stablecoin rails through a single integration. By abstracting the complexity of underlying payment protocols, it allows teams to focus on building and scaling AI-driven products while handling cross-border payment flows in the background.

The Intelligence Surge vs. The Infrastructure Gap

The digital economy is undergoing a structural shift. According to the 2026 SaaS Management Index¹, spend on AI-native applications has surged 108% in the past year, while large enterprises have scaled their AI SaaS expenditure by an unprecedented 393%. Yet, as the subscription economy approaches a $300 billion global market, the underlying payment infrastructure remains tethered to legacy banking constraints that are increasingly misaligned with the speed of AI.

The friction is most visible in cross-border commerce. Current estimates² indicate that 20% to 40% of subscription churn is caused not by product dissatisfaction, but by passive payment failures. For AI platforms operating globally, traditional credit card rails often trigger a cascade of declines due to rigid risk filters, currency conversion errors, and bank-imposed limits—frictions that are antithetical to the borderless, 24/7 nature of agentic commerce.

The Three Structural Frictions of the AI Era

To enable seamless agentic commerce, businesses must overcome three entrenched infrastructure limitations that current payment gateways fail to address:

1. Systemic Cross-Border Inefficiency

Traditional payment gateways remain optimized for the low-frequency, high-friction transaction models of the past decade. Their risk-scoring engines, designed for human-triggered commerce, often misidentify the high-frequency, low-value patterns typical of AI subscriptions as fraudulent. This results in excessive false positives, creating “invisible churn” that can suppress global conversion rates by up to 25%³.

2. The Stablecoin Continuity Gap

Historically, stablecoin payments have been treated as isolated, manual events rather than continuous financial flows. The absence of a native, programmable recurring billing layer has forced AI enterprises to rely on “one-off” invoices, creating massive friction in user retention. For the high-value, Web3-native segment, this lack of automation isn’t just an inconvenience—it is a break in the economic lifecycle that prevents AI platforms from building stable, predictable revenue streams on-chain.

3. Operational Fragmentation & Reconciliation Overhead

Current market solutions often force enterprises into a “dual-stack” reality: managing fiat through legacy gateways while handling digital assets via isolated non-custodial wallets. This infrastructure fragmentation creates deep operational silos, compelling finance teams to perform manual cross-chain and cross-bank reconciliation. As AI enterprises scale into multiple jurisdictions, this complexity becomes an exponential tax on growth, leading to reporting inaccuracies and liquidity bottlenecks.

Stablecoins as a Structural Component

Stablecoin-native payments address infrastructure frictions at the protocol level. Unlike credit card rails, on-chain transactions operate independently of banking authorizations—eliminating the primary drivers of involuntary churn, such as card expirations and arbitrary issuing-bank declines. For subscription-based enterprises, this transition secures the 2% to 5% ⁴ of monthly revenue typically lost to passive payment failures.

The structural advantages extend beyond reliability to fundamental economic efficiency:

• Cost Optimization: Stablecoin processing achieves high-margin efficiency with average fees of approximately 0.8%, a significant reduction from the 2.9% + $0.30 standard of legacy card networks⁵.

• Unrestricted Global Reach: By enabling any wallet-holder to subscribe, the infrastructure unlocks high-growth markets where traditional card penetration is low, yet Web3-native demand is accelerating.

Product Capabilities: Three Layers, One Protocol

Layer 1: The Consent Layer – Seamless Authorization

The core of the dual-rail experience begins with a singular, on-chain authorization. Once the user completes this initial step, the PhotonPay OS initiates recurring charges automatically, requiring no subsequent wallet re-signing. By mirroring the “set-and-forget” convenience of traditional credit card subscriptions, this layer transforms stablecoins from a fragmented, one-time payment tool into a reliable recurring billing infrastructure.

Layer 2: The Execution Layer – Adaptive Rail Selection

At this layer, the PhotonPay OS neutralizes the friction between diverse business models and the underlying payment rails. It provides the programmatic flexibility required for Agentic Commerce, ensuring that value movement is as dynamic as the AI consumption it supports.

• Adaptive Consumption Models

The engine natively supports fixed-tier SaaS subscriptions, high-frequency API-call billing, and token-based usage. This allows AI enterprises to align their revenue capture directly with real-time compute consumption.

• Autonomous Tier Escalation

Through dynamic tier billing, the OS automatically upgrades plans as usage thresholds are met. By removing manual intervention, PhotonPay ensures uninterrupted service delivery while maximizing lifetime value (LTV).

Layer 3: The Intelligence & Compliance Layer – Unified Reconciliation

The final layer leverages the Dual-Rail architecture to provide a single, compliant interface for global liquidity. It treats fiat and stablecoins as interoperable components of a unified corporate treasury.

• Unified Liquidity Intake

The OS dissolves the boundaries between legacy card networks and on-chain rails. Enterprises can capture value in any form—leveraging optimized fiat authorization rates or the borderless velocity of stablecoin-native settlement—through a single, integrated protocol.

• Unified Compliance Interface

All cross-rail activity is consolidated within a centralized dashboard, establishing a “Single Source of Truth” for global operations. This intelligence layer enables one-click export of audit-ready reports, ensuring adherence to regulatory standards across Hong Kong, the UK, and North American jurisdictions.

The Foundation: Stabilizing the Speed of Commerce

At its core, a stablecoin is value reimagined for the digital age—combining the stability of sovereign reserves with the boundless efficiency of blockchain. By removing geographic friction and the constraints of traditional banking hours, stablecoins synchronize the velocity of capital with the speed of information. This is more than a tool; it is the structural evolution of global finance.

“As commerce evolves towards AI-driven automation, the underlying economic interface must become programmable,” said PhotonPay Founder and CEO Lewison Chen. “At PhotonPay, we are integrating fiat and stablecoins into a single, seamless environment. Our goal is to provide the reliability of traditional finance with the agility of digital assets.”

Data Sources

¹ Zylo (2026): 2026 SaaS Management Index, reporting global SaaS market size of $408 billion in 2025, projected to reach $465 billion in 2026; AI-native application spend surged 108% year-over-year, with large enterprise AI SaaS expenditure up 393%.

² Aurpay (2026): Subscription economy data, estimating global subscription economy approaching $300 billion; 20%–40% of subscription churn attributed to payment failures.

³ Stripe (2025): Global Checkout Infrastructure Report. Analysis of authorization rate decay in high-frequency, cross-border SaaS billing.

⁴ Recurly(2025): State of Subscription Report. Statistical analysis of passive churn caused by credit card expiration and declining bank authorization rates in cross-border commerce.

⁵ Worldpay from FIS (2026): Global Payments Report. Comparative analysis of crypto-settlement efficiency vs. legacy card network Interchange and Scheme fees.

The post Fueling Agentic Commerce with Dual-Rail Recurring Billing appeared first on PaymentsJournal.

Imagine a global supply chain where payments no longer require manual initiation, intervention, or tedious reconciliation. In this autonomous ecosystem, an AI agent monitors inventory levels, triggers procurement, and negotiates supplier terms—all while dynamically selecting optimal FX rates and executing global payments in real time, ensuring every transaction is cost‑efficient, precisely timed, and inherently compliant with evolving global regulations.

This is the promise of agentic payments—a revolutionary paradigm that is re‑architecting the fundamental mechanics of global value movement. We are witnessing a decisive shift from “instruction‑based finance,” where human operators must manually authorize every tactical step, to “intent‑centric finance.” In this new era, humans define the strategic objectives, while AI agents autonomously determine and execute the complex financial routing, compliance checks, and fulfillment required to achieve them.

By any measure, the scale of this transformation is substantial. Bain estimates that the U.S. agentic commerce market could reach 300 to 500 billion dollars by 2030, representing roughly 15% to 25% of domestic e‑commerce volume. McKinsey & Company projects that, globally, agentic commerce could reach $3 to $5 trillion by 2030.

The Global Landscape: Giants Paving the Way

As we move into 2026, this paradigm shift is becoming an imminent reality. The acceleration towards agentic payments is fueled by the increasing complexity of global commerce, the demand for real-time transaction control, and evolving regulatory landscapes. In response, industry leaders are actively upgrading their infrastructure.

At the foundation of this shift are the global payment networks. Visa and Mastercard are evolving beyond traditional transaction processing to become the trust layers for machine-initiated payments. Initiatives such as Visa’s Intelligent Commerce and Trusted Agent Protocol, alongside Mastercard’s Agent Pay framework, signal a strategic pivot: enabling AI agents to transact securely across global merchant ecosystems. Their focus lies in building scalable networks that can support autonomous transactions, while maintaining strict requirements for security and compliance.

Meanwhile, fintech and payment service providers are pioneering the necessary protocols. Stripe, in collaboration with OpenAI, is advancing the concept of an Agentic Commerce Protocol (ACP)—a framework designed to address foundational challenges such as trust, settlement, and interoperability for AI-driven transactions. By enabling AI agents to securely initiate and manage payments through programmable interfaces, these efforts are laying the groundwork for machine-to-machine (M2M) commerce at scale.

Parallel to these efforts, Coinbase is building the native digital layer of the agentic economy. Launching agentic wallets and the x402 protocol, Coinbase aims to provide native wallet and payment capabilities for AI agents. This move bridges the gap between decentralized finance and autonomous agents, ensuring that AI can seamlessly interact with digital assets and execute smart contracts, further expanding the frontier of machine-driven commerce.

PhotonPay’s Strategic Leap into Agentic Payments

For most businesses, to realize the full potential of agentic commerce, they require more than just a gateway. They need a financial infrastructure that is globally connected, API-driven, and inherently secure. This is where PhotonPay positions itself as a builder of this new infrastructure.

PhotonPay’s vision is built upon a deliberate evolution of AI integration. Its journey began with AI customer service toenhance user interaction, advanced to AI risk control for sophisticated fraud prevention, and scaled with AI coding to optimize internal workflows. Today, PhotonPay is making the decisive leap to agentic payments, upgrading its core infrastructure to serve as the “Global Payment Infrastructure” for the autonomous era.

PhotonPay has re-engineered its capabilities into three distinct layers to support the needs of AI agents:

1. The Global Network Layer: PhotonPay’s infrastructure spans over 200 countries and regions, underpinned by deep integration into local clearing networks and partnerships with leading global card networks and top-tier financial institutions. This foundation empowers transactions in local currencies and reduces reliance on intermediary banks, which provides AI agents with a cost-efficient, high-velocity way to orchestrate global capital flows.

• The Core Execution Layer: This layer acts as the “hands” of the agent. It features autonomous routing optimization, which dynamically chooses the fastest and cheapest path for the payment, and real-time compliance decision-making. By embedding AML and KYC checks directly into the execution flow, PhotonPay allows agents to transact with both speed and security.

• The Smart Decision Layer: PhotonPay is continuously optimizing its architecture, facilitating the autonomous conversion of business intent into financial action. This layer will interpret high-level objectives and translate them into a series of executed trades and payments, operating within strict, human-defined authorization fences.

As agentic payments mature, their impact on global operations will be profound. This transformation will be particularly evident across scenarios like digital services, where machines pay machines for API access and data processing; subscription economy, where AI agents manage the lifecycle of software, content, and SaaS renewals; as well as corporate spend management, where agents autonomously audit and execute internal expenses, from travel bookings to hardware procurement, according to company policy.

The future of finance is no longer about human-to-human transactions facilitated by machines. It is about machines transacting on behalf of humans to create a more efficient, liquid, and accessible global market.

As AI transitions from assisting decisions to executing them, financial infrastructure must evolve accordingly. Platforms like PhotonPay are bridging the gap between intelligence and execution, building the programmable framework that will power the next century of global commerce. In the era of autonomous commerce, the goal is simple: to make the flow of value as seamless and intelligent as the flow of information itself.

The post Beyond the Click: How Agentic Payments Are Redefining Global Financial Flow appeared first on PaymentsJournal.

Embedded finance, embedded commerce, and integrated payments are different names for the same shift: integrating payments and financial services into your platform to deliver more value to customers and unlock recurring revenue streams. As Independent Software Vendors (ISVs) position themselves for success in a crowded and dynamic marketplace, building a comprehensive embedded commerce strategy is key to scaling your distribution channels and maximizing revenue potential.

Regardless of terminology, embedded payments offer added value to customers, strengthen long‑term relationships, and provide a more holistic solution. According to Future Market Insights, the embedded finance sector will grow from USD 85.8 billion in 2026 to USD 370.9 billion by 2036, representing a 15.8% compound annual growth rate (CAGR) as expanding embedded finance use cases accelerate adoption.

From integrated payments to financing solutions, many ISVs need a strategic plan to incorporate the functionality that makes sense for its vertical and customer base. Let’s take a closer look at how implementing the right strategy can differentiate ISVs from the competition.

Growing Your Distribution Footprint with a Vertical Partner Approach

We’ve all heard the expression, “A jack of all trades, master of none.”  That sentiment underscores an important reality for businesses competing in increasingly complex industries. Taking a vertical or vertical-adjacent approach to capturing market share creates a compelling value proposition for businesses looking for solutions that solve specific challenges, industry regulations, and operational inefficiencies.

Healthcare provides a clear example. While EHR vendors have saturated the market with electronic health record functionality, providers still struggle to manage data across EHRs, payers, labs, devices, and applications. For ISVs, this fragmentation creates an opportunity.

ISVs that embed healthcare payments functionality directly into EHR workflows—automating accounts receivable, enabling digital and text-based payment options, and improving revenue cycle management—can address persistent financial and operational gaps. By extending beyond record-keeping into the entire payments lifecycle, these platforms can differentiate in a crowded healthcare IT market while delivering measurable value to providers.

For many software companies, partnerships offer a practical path to navigating the complexity of the healthcare ecosystem. By focusing on core competencies while integrating complementary healthcare or payments technology, companies can reduce development timelines and accelerate speed to market. A partnership model also creates mutual value, enabling both organizations to benefit from shared roadmap innovation, referral partner programs, and expanded sales distribution channels.

Whether it’s access to embedded healthcare payments, flexible point‑of‑sale financing, or text-to-pay functionality that helps providers manage their businesses more effectively, embedded solutions create a stickier footprint while generating incremental revenue. Success depends on partnering with a provider that offers the infrastructure to scale alongside your business—while remaining flexible enough to adapt as market needs evolve.

U.S. Bank | Elavon – Smarter Payments That Move Your Business Forward

Backed by the strength and stability of U.S. Bank, Elavon delivers the best of both worlds: the financial services infrastructure of one of the nation’s most established banks, combined with the agility required to compete in a fast‑moving software and payments landscape. With hundreds of integration points, partner programs designed to support growth at every stage, and deep vertical expertise, Elavon offers a payments journey tailored to your business. Connect with us to learn more.

The post Embedding Payments for Growth: How ISVs Can Scale Through Vertical Focus and Partnerships appeared first on PaymentsJournal.

As information highways have opened new avenues to the global marketplace, many business owners have been attracted to these new frontiers. However, there are unique challenges associated with cross-border operations that go far beyond currency conversions and product delivery. When businesses start moving money across borders, it introduces more gaps for cybercriminals who are increasingly adept.

At the heart of these issues is counterparty risk. In the current cross-border payments model, the recipient of the transfer is often verified through a process built on manual callbacks and spreadsheets. Given the technologies that bad actors now possess, it has become a significant challenge to effectively verify counterparties in this fragmented process.

This has created a vulnerability that criminals can exploit. Because these attacks expose organizations to financial and reputational risks, it is critical for businesses to implement solutions that can optimize the verification process.

The Unaddressed Gaps

Despite the challenges, the global market offers an enticing opportunity. Due to breakthroughs in digital payments, more small- to medium-sized businesses and financial institutions can now participate in the worldwide economy. According to the Bank for International Settlements, cross-border payment volumes are projected to reach $250 trillion by 2027, in part due to this increased participation.

However, these organizations are also exposed to the risks of a system that has been historically challenging. Many of these issues have arisen from the correspondent banking model which has dominated international payments for decades, where a chain of foreign and domestic banks work to complete a single payment.

This complex process often causes payments delays as each institution must perform their portion of the process and adhere to their policies and regulations. The intensive operation required to shuttle these payments along also leads to high transaction fees.

As these payments are routed, there is often a lack of visibility into the payment’s status within the process and any issues impacting it. What’s more, the regulatory demands and currency components of each region must be considered when processing cross-border payments.

All these issues make international transactions a lengthy, costly undertaking. Since many of these functions are still performed using manual processes, it also creates the potential for errors and misrouting along the way.

Unfortunately, bad actors are acutely aware of the issues that plague cross-border payments, and they are actively working to exploit them. According to TransUnion, global businesses lost an average of 7.7% of their annual revenue to fraud in 2025—mounting to an estimated $534 billion.

“According to that same TransUnion report, U.S. companies lost an average of almost 10% of their annual revenue to fraud,” said Jennifer Pitt, Senior Fraud Analyst at Javelin Strategy & Research. “Whether fraud losses average 7% globally or closer to 10% in the United States, the impact to a company’s bottom line is significant. While not all fraud can be prevented, unaddressed gaps in prevention and verification continue to contribute to financial loss.”

These challenges are often compounded by the ways organizations approach controls, risk, and friction in international transactions.

“In some cross-border payment environments, controls exist but have not kept pace with how organized fraud operates today,” Pitt said. “As a result, those gaps are exploited by criminal networks. This also introduces the potential for large-scale fraud operations. Consumers are generally willing to accept some level of friction, and some friction is often necessary in financial crime prevention.”

“Organizations must balance applying the right amount of friction to detect illicit activity while still meeting the demand for cross-border payments,” Pitt said. “Recognizing that consumers will tolerate necessary friction when it protects them against fraud should give organizations more confidence in addressing the lack of transparency and identity verification common in cross-border payments. When implemented correctly, these controls do not hinder payments in the way organizations once believed.”

The Tech-Enabled Threats

One of the reasons why fraud has outmatched current controls and defenses is that bad actors increasingly have access to more effective technologies.

For example, this tech has allowed hackers to perform more account takeovers, where they gain unauthorized access to a targeted account at an online financial institution. The FBI Internet Crime Complaint Center recently warned about an uptick in account takeover fraud that has already cost organizations millions of dollars this year.

Emerging technologies also allow bad actors to create and deploy malware and ransomware on a far greater scale. The initial point of entry for these attacks—and for the lion’s share of fraud attempts—are phishing messages.

The phishing messages of years past were easier to spot due to typos and grammatical errors, but this has changed. One of the reasons why today’s phishing attacks are more effective is bad actors are leveraging artificial intelligence. AI allows cybercriminals to craft better messages and send them on a wide scale.

According to a SlashNext report, there has been a 4,151% increase in phishing attacks since open-source AI was launched in late 2022. Beyond phishing, AI has also been used to create deepfake impersonations, synthetic identities, and phony documentation.

In addition to technical sophistication, fraud is increasingly perpetrated by organized fraud operations. These syndicates are well-equipped to deploy their messages and attacks on a global scale.

This environment has made fraud and increasing challenge for organizations and consumers. According to the Association for Financial Professionals, 79% of U.S organizations reported attempted or actual payments-fraud incidents in 2024.

All these fraud risks are exacerbated when sending money across borders. In addition to fraud threats, organizations must be cognizant of the threats from organized threat actors who use cross-border channels for money laundering or terrorist financing.

“Fraudsters and cybercriminals understand the limitations organizations face when identifying organized crime, including gaps in cross-border visibility,” Pitt said. “To skirt detection efforts and distance themselves from the crime, threat actors frequently use cross-border channels. And because fraud and money laundering incidents increasingly overlap, failing to detect one can mean failing to detect the other. This is also why it’s critical that teams are not completely siloed.”

“Many organizations still operate with separate AML, fraud, and KYC teams that rely on different systems and data sets,” she said. “When activity is viewed in isolation rather than across functions, it becomes significantly harder to identify risk accurately, particularly in real time. This is why the FRAML approach—a combined fraud and money laundering team—is still being heavily discussed and debated among fraud professionals.

“While the regulations may be different with fraud prevention and AML practices, the need to see the customer and activity holistically across all illicit activity often outweighs any outdated reasons for separate teams,” she said.

Moving Away from Manual Processes

The threat of cross-border payments means that organizations seeking to enter the global market must protect themselves. This means moving away from manual processes that open organizations to greater risk.

“Automation and data visualization tools are extremely helpful in quickly identifying counterparties and how they might be linked to one another,” Pitt said. “These tools can often uncover organized crime rings more easily than just relying on static data that is eventually manually analyzed by people just trying to make sense of mass amounts of seemingly unrelated information.”

Because threat actors have access to sophisticated technologies, organizations will have to adopt technology to protect themselves. Even as AI been exploited to create fraud attacks, so can it be used to identify and flag suspicious activity.

“Being able to detect reuse in identity elements (like name and date of birth, photo, and/or SSN) across multiple accounts can help identify synthetic identities as well as money mule accounts—high-risk typologies currently being used for fraud and money laundering,” Pitt said.

One of the most important challenges in international transactions is verifying that the party on the other end of the transaction is who they claim to be. In the correspondent banking model, each party conducts a series of manual checks to ensure the identity of the recipient.

However, after all these checks, banks are often left to trust that the counterparty is acting in good faith.

“There are still financial institutions that rely heavily on manual identity verification, using human review as the primary method,” Pitt said. “Advances in document fraud have made it easier for fraudsters to create convincing fake identity documents that can bypass weak verification processes, including those where in-branch professionals manually inspect IDs and documents for signs of forgery.”

“Many financial institutions are still relying on legacy KYC checks that are only done once—usually during onboarding—and annually after that,” she said. “KYC checks should not only focus on understanding each customer, but also take a risk-based view of the counterparties they transact with. Some banks only look at the customer in a vacuum and not holistically. And some don’t thoroughly explore counterparties.”

The Cornerstone of Risk Management

To address these challenges, LSEG Risk Intelligence developed its Global Account Verification (GAV) platform. GAV is an API-based and portal-accessible solution that verifies bank account ownership in real time across more than 45 countries.

The GAV platform helps organizations confirm counterparty account details before releasing funds which can significantly reduce APP fraud, failed payments, and compliance risks under PSD3, NACHA, and PSR1.

This platform is a gamechanger for organizations who are attracted by the global marketplace—but leery about the cross-border payments landscape.

“It’s just as critical to understand counterparties as it is to understand each customer,” Pitt said. “Doing what are essentially risk-based, mini-KYC processes for relevant counterparties, along with understanding how counterparties might be linked to different account holders, can help financial institutions identify organized crime and fraud rings.”

“Being able to vet who account holders are and who they do business with is often a cornerstone of basic risk management practices,” she said. “Failing to meet compliance requirements can lead to significant consequences like consent orders, lawsuits, fines, reputational risk, and customer attrition.”

The post Solving for Fraud in Cross-Border Payments Requires Better Counterparty Verification appeared first on PaymentsJournal.

Running a business shouldn’t mean navigating a maze of payment options. But the sheer variety of ways there are to pay today puts pressure on businesses to accommodate every option—or risk losing a sale.

To meet this challenge, many businesses with simple payment needs are turning to payment gateways for businesses, which help them seamlessly accept a wide range of payment types. These systems manage the entire transaction process, from the moment a payment is initiated at the point of sale to when it’s submitted to the processor. Payment gateways can accept credit and debit cards, eChecks, digital wallets, contactless payments, and transactions made online or via mobile.

You can simplify things even further by choosing a payment gateway that also provides a merchant account. Authorize.net has an all‑in‑one solution that means you don’t need to separately contract with a bank or third-party processor to get set up. This can speed up onboarding, reduce administrative overhead, and give you a single point of contact for both payment processing and gateway support. For small and mid‑sized businesses, this often translates to faster access to funds, fewer integration headaches, and a more streamlined payment experience overall.

But it’s not just about convenience. A payment gateway can give you access to more innovative payment experiences that let you capture more sales, give you greater control over the payment process, enhance fraud prevention, and access to a wealth of data to drive your strategies.

How to Keep Up With Innovation

Payment gateways are creating better ways to serve their users all the time. Visa’s recent relaunch of Authorize.net introduced features that make it even more user friendly, with an updated interface that’s seamless to navigate, a customizable dashboard, and an AI support tool with expanding capabilities.

Authorize.net has also optimized its merchant onboarding, withpricing templates that reduce repetitive tasks and minimize errors, plus a portfolio default that automatically generates sales profiles for a seamless start every time.

How to Accept More Kinds of Payments

Authorize.net is currently one of the most popular payment gateways for businesses, supporting 400,000+ small to mid-size businesses in the U.S.

Today’s shoppers expect their preferred payment method—whether it’s a physical credit card, a digital wallet, or something else—to be accepted wherever they shop. In addition to online purchases, in-person point-of-sale transactions have also grown more complex. Consumers may want to pay with a gift card, tap to pay, or even use cash. At one time, investing in hardware to handle all these options required significant effort.

But gateways like Authorize.net can provide a virtual point-of-sale (VPOS) that allows you to connect a compatible card reader to a computer. You can simply log in and start accepting payments. This flexibility gives you the ability to stay up to speed with trends and offer customers a way to pay that feels right for them.  

How to Manage Recurring Payments

Recurring payments have long been a challenge for businesses looking to save customers the hassle of manually re-entering billing or payment details for every transaction. The problems multiply when a customer’s card is updated or replaced and the payment information changes.

A payment gateway can communicate with the card issuer to update the card details automatically—without any input from the business. Not only does this make the process smoother, but it also helps retain customers. Repeatedly asking for payment details—or even just re-confirming a card number—gives customers an opportunity to reconsider whether they want to continue the service.

If your business is subscription-based or relies on repeat customers, look for a payment partner that offers an easy-to-use recurring billing tool. Make sure it allows you to customize billing schedules to fit your business model and includes features like trial periods so customers can try your product or service before being charged.

How to Prevent Payments Fraud

Over the next five years, analysts project that small and medium-sized businesses will lose more than $130 billion due to payments fraud, per Jupiter Research. Most businesses with simple needs would be overwhelmed trying to handle such challenges.

Consider a payment gateway that offers fraud detection capabilities, like Authorize.net. Its built-in fraud tool, Advanced Fraud Detection Suite, has 13 configurable filters to help you set things like minimum transaction thresholds, payment velocity, and country limits—so you can be vigilant against fraudulent transactions

How to Leverage Payments Data

Another essential feature of a payments gateway is the ability to view payment results and data at a glance. A high-quality payments dashboard should provide a clear overview of any urgent and pending tasks and offer you one-click access to common actions such as accepting payments, locating transactions, and sending invoices. And the dashboard should be customizable to fit your needs, highlighting relevant opportunities and information. It should also leverage the full range of payment data flowing through the gateway.

Compiling and analyzing payment data can be a key advantage for any business. It’s important to ensure your gateway includesvisualizations of key trends and metrics—like settled payments and transaction volumes over time—to help you focus your efforts.

“Analytics are the lifeblood of any business today. Data tells us things about a business that we may not observe anecdotally. A business owner takes hundreds or thousands of credit card transactions a month, and you’re not going to sift through them to identify patterns. A good dashboard packages them up gives you key metrics so you can see how the business is doing. What ZIP code are my customers coming from? What are the payment trends in my business? That’s the crucial kind of information a payment gateway can give you.” – Don Apgar, Director, Merchant Payments Practice, Javelin Strategy & Research

Authorize.net in Action

One business that has fully leveraged the benefits a payment gateway can provide is online mailing service Click2Mail. They’ve relied on Authorize.net for years, going beyond simply processing payments to helping improve their business operations.

When a customer enters their payment information during a purchase, it’s stored securely for future transactions, making recurring payments seamless. With Authorize.net’s Account Updater, Click2Mail can automatically update expired or reissued card details, reducing the time spent reaching out to customers for updated information.

And when a customer’s payment is declined, Authorize.net gives specific information about why the payment was unsuccessful. This helps resolve issues more quickly, reducing chargeback fees and creating a smoother experience for customers. The secure tools now immediately identify and review suspicious transactions, allowing Click2Mail to act swiftly and prevent losses. The gateway’s proactive approach allows Click2Mail to approve legitimate transactions, void fraudulent ones, and flag suspicious activity.

Click2Mail has already utilized Authorize.net’s new features, like the dashboard that groups together related tasks for easier navigation. At a glance, a Click2Mail associate can focus on customers, payments, reports, accounts, or the marketplace—whichever needs attention.

This means Click2Mail’s team can concentrate on delivering cutting-edge software solutions that simplify sending mail for their customers.

“Because the gateway’s whole business is getting the transaction from the merchant to the processor, the process can focus on that ‘first mile’ of the transaction. That lets them support more transaction types from different kinds of hardware, gives them the rich data they need, and leaves the retailer free to run their business, not the payment process.” – Apgar

Learn more about what a payment gateway like Authorize.net can do for your business.

The post How Payment Gateways for Businesses Can Help You Offer Your Customers More Options appeared first on PaymentsJournal.

The rise of Software as a Service (SaaS), AI technologies, financial services APIs, and embedded finance has reshaped the payments ecosystem, creating value beyond simple transactions. These shifts mean traditional payment models now compete directly with independent software vendors (ISVs) and payment facilitators (PayFacs). In fact, 87% of U.S. merchants choose their payment provider at the same time as their business software.[i]

Notably, the rise of embedded finance and proliferation of SaaS solutions has accelerated the growth of the PayFac model. Case in point: according to Growth Market Reports, the global payment facilitation market size will reach $50.1 billion by 2033. This growth highlights why it’s critical for ISVs to understand the benefits of transitioning to the PayFac model.

Delivering a Better Merchant Experience

Now more than ever, merchants face a wide range of options when choosing a payments partner. The merchant experience—and, by extension, their customers’ experience—drives the success of any payments partnership. PayFacs deliver significant advantages by simplifying onboarding/underwriting, streamlining risk management, and ensuring compliance with industry regulations, a time-consuming and arduous process for merchants.

However, the merchant experience extends well past the onboarding stage. PayFacs add value throughout the entire customer lifecycle. ISVs that adopt this model typically scale their businesses and sales channels to deliver value-added services that strengthen relationships with merchants and end customers—and go beyond payments. By adopting the PayFac model, ISVs can deliver a more holistic solution, incorporating embedded finance features such as advanced customer data analytics via dashboard reporting and flexible financing options for customers.

Optimizing Revenue Potential for You and Your Merchants

Businesses can realize significant cost savings because the PayFac manages individual merchant account setups and the underwriting process. For ISVs adopting the PayFac model, this approach strengthens customer relationships and reduces churn. The value goes beyond payments—embedded finance becomes a true competitive differentiator. For example, many PayFacs offer funding solutions that eliminate the need for costly money transmitter licenses. Fast funding is now table stakes. But funding that actually reduces costs for customers? That’s a significant value add.

Beyond operational savings and enhanced customer stickiness, the PayFac model also empowers ISVs to unlock new strategic growth opportunities by integrating payments more deeply into their product ecosystems. As ISVs gain visibility into transaction‑level data, they can surface richer business insights, personalize customer experiences, and introduce data‑driven features that further differentiate their platform. This embedded data intelligence can lead to tailored pricing strategies and new service tiers that boost overall revenue.

Determining the Right Partner Program for Your Business – U.S. Bank | Elavon

In a today’s payment landscape, selecting the right payments partner and model is paramount to building the blueprint for your success. So, how do you evolve to meet this changing demand and position your business for sustainable growth? Backed by the strength and stability of U.S. Bank, we can help you scale your business with our comprehensive payment facilitator program.

Elavon solutions serve as a connecting force—integrating your entire payments system, so you can focus on what matters most: moving your business forward. It’s why more than 1,000 integrated partners, 1,700 financial institutions, 350+ ISOs/MSPs, and payment facilitators trust us to grow their business. Call us at: 844.904.0429 or contact us.

[i] Visa – Visa Perspectives | Visa

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ClearBank, the enabler of real-time clearing and embedded banking, has announced a collaboration with PhotonPay, an AI-powered global digital financial infrastructure provider offering payment solutions to businesses worldwide. Through this collaboration, PhotonPay’s business customers will gain access to a wider range of financial services, including virtual accounts, GBP collections, payouts, and Confirmation of Payee (CoP) functionality. 

Powered by ClearBank’s API-based banking infrastructure and real-time clearing services, PhotonPay will issue named virtual accounts and provide real-time connectivity to Faster Payments, BACS, and CHAPS to its customers. These enhanced capabilities will allow enterprises operating in the UK to benefit from faster settlement, more flexible liquidity management, and greater operational control. 

“Partnering with ClearBank represents a critical step in expanding our global payment infrastructure,” said Lewison Chen, Founder and CEO of PhotonPay. “With indirect access to Faster Payments, BACS, and CHAPS, our business customers can now enjoy quicker settlement speeds, stronger compliance, and seamless integration into the UK’s financial system. It also lays a solid foundation for our continued expansion across Europe. Moving forward, we will keep advancing localised payment capabilities in major European markets.”

“We’re proud to partner with PhotonPay, enabling them to scale with our next-generation banking platform,” said John Salter, Chief Customer Officer at ClearBank. “Indirect access to UK payment rails means PhotonPay can deliver faster, more localised services to their customers. We’re excited to support their growth and expansion across Europe next year.”

About PhotonPay

PhotonPay, an AI-powered financial infrastructure, was launched in 2015. Supporting over 10 global offices and operations in 200+ countries/regions, PhotonPay enables efficient, secure, and integrated global payments to drive business growth with infinite ambitions.

Trusted by 200,000+ businesses worldwide to overcome banking and payment challenges, PhotonPay delivers simple, scalable, and customizable solutions – including accounts, card issuing, domestic/international payments, and embedded finance.

About ClearBank

ClearBank is a purpose-built, technology-enabled clearing bank. Through its banking licence and intelligent, robust technology solutions, ClearBank enables its partners to offer real-time payment and innovative banking services to their customers.

ClearBank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (FRN: 754568).

ClearBank Europe N.V. is authorised by the European Central Bank (ECB) and supervised by the De Nederlandsche Bank (DNB).

Visit www.clear.bank for more information.

The post PhotonPay Expands UK Local Payment Rails via New Collaboration with ClearBank appeared first on PaymentsJournal.

In the post-COVID era of remote work, organizations often struggle to find meaningful ways to recognize their top performers. In-person celebrations are not always possible, and traditional physical gifts can sometimes feel impersonal or difficult to deliver effectively.

In this context, digital gifting platforms have risen dramatically as a powerful tool to celebrate achievements, boost morale, and drive sales performance. Beyond their versatility, digital gift cards also provide several behind-the-scenes benefits—from streamlining the gifting process to offering measurable insights into their impact.

“If you have a dispersed and virtual workforce, clearly a digital gift card’s going to be the best option,” said Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research. “There’s no mailing, but even though everyone is in separate locations, it can be sent automatically and systematically to arrive at the same time.”

Immediate Rewards

Only around one in five employees receives any type of incentive, even though research published by the National Library of Medicine confirms that immediate rewards have the strongest motivational effects on employees.

“That immediate reward really makes people feel good,” said Hirschfield. “You can go out and treat yourself to something because you hit a goal.”

Organizations that have implemented digital gift cards have discovered a wide range of strategic uses that support various aspects of the business. When used as incentives for sales teams, rewards can be tied to specific results, such as closing a deal or meeting quotas. Additionally, digital gift cards generate analytics that can inform future incentive and rewards planning.

These cards can also recognize achievements of all kinds, from birthdays to sales milestones to team accomplishments. Immediate, on-the-spot rewards help boost employee satisfaction, enhance retention, and strengthen an organization’s competitive culture. According to research from Javelin, 83% of prepaid card recipients report that incentives increase their satisfaction—particularly in remote work environments where teams cannot celebrate successes together in person.

“Even though the long-term effects of COVID from a business standpoint are starting to fade, the learnings we had and the tools that were developed are going to stay,” said Hirschfield. “COVID accelerated the development of some of these tools, and now the industry can run with it for long-term gain, not just their immediate short-term needs.”

Behind-the-Scenes Benefits

Efficient and easy to use, these digital gift cards offer a wide range of operational benefits. They can support everything from individual or small team incentives to large-scale rewards programs. Flexible delivery options allow organizations to schedule cards well in advance for milestones, birthdays, or link them to KPIs for performance-based bonuses. Moreover, they can be personalized for each employee, reflecting their accomplishments and providing rewards tailored to their preference.

“You might have a wellness program where if a person hits their 10,000 steps, they get a $5 credit,” said Hirschfield. “It also allows a recipient to select the gift cards they want. Electronic delivery is the best way to provide those multiple options, so they can go through the catalog of choices and choose the one that suits them the best.”

Organization can also customize these gift cards with their own branding at a lower cost than personalizing physical cards. This includes adding company logos, colors, fonts, and word marks. Some advanced providers, such as Prezzee, even allow the inclusion of video messages to enhance the personalization.

Distribution is straightforward, even for large or widely dispersed teams. For department- or organization-wide programs, cards can be bulk-sent via CSV upload. Unlike store-bought gift cards, which are increasing subject to tampering and fraud, digital gift cards remain secure and reliable.

On the back end, digital gift cards provide measurable impact in ways that traditional rewards can’t. They offer real-time tracking of redemptions, giving HR departments a way to ensure cards are being used as intended. Their performance can also to the performance of the rewarded employees, allowing management to assess their effect on sales and overall performance.

Advantages for Issuers

There are benefits for issuers as well. Employees who receive an incentive are more likely to try a new brand or sign up for a loyalty program. If a recipient becomes a member of a rewards community, that the incentive shifts from being a one-time tool that serves the employer’s needs into a long-term benefit that strengthens the relationship between the employee and the card issuer.

An experienced digital gift card partner like Prezzee  can help an employer address all these needs. A trusted expert can manage the various elements of these incentive programs, which have the potential to transform an organization’s workforce.

“Not only are the employees more satisfied, but they are more likely to be an advocate for their employer if they feel like they are being treated well,” said Hirschfield. “These are really simple tools that have big-time payoff.”

The post Present and Accounted For: Digital Gift Cards in Incentive Programs appeared first on PaymentsJournal.

India has become a nation known for financial innovation, with the widespread adoption of the UPI payment system and new approaches to lending and insurance that have helped democratize personal finance. But one area that has lagged behind is the credit card sector. Today, there are roughly 50 million credit card holders in India—seemingly a large number until you consider a population of nearly 1.5 billion. By contrast, the U.S., with about one-quarter of India’s population, has more than 600 million credit cards in circulation.

“A decade ago, credit cards in India were restricted to the urban, high-end segment,” said Vibhav Hathi, Co-Founder and Chief Marketing Officer at FPL. “It has become much more widespread, but it’s still an aspirational product.”

In a market where many consumers are still deciding whether they need their first credit card, it’s understandable that an aspirational metal card once seemed far-fetched. When FPL first explored the idea, plenty of people warned it wouldn’t fly.

But fly it did. With the help of CompoSecure, the FPL card not only succeeded but carved out an entirely new market by bucking conventional wisdom.

Finding a Differentiator

Given that India has more than a billion people without a credit card, there was clearly room for a new entrant.

“India is a terrific country for payment cards,” said Brian Riley, Director of Credit at Javelin Strategy & Research. “The Reserve Bank of India has helped democratize credit cards and enable borrowing in the nation. It is an exciting market, where 15% to 20% annual growth has been common.”

The important question was how FPL’s card could differentiate itself. With 45 cards already on the market, FPL would be entering as the 46th. Competing directly with the country’s largest card issuers made little sense for FPL, which was known for its user-friendly digital credit products developed in partnership with some of India’s major banks.

So how could FPL’s brand stand out? The answer was a physical metal card—attention-getting yet classy, and definitely not your father’s credit card. Hathi and CompoSecure recognized that the card could appeal to a market defined not by a specific demographic, but by a lifestyle.

“Our demographic segment for adopting metal was somebody who was ready to try something new,” said Hathi. “Imagine a 28-year-old software engineer who uses a QR code for a half-dollar transaction. When he or she goes to a fine dining restaurant or goes out with a group of friends, they want to flash something. It gives them a status symbol.

“That’s the demographic,” he said. “Somebody who wants to be the early adopter, somebody who wants to try out something new, somebody who’s known for adopting newer technologies.”

Three Distinct Personalities

CompoSecure further refined this target market into three distinct personas: elites, innovators, and the aspirational.

Elites represent consumers with a certain level of wealth and social status. They tend to be interested in the arts and social causes and respond to messaging around exclusivity, prestige, and scarcity. These customers want a premium feel to their physical card.

Innovators are typically mobile natives—millennials or Gen Z—who respond to messaging centered on innovation and trendiness.

Then there’s the aspirational group, known as HENRYs: high earners, not rich yet. For them, the metal card—long associated with the elite—signals the future status they aspire to.

For all three segments, the metal card elevates the credit card from a rational, transactional product to an emotionally resonant one.

“The card’s weight adds appeal, and the plunk of the metal card on a countertop has a special ring,” said Riley. “When you add in the importance of card branding, particularly as e-commerce overtakes retail sales volume, the payment card itself helps endear the customer to the issuer, and that is also a plus for the metal card.”

Rolling the Card Out

With the decision to launch a metal card made, the next step was to design and roll out the product. FPL needed to ensure that the card was more than a gimmick—it had to be a world-class offering capable of standing alongside the leading products in the category.

To reinforce the distinctiveness of the metal card, FPL created a more tangible, sensory experience. With every transaction, customers received a notification that played a metallic “clink,” echoing the sound of the card itself and adding a multisensory dimension to the brand.

Beyond prestige, metal cards are more durable than plastic, and FPL leaned into that attribute. Sustainability is top-of-mind for many consumers in India. One motorcycle manufacturer, for example, reclaimed metal from a prominent retiring warship and used it to build a limited-edition bike, which quickly became a collector’s item. Hathi wanted FPL’s metal card to evoke a similar sense of meaningful material and enduring value.

“What is the story behind my metal card?” Hathi asked. “Is it bringing purpose to somebody somewhere? Is it recyclable? Is it improving someone’s life?”

Falling in Love

When the card launched, reactions were immediate. Customers fell in love with it, forming an emotional connection that’s rare for a credit card. Some users posted unboxing videos on social media, while others even used the card to slice their birthday cake. They wanted the card woven into every aspect of their lives, creating a level of loyalty that quickly made it their  primary payment choice.

“A consumer would say, ‘Oh, is this an Indian card?’” said Hathi. “They felt proud when they went beyond India, when they were making a transaction at a restaurant and their card felt as good as any other global card. We had a customer who used it at a hundred restaurants, and we asked him why. He said, ‘I became the cool guy. I had something which others did not have.’”

The success of FPL’s metal card was amplified by its partnership with a trusted, experienced collaborator like CompoSecure, which has supported more than 150 different payment card programs. The card’s distinctive look and feel proved to be far more than a branding play—it became a serious business driver, delivering significant ROI along with strong consumer preference and loyalty.

“Metal cards are not a passing fancy,” said Riley. “They are standard-issue products for luxury cards, and they have a broad appeal to younger age groups. Every one of the premium cards in the U.S. market today, things like Sapphire and Platinum and so forth, gravitate towards a metal card, for good reasons, You will be seeing more of them in the years to come.”

The post Defying Expectations: How a Metal Credit Card Found Its Market appeared first on PaymentsJournal.

PhotonPay, a leading stablecoin-centric global digital financial infrastructure, today announced the successful completion of its tens of millions of USD Series B funding round.

This round was led by IDG Capital, with participation from Hillhouse Investment, Enlight Capital, Lightspeed Faction, and Shoplazza. Blacksheep Technology acted as the exclusive financial advisor for this round. The funds will enable PhotonPay to accelerate the expansion of its next-generation stablecoin financial rails, hire key talent, and broaden its global regulatory footprint.

As a core enabler of the global digital economy, PhotonPay is dedicated to empowering businesses with a secure, compliant, and frictionless financial operating system. Operating from 11 global hubs with a team of over 300 experts, PhotonPay powers a vast and diverse ecosystem—supporting both established and emerging markets across core industries like e-commerce & marketplaces, B2B trade, OTAs, and logistics, while deeply penetrating high-growth digital frontiers such as AI, SaaS, and Digital Entertainment globally.

Built on a rapidly scaling stablecoin-native clearing infrastructure, PhotonPay now processes over $30 billion in annualized payment volume. The platform helps tens of thousands of businesses reduce global fund transfer costs by more than 75% and boost operational efficiency by 60%, paving the way for seamless global expansion. 

Building a Next-Generation Financial Infrastructure Future

“Global payments are experiencing a once-in-a-generation structural revolution: moving from slow, siloed legacy interbank networks to a unified, digital-asset-native system built for real-time liquidity and intelligent treasury,” said Lewison Chen, Founder & CEO of PhotonPay.

“We fundamentally believe the future payment stack will be stablecoin-ready, and we are building it now. Stablecoins are not just a new settlement tool, they are the foundation for moving value globally at the speed of photon—zero friction, zero latency. This Series B is not a validation of what we’ve done; it’s the fuel that accelerates our mission to connect the global digital economy and defines our role in re-architecting the next decade of global payments infrastructure.”

The newly raised capital will strategically propel our vision of powering the next generation of global finance, focused on four key pillars:

1.Fortifying Global Financial Infrastructure 

Leveraging its strong partnerships with leading financial institutions such as J.P. Morgan, Circle, Standard Chartered Bank, DBS Bank, and Mastercard, PhotonPay will further deepen its direct connection to global payment networks. This move aims to enhance capability in account issuance, acquiring, and FX, delivering bank-grade stability while ensuring frictionless, real-time global settlements.

2.Broadening the Product Ecosystem

PhotonPay is poised to launch its second wave of growth, centered on “Enterprise Value-Added Services.” In addition to cementing its leading position in embedded finance, the company will expand its end-to-end “Collect, Manage, and Pay” ecosystem. By 2026, PhotonPay plans to roll out flexible treasury solutions designed to generate yield on idles funds, alongside agile credit facilities, empowering clients to maximize liquidity and capital efficiency.

3.Driving an Intelligent Architectural Evolution

The company will spearhead a comprehensive upgrade of its core technology stack:

• Risk Intelligence: Shifting from passive defense to “predictive precision,” PhotonPay will deploy proprietary AI models to redefine AML and anti-fraud risk management, ensuring bank-grade compliance at fintech speed.
• Next-Gen Settlement: Integrating stablecoin payment rails to modernize global clearing. By bridging traditional banking infrastructure with stablecoin liquidity, PhotonPay enables 24/7 instant settlement and automated payment workflows. This hybrid approach overcomes the limitations of legacy banking windows, significantly reducing transaction friction and capital costs for global businesses.

4.Expanding Global Compliance & Local Footprint

Prioritizing development in the U.S. and key emerging markets, PhotonPay will accelerate its acquisition of regulatory licenses to expand its competitive advantages. Simultaneously, the company will scale its local operations teams, building a highly adaptive infrastructure that combines global regulatory rigor with deep local market expertise.

Commenting on the investment, IDG Capital noted: “Global commerce is undergoing a fundamental shift, and PhotonPay is building the financial operating system for this new era. What stands out most is the team’s ability to abstract the complexity of global compliance and liquidity into a seamless, intelligent infrastructure. By tackling payments at the infrastructure layer, PhotonPay is re-architecting how global payment systems operate through AI-driven intelligence and stablecoin-native capabilities. IDG Capital is excited to back a category-defining company that’s setting the standard for the future of digital finance.” 

Anthony Zhu, Founding Partner of Enlight Capital, added: “Innovative technologies such as AI and blockchain will reshape the global financial system. What we are backing are not incremental products or services built on top of traditional finance, but fundamentally new technological paradigms and solutions that rearchitect core financial processes – making finance more accessible, inclusive, and transparent on a global scale. We see tremendous potential in PhotonPay to become a foundational financial services provider in a future digitalized and AI-native world. We also see in its founder, Lewison, the defining qualities of a next-generation fintech entrepreneur: a technology-driven mindset, a proactive approach to change, a strong can-do attitude in the face of competition, and a truly global vision.”

The post PhotonPay Raises Tens of Millions in Series B to Pioneer Stablecoin-Centric Financial Infrastructure appeared first on PaymentsJournal.

Every day, financial institutions process trillions of dollars across dozens of payment rails. Yet when asked about innovation, most admit they’re stuck.

It’s not a technology problem. The tools exist. Cloud-native platforms. Real-time rails. AI-powered fraud detection. The issue is strategic paralysis.

“Banks are having to connect and deal with so much new technology right now that it’s a challenge for financial institutions to know where to go first,” said James Wester, Co-Head of Payments at Javelin Strategy & Research. “There’s almost a sense of vapor lock.”

The Modernization Trap

Call it analysis paralysis on steroids. Banks face simultaneous pressure from new payment types, mobile wallets, real-time rails, crypto integration, tightening regulations, and escalating fraud. Each priority feels urgent. None can wait. Yet most institutions remain frozen at the starting line.

New research from ACI Worldwide reveals the depth of the problem: 55% of organizations say technology remains underused in their operations despite billions invested in modernization. Three barriers dominate. Relentless cybersecurity demands that evolve faster than defenses. Crushing compliance burdens spanning multiple jurisdictions. Internal resistance from teams wary of disrupting systems that have worked for decades.

Consider a mid-sized regional bank with two million customers. They want to offer the FedNow^® Service for instant payments, but their wire transfer system runs on code from 2008. Their card processing sits on a different platform entirely. Adding real-time payments means either building custom integrations that take 18 months and cost $3 million, or replacing infrastructure that handles 500 million transactions annually. Either path carries massive risk. So they wait. And while they wait, their customers open accounts at digital banks that launched with real-time payments on day one.

“It’s not just about connecting to new rails, connecting to real-time payments, connecting to digital wallets,” Wester said. “It’s decisioning for fraud, credit, onboarding. All these things are going on at the same time.”

The result: institutions that know they must modernize but can’t determine the first step without triggering operational risk.

What Actually Works

Paralysis isn’t inevitable. Financial institutions breaking through share three strategic pillars.

First, executive ownership with a long-term vision. Payments can’t be relegated to IT. Organizations succeeding treat payments as board-level strategy with sustained C-suite sponsorship. When the CEO of a top-20 global bank tells the board that payments infrastructure is as critical as lending operations, budgets get approved and roadblocks disappear. Partial commitment produces partial results.

Second, capability and talent activation. Strategy without execution infrastructure means nothing. Leading institutions bridge that gap by developing internal talent while partnering strategically with vendors who close capability gaps. This isn’t about hiring an army of developers. It’s about having the right team to evaluate platforms, manage integrations, and own the roadmap.

Third, agility and future readiness. Static solutions fail in dynamic markets. The most resilient organizations build adaptable infrastructure that absorbs new payment types without disrupting existing operations. When a new rail launches or regulations shift, they adjust in weeks rather than quarters.

“From the bank’s own business standpoint, what it is they’re trying to accomplish and where do they need to go,” Wester said. “What’s the most important priority for the financial institution? That’s then where you inventory what we have in terms of systems, technology, people.”

The Orchestration Advantage

Legacy systems weren’t designed for the speed, flexibility, and variety today’s payments ecosystem demands. Built for predictable volumes on established rails, they’ve become integration nightmares requiring constant patches and workarounds.

Intelligent payment hubs take a fundamentally different approach.

Rather than forcing institutions into wholesale infrastructure replacement, modern platforms enable selective modernization. Banks can introduce new payment types and services without disrupting core operations. The technology handles integration complexity behind the scenes.

Payments orchestration extends this further. By dynamically selecting optimal payment channels based on transaction type, cost, fraud risk, and regulatory requirements, orchestration delivers what legacy systems can’t: unified decision-making across fragmented infrastructure. A $50,000 wire transfer to Germany gets routed through Swift with enhanced compliance screening. A $12 peer-to-peer payment uses RTP. A recurring subscription runs through ACH. The platform makes these decisions in milliseconds based on business rules the bank controls.

ACI Worldwide’s platforms, including the recently launched ACI Connetic, exemplify this approach. ACI Connetic unifies account-to-account payments, card processing, and AI-powered fraud prevention on a single cloud-native platform. For the first time, banks can consolidate siloed systems without rip-and-replace implementations.

“One of the big things they offer is they help close those gaps where financial institutions may be coming from legacy technology,” Wester said. “It’s finding those vendors that now sell modern payment platforms that are modular, that are cloud-native, that operate around modern principles.”

The value proposition extends beyond technology. Modern platforms reduce integration time from months to weeks. Cloud provisioning delivers resilience, scalability, and cost advantages impossible with on-premises infrastructure. Modular architecture enables rapid deployment of new capabilities without touching core systems.

The Business Case Problem

For all its logic, modernization faces a measurement challenge. Quantifying the cost of inaction proves difficult until it’s too late.

“Sometimes it’s a bit difficult to make business cases for these investments because you don’t know sometimes what you don’t have,” Wester said. “You realize that you’re bleeding customers, that your attrition rate is high because consumers don’t have access to real-time payments, or they don’t have access to real-time balance information.”

This creates a dangerous lag. By the time customer attrition becomes obvious, competitors have already captured market share. Digital-native fintechs don’t suffer from legacy constraints. Neo-banks launch with modern architecture from day one. Traditional institutions trying to catch up face steeper hills.

The solution: reframe modernization as revenue enablement rather than cost avoidance. Modern platforms don’t just reduce operational friction. They unlock new products, faster time-to-market, and differentiated customer experiences that drive growth.

ACI processes more than $7 trillion daily across platforms serving 19 of the world’s top 20 banks and 11 central bank infrastructures. That scale provides visibility into what separates leaders from laggards. Institutions treating payments as strategic assets rather than back-office plumbing consistently outperform peers in revenue growth and customer retention.

Breaking the Logjam

The payments modernization challenge isn’t getting easier. Real-time payments adoption accelerates globally. Digital wallet usage grows exponentially. Regulatory complexity increases. Fraud sophistication rises. Customer expectations for instant, seamless transactions become universal.

Institutions waiting for certainty before modernizing will discover certainty arrives too late. Markets reward those who move decisively with imperfect information over those who wait for perfect information that never comes.

The path forward requires honest assessment. Start with business priorities, not technology. Inventory current capabilities against where the market is headed in 24 months, not where it is today. Identify the gaps that create competitive vulnerability. Then partner with vendors who offer modern, modular platforms designed for continuous evolution rather than periodic replacement.

Most importantly, accept that payments modernization isn’t a project with a completion date. It’s an operational discipline. The institutions thriving in payments today treat infrastructure the way they treat risk management: as an ongoing strategic function requiring constant attention, not a one-time fix.

“That gets you to where you need to be just to start looking forward,” Wester said.

The alternative: continued paralysis while competitors modernize, which carries consequences no institution can afford.

Download this report now: Payments in Transition: Leadership in an Era of Transformation.

Editor’s Note: ACI Worldwide processes billions of transactions daily, moving trillions of dollars for banks, merchants, and billers across 90+ countries. Its platforms include ACI Connetic, a unified cloud-native payments hub, and ACI Enterprise Payments Platform, serving the world’s largest financial institutions.

The post The $7 Trillion Bottleneck: Why Banks Are Paralyzed by Payments Innovation appeared first on PaymentsJournal.

Not long ago, payments meant paper, ink, and a trip to the mailbox. Today, consumers expect the opposite—transactions that are contactless, mobile-friendly, and processed in real time. With countless digital payment methods now operating smoothly and instantly, it’s no surprise that checks are being phased out in both commercial and consumer settings. Even the federal government—once one of the largest issuers of paper checks—plans to end their use for tax refunds and other payments.  

Still, a reliable and easily tracked payment system continues to have an important role in the modern economy. Today, electronic checks offer a contemporary twist on this trusted, secure method of payment. And for businesses of all sizes, cutting-edge solutions like Authorize.net can make the transition from paper to electronics seamless by offering secure, fast, and cost-effective eCheck processing.

What Is an eCheck?

An electronic check, or eCheck, functions much like a traditional paper check—customers provide their bank account, routing number, and payment authorization to complete a transaction. The difference is that everything happens digitally, typically through an online form that enables secure electronic processing.

“Checks these days are primarily for handling one-off or rare higher value transactions,” said Hugh Thomas, Lead Analyst of Commercial and Enterprise at Javelin Strategy & Research. “EChecks allow you to push a payment to a supplier using the same processes you might with a paper check, but entirely electronically.”

EChecks are transmitted through the National Automated Clearing House (ACH) system for electronic funds transfers. Because the process is entirely electronic, businesses no longer have to wait for a paper check to arrive in the mail or be manually deposited. This not only speeds up payment collection, but also reduces the risk of human error. In addition, eChecks help avoid many of the costs associated with paper checks, including employee time and bank processing fees.

“EChecks initiate an ACH push payment,” said Thomas “But because they come over as an email, you save time and paper, and the time in the mail, while still being able to append all the line-item detail that often rides along at the bottom of checks, like invoice numbers the check is meant to cover.”

A Wide Variety of Use Cases

EChecks offer several benefits that make them suitable for a variety of situations.

First, they provide an alternative to credit or debit cards. Customers without access to credit can still make payments using an eCheck.

They also allow businesses to receive direct, secure bank payments. Unlike paper checks, eChecks can’t be lost or stolen, and they are well-protected against fraud. According to Nacha, fewer than 0.03% of ACH transactions are returned as unauthorized.

For businesses, eCheck transactions are typically inexpensive—much cheaper than processing paper checks, which often cost a dollar or two per check, and far less expensive than credit card payment fees.

“Typically in an ACH transaction there’s only a per unit cost, usually in the range of $0.10 to $0.25 for the merchant,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “A credit card will cost them probably 2% to 2.5%. Even with a debit card, the merchant is paying a certain percentage of the sale.”

The low cost makes eChecks particularly well-suited for recurring payments. Fees for other payment methods can add up quickly for monthly transactions, whereas eChecks allow for a one-time approval to withdraw funds from a customer’s account. This enables businesses to automate recurring payments, eliminating the need to manually collect them and providing a significant convenience factor. A comprehensive processing solution like Authorize.net supports automated recurring eCheck payments, reducing manual work and ensuring predictable cash flow for businesses.

“There are a couple of sectors with recurring payments in which eChecks are extremely popular,” said Apgar. “One is public sector merchants, who collect regular fees and fines. If the debit to your account doesn’t process, they don’t need to pursue a chargeback—they can just turn your service off.”

Another area where eChecks are becoming increasingly popular is in large business-to-business transactions, where secure, cost-effective, and trackable payments are critical.

“Receivables processing solutions these days are well equipped to handle eChecks, as they can read attached PDFs automatically and pull the information required to apply payment automatically,” said Thomas. “You get the ability to push a single payment with the same security you get from a check run, but without the paper. An eCheck makes sense for bigger one-off payments to cover multiple invoices or other detailed remittance information.”

An eCheck Case Study

One potential drawback of accepting eChecks is that the setup process can feel intimidating. It typically requires steps such as establishing an ACH line with a bank.

Authorize.net is built to fit into an organization’s existing payments workflows, with white-label options that keep the process seamless and unobtrusive. Its straightforward integration makes onboarding quick, and the system can be accessed from the office, home, or on-site.

Companies that adopt eChecks often discover unexpected benefits. For instance, VIIRL Marketing, a provider of advertising and marketing services, has relied on eChecks and Authorize.net since its founding, finding them to be a reliable part of their operations.

“Automated billing is huge for us,” said Jed Winkler, VIIRL’s president and COO. “We have hundreds of clients across the country where we bill them every single month. It’s good for us to be able to offer multiple different platforms for our customers to be able to pay, and one big one that we use a lot is eCheck.

“ECheck is great for our end users because they don’t have to mail us a check, we don’t have to process the check, and with eCheck we’re able to just process it immediately when we run the transaction on a month-to-month subscription basis. With Authorize.net the payments just work.”

Marcus Piazzisi, Founder of VIIRL Marketing added: “There are several benefits of accepting eChecks from our customers. First, the fees—it’s a lower cost solution. Second, it’s more secure. Finally, our customers really like using it. It’s easy to do and it integrates with all our payment options. Whatever we save on fees, we can put back into customer results.”

Why Authorize.net Works for Businesses

• Quick onboarding and integration
• Lower transaction fees than cards
• Secure ACH processing with fraud protection
• Supports both recurring and one-off payments

If you’re ready to simplify your payments, Authorize.net makes it easy. To learn more about how to make eCheck processing easy, secure, and cost-effective.
Learn more.

The post Beyond Paper: Why More Businesses Are Turning to eChecks appeared first on PaymentsJournal.

Recent research from CompoSecure and Capuchin Behavioural Science shows that issuing metal cards is an incredibly efficient way for banks and fintechs to acquire high-value customers, to encourage them to spend using the card (making it top of wallet) and to retain them. Today, the metal card is more popular and more in demand than ever among consumers worldwide. People are captivated by the aesthetics of these cards, the way they feel, their weight, and the distinctive sound they make.

Leveraging Metal Cards to Reinforce the Brand Among Broader Customer Segments

While metal cards were not originally aimed at wider customer groups, their issuance created a positive brand perception across broader customer segments. In today’s banking landscape, where new players continue to emerge, leading to the disintermediation and unbundling of financial services, the way a bank is perceived is arguably more important than ever. There are many ways to enhance this perception, and this research shows that one highly effective measure is including metal cards in the bank’s or fintech’s offerings.

Segmenting the Customer Base to Optimize the Uptake of Metal Cards

The research highlights specific customer segments that are particularly likely to embrace metal cards:

• Elites have considerable financial wealth, a higher social status, and refined interests such as social causes. They tend to prefer traditional banks. ‍
• Innovators are both Gen Z and Millennial customers who are drawn to lifestyle, technology, new trends, and innovation. They typically lean towards fintech providers. ‍
• Up and Coming are young, well-educated individuals (primarily Gen Z) who have already achieved significant professional success and are status-conscious. Sometimes referred to as HENRYs – High Earners, Not Rich Yet.

Immersing the Senses—the Sensory Power of Metal Cards

Compared to standard plastic cards, metal cards stand out by engaging 3 of our senses:

• They look different– sight
• They feel different – touch
• They sound different– hearing

Interestingly, the Elite, Innovator and Up and Coming segments place significantly more value on these sensory attributes than the general population.

Positioning the Metal Card to Maximize Its Impact

Compared to the general population, the aforementioned segments tend to value metal cards as “accessories.” They see the cards as symbols that communicate their values, lifestyle, identity, and status. Using a metal card becomes a form of self-expression. Interestingly, these segments prioritize experiences and emotional connections over mere functionality. It’s also important to note that these groups prefer the exclusivity of metal cards within their select group, reinforcing the successful strategy many issuers have used: offering metal cards (only) to carefully selected segments and/or pricing them with a (significant) premium compared to standard plastic cards.

Using the Right Cues When Communicating About Metal Cards

To truly captivate the Elite, Innovator and Up and Coming segments, issuers of metal cards should carefully consider the cues used in their communication. It’s important to create the impression that these cards are scarce, rare, premium, and unique. This will reinforce the FOMO (fear of missing out) effect and strengthen the sense of exclusivity. It’s also crucial to emphasize that metal cards are rare for a reason: they are (hand)crafted through long and complex processes that require expert skills, advanced technology, and specialized equipment, using rare materials.

Summary

This research highlights how today, metal cards are more popular and more in demand than ever they have been. Consumers around the world are captivated by the aesthetics of these cards, the way they feel, their weight, and the distinctive sound they make. Banks and fintechs can leverage metal cards not only to improve acquisition, spending, and retention among selected segments, but also to enhance the overall brand perception among all customer segments.

The post Leveraging Metal Cards to Attract High-Value Customers appeared first on PaymentsJournal.

Too often, those most in need of assistance are the last to receive it—delays compounded by manual processes and outdated payment methods that many nonprofits still rely on. To modernize and speed up the delivery of aid, many organizations are turning to a simple yet powerful solution: gift cards.

In particular, digital gift cards offer a faster, more flexible, and more dignified alternative to traditional forms of aid. Moreover, the benefits extend beyond recipients—digital gift cards provide nonprofits with greater scalability, customization, and efficiency, enabling them to better serve their communities.

Removing the Barriers to Usage

Traditionally, nonprofits have relied on mechanisms like paper vouchers, checks, or physical supplies to deliver aid. However, these methods are often slow to distribute and difficult to track.

Additionally, these logistically complex operations are frequently performed manually, increasing the likelihood of errors or even fraud.

Traditional payment types such as checks can also be misaligned with recipients’ needs, as they often require additional steps—like depositing a check—before the aid can be used. Underbanked individuals, especially, may face fees or challenges in cashing checks, further reducing accessibility.

This lack of flexibility in conventional payment formats can undermine the effectiveness of even the most well-intentioned aid. In contrast, gift cards can be game changer for nonprofits: they are simple to issue, easy to track, and immediately usable.

“When you’re in need, you might need something immediately, like when you look at a natural disaster or even theft or fires,” said Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research. “When you give a gift card, they are instantly active and ready to use, so there’s no barrier to usage.”

“Checks have a barrier to usage and cash is easily lost, although there is still the same risk when you talk about a physical gift card,” he said. “This is why there needs to be an equilibrium where you offer both physical and digital gift cards.”

The Digital Advantage

Although there are occasions when a physical gift card is better suited, digital gift cards offer substantial advantages for nonprofit use cases.

One of the most important benefits is speed—a digital gift card can reach its intended recipient instantly via email, SMS, or other messaging platforms. This immediacy can make a profound difference for individuals facing urgent needs, such as victims of abuse, natural disasters, or financial hardship who require immediate aid.

Like all gift cards, recipients have the flexibility to spend their assistance on the items they consider most essential, such as groceries, clothing, or other staple products. This autonomy provides individuals in difficult circumstances with a sense of dignity and independence.

Digital gift cards can be even more effective in many situations, as they can be easily added to digital wallets or used in e-commerce purchases—often without the need for a bank account. However, recipients must still have a means to access the digital card.

“This is where the digital/physical equilibrium is also interesting, because access with digital is sometimes an issue,” Hirschfield said. “Sometimes you need physical, but it’s that balance of how do you access the person in the right way, and that’s what you can do with gift cards.”

“You can access someone who, ‘Hey, I’ve lost everything. I don’t even have my phone,’—here’s a physical gift card,” he said. “Or ‘I’m in need, but I do have my phone,’ so here’s a digital gift card and go get what you need. That’s the advantage of it, it’s multi-form factor—it gets the person what they need, when they need it, and how they need it.”

Tailoring the Give

While gift cards offer significant advantages for recipients, they also provide substantial benefits for nonprofits, especially with delivered digitally.

First, digital cards are easier to distribute in bulk, allowing nonprofits to efficiently scale their programs from local campaigns to nationwide initiatives. Second, they can be customized with the organization’s branding, helping to reinforce its identity and increase campaign visibility.

Third, digital gift cards enable real-time tracking and reporting, providing valuable insights into delivery, redemption, and usage patterns. And because there’s no need for storage, shipping, or physical handling, they reduce administrative workload and costs.

Over time, these efficiencies can add up to major savings and greater impact.

“One thing that you always see are the ratings on nonprofits on how well they’re using their money—are they using it administratively?” Hirschfield said. “What a gift card does is twofold. It’s easily trackable and that’s where in the digital format, you can know that you’ve given out this money.”

“You can also in these types of situations claw the money back if it hasn’t been used,” he said. “There’s opportunity to say, ‘We’re going to give you what you need, but if you don’t need it, we’re going to take it back and give it to someone else who needs it.’ They’re going to utilize their money in the most efficient and responsible way possible, which is their duty as a nonprofit.”

In addition to better serving the community, the customization capabilities that come with offering tailored gift card solutions can help nonprofits move from offering one-size-fits-all aid to delivering personalized support.

Another key benefit of digital gift cards is their payments flexibility. Nonprofits maintain control by setting parameters on how cards are used—for example, limiting purchases to essential items or to specific partner brands.

“Instead of just handing out cash and cash equivalents, sometimes an open loop gift card might be the way to go—here’s a Visa or Mastercard card, go use it for whatever you need,” Hirschfield said. “But it might be you’re in need of toiletries and supplies, so here’s a gift card to a big-box store or a drugstore.”

“It tailors the give to what the recipient needs,” he said. “That’s something that gift cards can do that cash and cash equivalents cannot do. That way, the nonprofit can say when we wanted to give that aid, we gave it specifically to what was needed. It was to hit the mission and not to just give money away.”

Living Up to the Mission

Much like consumer payments, the convenience of digital payments has accelerated the adoption of digital-first relief efforts—an approach that will likely soon become the norm.

“With digital, you can turn it on in zero time,” Hirschfield said. “Essentially, you can show up with a computer or a phone if you’re the nonprofit and start distributing that aid immediately, and you can also do it in bulk. You can’t write checks in bulk and give them away immediately; they have to be distributed.”

The speed and efficiency of gift cards position them to continue evolving as a trusted channel for financial inclusion and emergency response. Once nonprofits and charitable organizations begin collecting data from digital prepaid products, they can use these insights to refine their campaigns, streamline operations, and amplify their impact.

As these organizations look for solutions to integrate this strategic payments tool, they should consider platforms such as Prezzee, which can support every aspect of digital gift card management.

“There is technology behind it that can say, ‘Here’s everyone who has registered, everyone’s going to have $50 to get to a grocery store to get that immediate food need right away.’” Hirschfield said. “Then it may be, ‘What do you need secondarily so they can be tracked? We’re going to get you started—no questions asked—but then that secondary is, ‘Are you using the aid that we’ve given you? Do you need more aid?’”

“That can all be tracked. That way, the people who are in the most need can get the most help and the people who aren’t taking advantage—for whatever reason—they can take away that resource,” he said. “That’s where the digital aspect comes in, to create another layer of accountability on making sure that the nonprofit is living up to its mission in the most financially responsible way.”

The post How Nonprofits Can Leverage Digital Gift Cards to Help Those in Need appeared first on PaymentsJournal.

Once a humble piece of plastic tied to a single merchant, gift cards have evolved into flexible ecosystems that sit at the forefront of many brands. A major driver of this transformation has been digital gift cards, which have reshaped the way the industry views prepaid products.

Today, gift cards are not only central to loyalty programs and employee engagement efforts but also remain consumers’ go-to choice for gifting. Yet, the evolution of the gift card industry is far from over. In fact, 2026 is shaping up to be a pivotal year for sustaining the continued momentum of this dynamic market.

A Level of Stability

One of the challenges shoppers face is a macroeconomic environment where inflation and interest rates have tightened budgets and increased credit card debt. As a result, many consumers are becoming more tactical in their shopping and payment decisions.

“With the macroeconomic environment, gift cards offer a sense of stability,” said Jordan Hirschfield, Director of Prepaid at Javelin Strategy and Research. “They are—and broader than the term gift cards—stored value, the ability to have that money that’s either budgeted out or stable. The price of an item can change, but the value of that gift card is going to be the same, so that really creates a level of stability.”

Beyond economic conditions, another driver of growth is the rise of e-commerce and the adoption of digital payment methods. This trend has fueled widespread use of mobile wallets and stored-value accounts across retailers of all sizes.

Additionally, there has been a substantial increase in the corporate use of gift cards. More employers are incorporating prepaid products into their employee appreciation programs, offering gift cards as bonuses, holiday gifts, or rewards.

Prepaid rewards can make a meaningful impact with employees for the same reason gift cards have become the most popular gift overall: they provide the recipient with the flexibility to choose what they truly want.

What’s more, gift cards have also become a common way for consumers to treat themselves.

“When I talk about stored value—and this goes to really the umbrella over everything—it’s that shift in mentality from gift cards and gifting to self-use,” Hirschfield said. “Self-use is on the rise due to things like incentives, which is I’m going to take advantage of a consumer offer. I might buy my tires because I’m getting a $100 gift card back, and that’s a self-use choice.”

Loading Up the Account

The evolution of the gift card industry—particularly the rise of stored-value accounts with self-use potential—is impacting consumer behavior, even when shoppers may not fully realize it.

“Often, people don’t put loading up their account for their favorite coffee shop or fast-food restaurant in the gift card bucket,” Hirschfield said. “Food services is big into this because when you’re giving your kids a budget where, ‘You want to go get your chicken sandwich and your milkshake, here’s how much you get a month,’ and it’s all in their stored-value account, that is all in the realm of what has been considered gift cards.”

“It’s moving to stored value, and that hits at that self-use motivation and it all ties into things that affect behaviors,” he said. “It affects reward behavior and loyalty behavior. The more loyalty points I get, the more rewards I get, the more I can take a part in that and maybe get that extra free item.”

These loyalty-driven features boost engagement, as many consumers are first introduced to new brands through gift cards. Additionally, recipients often sign up for loyalty programs and maintain ongoing interactions with an issuing organization after using a gift card.

Perhaps more importantly, consumers frequently use gift cards to make larger purchases, spending beyond the card’s initial value.

All these factors are not only influencing consumer behavior but also transforming how organizations approach and leverage gift cards.

“Companies were working to say, ‘We’ll get a little bit of breakage, we’ll take those pennies that are left over and we’ll count that as revenue.’” Hirschfield said. “That’s not the target of the gift card industry anymore. Now it’s reload, it’s consistent turnover of that money and reload of that money to increase volume and increase spend, those are the important things.”

The Digital Paradigm

Another factor shifting the perception of gift cards is the rise of digital gift cards. While some buyers may still prefer a physical card for certain occasions, digital gift cards are gaining popularity for several reasons.

First, digital gift cards are more convenient to purchase and use. They can be sent instantly via email, text, or other platforms, making them easy to give and receive.

They also offer greater flexibility because they can be integrated with mobile wallets and used either in-store or online. In addition, they allow for personalization, with options to include messages, themes, music, or videos.

Digital gift cards also give consumers more control. Users can swap, split, and manage balances across multiple brands in real-time, all while benefiting from enhanced security features.

Overall, digital gift cards present a powerful opportunity for businesses to build stronger, longer-term relationships with their customers.

“When that account is tied to you, you can check your balance,” Hirschfield said. “But also, it ties into that data collection opportunity where it’s mutually beneficial in loyalty and rewards. It’s making sure that you’re getting the items that you want. ‘Hey, would you like to repeat your order, and would you like to use your gift card balance to pay for that?’ Those are all things that come from that digital.”

Understanding the Value Chain

The shift in consumer preferences, coupled with advances in technology, suggests that digital gift cards are poised to capture a larger share of the gift card market next year. At the same time, the broader prepaid market continues to experience strong growth.

“Growth is really strong, we have it at 7.5% to 8% compounded growth rate—others in the industry have very similar numbers—and that leaves a lot of opportunity to go beyond that,” Hirschfield said. “Some segments of the industry are shrinking, some are growing, but it’s really a matter of understanding where you sit in that value chain of gifting versus self-use.”

Once brands understand how to strategically leverage digital gift cards, they will look to companies like Prezzee, which are driving the shift toward a more digital experience.

“To me, it’s about understanding that marketplace of who the user is and who the buyer is,” Hirschfield said. “In the end, everyone’s a self-user when they get the card, but how do you load that value is the first step in understanding that. That—to me—is a driving trend of 2026.”

The post How the Gift Card Revolution Will Accelerate Next Year appeared first on PaymentsJournal.

As the 2025 holiday season approaches, a convergence of payments technology—from embedded financial services to agentic AI—will influence consumer shopping behavior. Adobe for Business projects point-of-sale financing transactions will value $1 billion on Cyber Monday alone. Additionally, shoppers will use mobile payments for 56.1% of holiday sales, marking the first time mobile purchases exceed half of overall spending.^[i] Are your merchants set up for success?

Let’s look at a use case. A merchant offers flexible financing options to a customer shopping for a smart TV at checkout. The customer chooses a 6-month installment plan, receives instant approval, and finishes the purchase directly on the merchant’s website or within their app. The shopper gains immediate access to financing, making the high-ticket holiday purchase more manageable.

For the retailer, embedding lending means higher conversion rates, reduced cart abandonment, and increased average order sales. The ISV benefits through monetizing the lending feature through a referral fee or revenue-share model while creating more value for its merchants. Everyone in this scenario benefits.

What to Look for in a Lending Solution

So, how can ISVs implement financing options in their software? They can integrate a fully headless API solution to gain maximum flexibility in customizing the user experience. This approach enables ISVs to tailor the financing flow to their brand’s specific needs, differentiate themselves in the market, and accelerate their speed to market.

Beyond providing a holistic software solution, ISVs need to consider a solution that supports how consumers want to pay, including mobile terminals, self-checkout kiosks, and unattended payment methods—all optimized for holiday traffic and offering financing options.

Software companies should seek a robust suite of RESTful APIs that supports every stage of the point-of-sale (POS) lending lifecycle, offering granular control and customization. Alongside advanced API capabilities, they should prioritize clear documentation, strong developer resources, and a sandbox environment that streamlines integration and reduces friction.

Bringing it All Together – U.S. Bank | Elavon

ISVs thrive with a payments partner that goes beyond basic acceptance. In a crowded market, offering end-to-end payments technology—from checkout to financing—helps your merchants boost revenue and build stronger customer relationships. When shaping your long-term strategy, choose a proven partner that supports your growth and embeds value throughout the payments experience.

Explore what’s possible with our award-winning APIs^[ii], a comprehensive ecosystem of integrated software solutions, and Avvance™, our point-of-sale lending platform designed to streamline the consumer journey.

Ready to expand your capabilities? Backed by the strength and stability of U.S. Bank, we bring global payments expertise so you can focus on delivering more value to your customers. To connect with us, simply fill out our short form.

[i] Adobe for Business
[ii] 2024 API Awards

The post Empowering Merchants with Embedded Lending: How ISVs Can Optimize Revenue This Holiday Season appeared first on PaymentsJournal.

A roaring fireplace radiates warmth and light while a snowstorm rages outside—a classic holiday scene. But these days, it’s just as likely to have been created by artificial intelligence. Perhaps Santa and Mrs. Claus sit in armchairs beside the fire—or perhaps not. It’s all up to the content creator.

In today’s hyperconnected world, even the age-old traditions of the season are being reimagined through technology, updated for the modern era. The same is true for gift giving. Technology has transformed the timeless custom of sharing abundance with loved ones. For instance, gift cards let givers personalize and guide their presents without dictating them—preserving the spirit of generosity while bringing it into the digital age.

Cutting-edge technology is helping keep these traditions alive, fresh, and relevant for generations to come. One company, Prezzee, has been at the forefront of this evolution, creating dynamic, personalized gift cards—even ones that can bring Santa right into someone’s home.

Gift Cards: A Holiday Legacy

Prepaid cards have become a cornerstone of holiday gift giving. Data consistently shows that gift cards are the number one request from recipients, representing nearly half of total holiday spend. Research from the Blackhawk Network found that during the 2024 holiday season, consumers received an average of three gift cards, with a combined value of just over $200.

The versatility of these cards is evident in the repeat business they generate. Consumers who buy gift cards one year are overwhelmingly likely to return to that same option year after year. Javelin Strategy & Research has found that among people who bought a holiday gift card last year, 96% are likely or definitely going to buy a gift card again for the holidays this year. And the vast majority of those are going to spend a similar amount or even more money this time around.

Within the gift card landscape, electronic versions are gaining ground—driven by the convenience of online delivery and the flexibility they offer. Consumers favor eGift cards for their personalization options, from custom messaging and artwork to tailored value amounts for each recipient. Card processing firms also appreciate their versatility and the wide range of merchants and products they can be used with.

Another factor driving their popularity is how easily they meet diverse gifting needs. Have a family member overseas for the holidays? An electronic card makes it simple. Need a last-minute gift for someone you forgot to add to your list? A digital card can be purchased and delivered in minutes.

“It’s easy to send at any point, especially when you’re not going to be with the person for a physical gift exchange,” said Jordan Hirschfield, Director of Prepaid at Javelin. “You can buy one in U.S. dollars and send it in U.S. dollars, even from overseas. And there’s a security level to sending it electronically versus putting a gift card in the mail.”

“It also works for retailers to have that option when inventories run low, prices are too high and people aren’t quite sure what they want to get someone,” he added. “They can always send that digital gift card as either an alternative gift or as an additional gift.”

AI Has Changed the Season

Just as it’s being used to create images for the holiday season, AI is also adding color to the rise of gift cards, deepening the emotional connection and convenience for buyers and sellers alike. For electronic gift cards, generative AI can create custom content and artwork that feels personal and unique to the recipient.

Once again, cutting-edge technology of the kind that Prezzee is creating helps deliver the timeless message of the holiday season—connection, creativity, and care. Prezzee has worked to bring together the best of tradition and technology by making personalized eGifting easier, offering eGift cards that combine a personal video or voice message with a greeting card.

With Prezzee, card shoppers can use AI to craft their message, ensuring each note feels personal and perfectly suited to the recipient. Custom artwork can also be generated for the card, transforming digital gifts into something rich with emotional resonance. AI can even create tailored rewards for both the purchaser and the recipient. Retailers can get innovative and use AI to add new elements to their traditional holiday approaches, as Prezzee demonstrated last year.

That was when Prezzee’s Magical Messages Campaign drew on all these advanced technologies, allowing families to send personalized videos from Santa himself. A hologram-like image of St. Nick delivered the message, which could include the recipient’s name, age, and hometown. The messages could be accompanied by Santa’s Magical Smart eGift Cards. The campaign highlighted how cutting-edge tools can help recreate classic holiday memories.

This Years’s AI Experiences at Prezzee

This year, Prezzee is bringing holiday magic to life through two unique AI-powered experiences One is for consumers and one is for businesses, but both are designed to make gifting more personal, memorable, and fun.

For the B2C audience, people can nominate friends or family members for Santa’s official Nice List — and surprise them with a personalized video straight from the North Pole. Individuals can submit the name of someone special to them, along with theirage, hometown, a photo, and why they deserve a spot on Santa’s Nice List.

Santa will respond with an AI-created  personalized video message, calling the person by name and congratulating them for making the Nice List. The experience can also include Santa’s Magical Smart eGift Card, a Prezzee gift card that delivers a present along with that holiday joy.

For organizations, Prezzee has introduced AI Carollers, a playful, shareable experience that transforms a workplace team into virtual singers. Users simply upload up to four team members’ photos and choose a festive song for the group to “perform.” AI brings it all to life in a custom, animated video you can share with your entire team. Again, the giver can also add a Prezzee eGift Card.

Together, these experiences showcase how Prezzee is using AI to make digital gifting and the entire holiday season more interactive, emotional, and delightfully personal — for both consumers and businesses.

Prezzee has long combined fintech innovation with customer experience to create unique experiences that especially resonate throughout the holiday season. To find out how Prezzee can transform your holidays, click here.

The post Deck the Holograms: How AI Is Redefining Holiday Magic appeared first on PaymentsJournal.

Student loan repayments have followed an erratic path since March 2020. Payments were suspended at the start of the pandemic, resumed in October 2023, and many borrowers received forgiveness under the Income Based Repayment plan before that program was suspended again in July 2025.

The regulatory whiplash has created predictable consequences. As of April 5, 8 million federal student loan borrowers were 90 days or more past due on their payments, according to TransUnion. Nearly a third of all borrowers are now delinquent, and credit scores among student borrowers have dropped by an average of 60 points.

The damage extends beyond individual credit reports. Lenders and servicers face mounting operational costs from increased customer service volume, technical updates to payment systems, and compliance overhead. Call centers struggle with volume while navigating unclear guidance that puts their reputation at risk regardless of whether they’re perceived as too lenient or too aggressive.

“Lenders need to be very cautious about the space because a lot of these payments that have been suppressed since COVID are coming back to being collected,” said Brian Riley, Director of Credit at Javelin Strategy & Research. “All the judgments they’ve made in lending have used an ability to repay rule, but now these are back on their files and actively being collected. It very well could displace a lot of the good decisions that were made before by the realities of student debt.”

The Communication Gap

Traditional outreach methods fail with Gen Z and Millennial borrowers. Direct mail goes unopened. Phone calls go unanswered. These borrowers live on their phones, but not in their voicemail.

What does work? Mobile notifications, SMS, and email. According to the 2025 ACI Speedpay^® Pulse Report, more than 70% of Gen Z and Millennial consumers prefer receiving billing reminders via mobile notification or text. More than half say they’re more likely to pay on time when prompted digitally.

The preference goes beyond communication channels. These borrowers expect self-service tools that allow them to make urgent payments, update account information, and adjust repayment plans without waiting on hold or explaining their situation to a representative.

“They don’t feel the need to interact with somebody,” said Dylan Lerner, Senior Analyst of Digital Banking at Javelin Strategy & Research. “They like being able to make a payment on their own time, in their own way. And digital wallets are one way to do that.”

Why Digital Wallets Matter

More than a third of consumers now use mobile wallets to store nonpayment items such as digital tickets, boarding passes, and loyalty cards, according to ACI Worldwide research. Most consumers say they would stop using a provider that doesn’t support digital wallet options.

The trend is particularly pronounced among younger consumers at the center of the student loan crisis. They grew up storing items in digital wallets and using them for payments across multiple services. The behavior is already established.

ACI Walletron^® has integrated with Google Wallet, Apple Wallet, and Samsung Wallet, managing more than 10 billion bills across these platforms. The digital passes provide one tap access to payment portals and use push notifications to deliver timely reminders about due dates.

The functionality extends beyond simple payment reminders. Lerner notes that digital wallet integration allows for more flexible payment options, including micropayment adjustments that borrowers can schedule according to their own cash flow cycles. Traditional loan servicer payment portals often limit borrowers to predetermined payment amounts and schedules.

Building in Flexibility: Helping Borrowers Take Control

Payment deferral features address a practical reality: borrowers sometimes need breathing room. The ability to request short-term deferrals through self-service tools reduces the friction of financial hardship and also maximizes the potential for collection.

“That’s where Delay My Payment becomes a valuable tool,” said Darcy Locke, SVP, Head of Sales for ACI Speedpay. “This self-service feature allows borrowers to request a short-term deferral within servicer defined parameters without needing to call an agent, wait on hold, or explain their financial hardship.” If you want to learn more, click to read her entire blog post.

For servicers, deferral requests provide valuable information. When a borrower proactively requests a payment delay, it signals financial stress before an account becomes delinquent. That early warning creates an opportunity for engagement rather than collection. This is a significant distinction and gives the loan provider a chance to actually deepen their relationship with the borrower.

“A student loan account holder may otherwise not have access to their servicer,” said Lerner. “When the biller receives information about a payment delay or hardship, it opens a window into what the borrower is experiencing. That creates an opportunity to engage more meaningfully, offer relevant support, and become a trusted resource in their financial journey.”

The engagement opportunity matters because it helps borrowers protect their credit and build financial confidence. When a borrower can navigate a temporary hardship through intuitive self-service tools, they’re more likely to stay on track with payments, avoid delinquency, and preserve their credit score. For younger borrowers, these moments can lay the foundation for long-term financial health.

The Path Forward

The student loan repayment crisis will not be resolved quickly. Regulatory uncertainty will persist, borrower confusion will continue, and servicers will face ongoing operational pressures. Digital tools that meet borrowers where they already are, on the platforms they already use, with the flexibility they need, represent the most practical path forward. This is proving to be a gamechanger.

The 2025 ACI Speedpay^® Pulse Report provides additional insights on consumer billing and payment trends across industries.

About the Sources:

Brian Riley, Director of Credit, Javelin Strategy & Research

Dylan Lerner, Senior Analyst of Digital Banking, Javelin Strategy & Research

Darcy Locke, Head of ACI Consumer Finance

References:

1. TransUnion student loan delinquency data (April 2025)
2. ACI Speedpay Pulse Report 2025

© Copyright ACI Worldwide, Inc. 2025

ACI, ACI Worldwide, ACI Payments, Inc., ACI Pay, Speedpay and all ACI product/solution names are trademarks or registered trademarks of ACI Worldwide, Inc., or one of its subsidiaries, in the United States, other countries or both. Other parties’ trademarks referenced are the property of their respective owners.

The post How Digital Wallets Could be the Answer to the Student Loan Repayment Crisis  appeared first on PaymentsJournal.

Although there have been monumental advances in building financial inclusion worldwide in recent years, substantial gaps remain. For instance, across the Americas, the financial infrastructures in the United States and Latin America have pronounced differences.

Some of the most important distinctions between these economies stem from technical barriers within business operations and products—barriers that often hinder companies’ ability to deliver inclusive experiences. Achieving full technical inclusion requires organizations to provide products and services to all members of society on equal terms, regardless of age, gender, location, or abilities.

To better understand the current landscape, Galileo created its Technical Inclusion Index, a benchmark study based on insights from financial and tech leaders across Latin America and the U.S. Notably, the survey found that deficiencies in technical inclusion can have tangible impacts on companies. It also revealed a roadmap that organizations can follow to tap into these underserved markets.

The Fragmented Landscape

There have been several notable impacts resulting from efforts toward technical inclusion across the Americas. Most prominently, roughly half of respondents reported that their organizations have lost 10% or more in potential business due to the lack of truly inclusive technology.

Additionally, around a quarter of respondents said their systems are not equipped to handle increased traffic during peak seasonal events, limiting their ability to deliver an inclusive experience. Nearly as many also reported that their organizations have delayed or cancelled 10 or more projects in the past year—initiatives that could have reached new customer segments.

For most leaders surveyed, the inability to provide inclusive products and services stems largely from technological shortcomings. Encouragingly, about 69% of respondents said that updating systems to better serve a broader market is a high priority for their organization.

However, there are some regional variations in how organizations are turning these intentions into action. When asked how likely their company was to prioritize inclusion in future modernization efforts, about three-quarters of U.S. leaders said it was likely or very likely—compared to just 69% of leaders in Latin America.

The Three Barriers

Despite these nuances, most organizations recognize that technology is the key to delivering a better customer experience. However, three main barriers often prevent companies from achieving full technological inclusion.

First, data siloes and the lack of interoperability between systems are major obstacles. Many organizations still relying on legacy technology have been forced to integrate multiple systems to meet customer expectations. While this may serve as a short-term stopgap, it ultimately leads to a disjointed experience for both the company and its customers.

As these systems and software are layered on top of one another, another barrier to inclusion emerges: incompatibilities between networks that often require manual workarounds.

Finally, security concerns can often inhibit efforts to make services more accessible. Although maintaining secure processes is critical to technical inclusion, balancing multi-device access with security requirements is frequently a struggle for many organizations.

One overarching pain point is how costly and cumbersome existing legacy systems are to maintain, even when regional variations come into play.

For example, U.S. companies typically spend more to maintain their legacy systems, while organizations in Latin America often feel the impacts of these systems more acutely. According to the Galileo study, 75% of Latin American leaders said their legacy systems limit inclusive delivery.

The business impacts of these issues can mount quickly. A lack of technical inclusion is causing organizations to lose business, postpone innovation projects, and deliver subpar customer experiences during peak shopping events.

The Modernization Imperative

Both Latin American and U.S. leaders now view modernization as a critical imperative. To achieve it, organizations must focus on four interconnected areas.

Businesses need to modernize their infrastructure and move beyond legacy systems that hinder scalability. They must break down siloes and integrate their data to gain full visibility into operations and their customer behavior.

At the same time, organizations must strengthen security—protecting customers without introducing unnecessary friction. And just as importantly, they must foster a culture that embraces technological change and promotes digital inclusion across the workforce.

Building and maintaining a system capable of achieving these goals is no simple task. To truly eliminate siloes, the system must be cloud-native. The implementation and upkeep of this type of system means that it must also be developer friendly. Finally, compliance with regional regulations and the security of users must remain at the core of the design.

Impacting Future Business Outcomes

Although these systems offer significant advantages once installed, the time and expense required for implementation remain major concerns for many organizations. As a result, businesses are often seeking solutions that can integrate seamlessly without requiring a full overhaul of their existing technology.

This is why many companies are turning to configurable platforms like Galileo’s, which allow both new and established companies to build and deliver innovative financial services. Using modern, open APIs, these platforms can connect various products to address a wide range of use cases.

Taking the initiative to implement a cloud-native infrastructure can deliver dramatic benefits for organizations—enhancing the customer experience, improving operational efficiency, and unlocking new revenue streams.

“These aren’t just tech things that happen in an IT vacuum, they are directly related to future business outcomes,” said Matthew Gaughan, Payments Analyst at Javelin Strategy & Research. said. “Making that clear is important, so leaders and decision-makers recognize the benefits of these different parts of the technology stack. They’re part of a broader modernization strategy, and they could translate into real returns and help you increase operational efficiency.”

The post How Fostering Technical Inclusion Pays Significant Dividends appeared first on PaymentsJournal.

Fraud has long been a constant in the financial services industry—for the same reason the notorious bank robber Willie Sutton targeted it: “That’s where the money is.” Yet many financial institutions remain reluctant to invest in the kinds of solutions that can truly counter these threats.

As technology continues to evolve—both for banks and for criminals—the key to combating fraud lies in taking a holistic, intelligent, and sustained approach. Criminals will not stop refining their methods, and financial institutions must respond in kind or risk losing not only money but also the trust and loyalty of their customers.

Where Things Stand

Credit and debit card fraud remain the top concerns for most financial institutions. However, identity fraud may pose an even greater threat going forward. Javelin Strategy & Research reported a sharp rise in identity fraud in 2024, with total losses in the U.S. reaching $27.2 billion, up from $22.8 billion in 2023.

Within this category, account takeover (ATO) fraud may represent the biggest threat on the horizon. Annual losses from ATO are currently estimated at nearly $16 billion, according to Javelin, affecting roughly 5 million consumers each year. Criminals are targeting a wide range of accounts—including checking and credit accounts, email, digital wallets, mobile phones, and social media. Weak authentication measures, such as optional multi-factor authentication and lenient password policies, have exacerbated the problem.

“People continue to use and reuse their login credentials across multiple accounts, both financial and nonfinancial,” said Suzanne Sando, Lead Analyst of Fraud Management at Javelin Strategy & Research. “That’s not the victim’s fault, but it is an opportunity for banks to look into their account takeover protections and make better decisions based on some of the account actions that criminals are taking.

“With ATO, criminals don’t have to go through the Know Your Customer and identity verification that they do for new account fraud,” she said. “All they have to do is crack the credentials, change a few pieces of critical information, and then they’re pretty much able to evade detection until the customer notices they’ve been locked out of their account.”

Current Defenses Are Not Strong Enough

The growing losses from fraudulent attacks suggest that current prevention methods are not strong enough. Nearly half of the financial institutions surveyed allocated less than $50,000 to fraud, authentication, and identity verification solutions. Javelin’s research reveals that many FIs not only lack the necessary tools to fight fraud but also, in large numbers, have no plans to increase their investment in this area.

For example, in 2023, fewer than a third of organizations used an authorized push payment fraud solution, and only 18% planned to adopt one in the future. Tools designed to address synthetic ID fraud, chargeback fraud, and peer-to-peer fraud are used by even fewer organizations. Additionally, three-quarters of organizations aren’t using decision engine tools—critical systems for combating fraud effectively and at scale.

“A decision engine takes in a bunch of different signals and behaviors and data points, and it spits out a decision on whether or not you should allow a transaction or a particular account action to happen,” Sando said. “For example, it can use inputs like behavioral biometrics, which are the way you type, the way you hold your phone, device intelligence. ‘Is this normally Suzanne’s iPhone, and is she using the same operating system?’”

The Solutions Are Available

Effective fraud-fighting tools are available to financial institutions, even those with restrictive budgets. The key is to be strategic. Many of the most innovative fraud prevention tools perform best when seamlessly integrated, rather than operating in the siloed environments that FIs often fall back on.

Fraud detection and prevention technology operates on multiple levels. When these tools work in tandem, they can provide a comprehensive view of a user and a real-time assessment of their risk profile.

Risk-based decision engines that draw on multiple data sources are far better equipped to manage complex processes than relying on a single internal system. These engines work dynamically with data—such as biometrics—to automate decisions related to detecting attacks. That capability provides FIs with greater confidence in the actions they take regarding individual users and transactions.

This is truly an area where there is strength in numbers. Shared industry data, compiled from many sources, enables more accurate identification of suspicious behaviors. By contrast, when FIs rely solely on their internal data, their view of a consumer’s risk level is severely limited.

Data privacy must always be handled with the utmost care and consideration, which is why many FIs prefer to keep information internal. However, a secure data consortium can reveal critical fraud intelligence, granting FIs access to a wealth of information that ultimately supports better-informed decisions. In a rapidly changing fraud landscape, this level of industry collaboration is essential.

The Growing Role of AI

Artificial intelligence is already enhancing these capabilities. AI-powered solutions can sift through vast amounts of data to identify telling patterns, while machine learning handles much of the heavy lifting in trend and data analysis—supporting a risk management and decision-making process that stays both relevant and up to date.

“AI is a more precise way of looking for some of these patterns and behaviors that the human eye cannot detect,” said Sando. “We can only do so much as we look through someone’s transactions. Let’s say there’s a bot attack. You may notice some characteristics of that that are in line with fraud, but AI can recognize patterns in a way that we cannot.”

What FIs Need from their Partners

It’s critical that fraud detection partners are able to meet financial institutions where they are. Most financial institutions already have complex, highly customized tech stacks, so any fraud prevention solutions need to work with the existing technology. This requires a fraud partner who is flexible and can adapt to each FI’s unique needs.

FIs also need partners who are visible and accessible. Javelin’s research found that quality face time with experts is crucial, with more than three-quarters of respondents saying they want knowledgeable and trustworthy collaborators. These institutions place high value on in-person interactions with vendors before adopting new technology.

Javelin also found that the top priority for businesses concerned about financial fraud is protecting their brand. Since customers are willing to switch providers if they fall victim to fraud, a bank’s reputation can be its most important asset.

“You are more likely to read a bad review about someone than a good review,” Sando said. “If one fraud victim has a bad experience and they start publicizing it, that’s something a bank wants to prevent. Trust is such a basic part of the foundation of a relationship between a customer and a bank. If you don’t have that trust, that person can walk at any time. And we’re seeing growing numbers of fraud victims growing who are willing to close their accounts and move somewhere else.”

The post The Big-Picture Approach to Fighting Bank Fraud appeared first on PaymentsJournal.

Emerging rails like real-time payments, stablecoins, and central bank digital currencies have quickly created a fragmented payments ecosystem. This environment presents both an opportunity and a challenge for digital wallet companies: they could become the nexus for all payment types if they can build mechanisms to connect disparate sources into a single solution. 

Although digital wallets have gained solid momentum in peer-to-peer and e-commerce spaces, they are not yet an all-encompassing solution. To achieve broader adoption, digital wallets must incorporate near-field communication (NFC) technology to enable account-to-account (A2A) payments in physical stores. 

As IDEMIA highlights in its whitepaper, From One Click to One Tap to Pay: How Next-Generation Digital Wallets are Unlocking In-Store Account-to-Account Payments with NFC, once digital wallets adopt this technology, they can become the next big evolution in the payments landscape. 

Finding the Middle Ground 

As traditional payment types like cash and checks have steadily declined, an increasing array of alternatives have emerged in their place.  

Cards remain the most predominant payment type, but real-time payments, mobile money systems and CBDCs have all achieved varying degrees of consumer adoption and merchant acceptance. As alternative payment methods gain traction, digital wallet providers are under pressure to innovate and differentiate themselves and adopt new solutions. 

“Digital wallets leverage payment methods such as real-time account-to-account payments, which rely on their own dedicated rails,” said Eric Lassouaoui, Head of Digital Payment Product and Solution Architecture at IDEMIA.  

“Now, they have reached a stage where they are positioning themselves at par with rails such as cards.” he said. 

This convergence of factors has left many digital wallet providers scrambling to find a middle ground between the payment rails they have implemented to attract consumers and the most efficient, cost-effective ways to drive transactions. 

Fragmentation and Interoperability 

Although many digital wallet providers are struggling to navigate the evolving payments landscape, the technology they need is already within reach. Digital wallets have emerged as the primary front-end solution to connect and converge these payments rails.  

The effectiveness of digital wallet technology is clear from the sheer number of wallets that have launched—and the diverse use cases they now serve.  

This landscape includes big tech wallets from Apple and Google, as well as all-in-one super apps like WeChat Pay and Grab. There are also retail-specific digital wallets, such as those from PayPal, Amazon, and Starbucks. In the financial services sector, banks have introduced their own solutions, including Zelle and Paze, while card networks have issued wallets such as Click to Pay. 

Notably, some of the most successful digital wallets globally are those designed with domestic markets in mind—for example, Spain’s Bizum and Brazil’s Pix. 

“We can see that in Brazil, with Pix, they have already been able to demonstrate for the past few years the capability to grab a big chunk of payment transactions—and they are even now trying to create more cross-border payments.” Eric Lassouaoui said. 

The success of Pix and India’s United Payments Interface (UPI) has prompted many other regions to explore their own digital wallet solutions. However, this regional approach has also resulted in greater fragmentation across the sector. 

“We already see an emergence of many wallets in Europe, and in many countries,” Lassouaoui said. “Several entities have been also already initiating this work with Bizum in Spain and Blik in Poland. There will definitely be a challenge moving forward in regard to the interoperability of those different wallets. That’s going to be a clear, key aspect and especially in Europe.” 

In-Store and Proximity 

Amid these challenges lies a significant opportunity for digital wallet providers. Digital wallets already account for roughly half of all e-commerce transactions, yet only about 30% of point-of-sale (POS) transactions are conducted through them. 

Since their greatest growth potential is in the in-store experience, digital wallets must incorporate NFC technology to enable single-tap experiences, account-based payments at physical points of sale.  

There are already solutions gaining traction with this model, solutions like Spain’s Bizum and Brazil’s Pix are now moving beyond peer-to-peer transactions to support contactless, in-store payments through NFC. Similarly, PayPal has introduced a contactless wallet in Germany designed for in-store shopping. 

The rise of NFC-powered payments has been fueled by the widespread availability of the technology on smartphones. Additionally, Apple’s recent decision to open its NFC tech to third-party developers has sparked renewed interest in contactless payments. 

Still, widespread adoption of contactless payments remains a complex challenge. To expand beyond P2P and online transactions into everyday in-store purchases, digital wallet providers will need to fully embrace NFC technology. 

Once they do, digital wallet companies will be able to deliver the seamless payment experience their customers have come to expect. 

“Digital wallets can play a significant role in this competitive ecosystem by capitalizing on the customer relationships they already own,” said Eric Lassouaoui. ”Positioned at the front end and supported by existing adoption in P2P and e-commerce, wallets can naturally extend into proximity and in-store payments.” 

“By doing so, they have the potential to reshuffle the market dynamics and strengthen their competitiveness, especially when combined with value-added services such as loyalty programs,” he said. 

Routing the Path to NFC Payments 

Digital wallet providers seeking to bring account-based payment solutions to merchants have two options: they can either build a private in-store acceptance network or rely on existing card acceptance infrastructure at POS terminals. 

Once digital wallet companies have implemented contactless payments, they can then leverage flexible transaction routing. This brings them to another fork in the road: their transactions can either be processed directly by the alternative network, which offers greater independence, or routed through an established card network, which is faster to market and has broader acceptance.  

Regardless of the route, there are significant benefits for the companies that enable NFC payments. 

For example, contactless payments allow providers to offer cost-efficient and locally tailored account-based wallets. This model also gives organizations stronger control over their products, which in turn gives digital wallet firms the freedom to differentiate themselves without external dependencies.  

Finally, adopting NFC payments can lead to substantially higher wallet adoption and usage, since payments are frictionless and convenient for customers. “Previously, many wallets relied on QR-led flows, fine for peer-to-peer payments but slower at the point of sale.” Lassouaoui said. Tap-to-pay by account offers a faster, more convenient experience for consumers, further encouraging adoption and usage. 

“On the other side, Apple has been driving the payment experience within a mobile environment with its tap-to-pay experience, so the consumer is used to presenting their phone at the terminal,” he said. “Those that want to compete with big tech need to match that tap experience and that’s exactly what our stack enables, bridging wallet assets with the existing EMV ecosystem.” 

Bridging Cards and Accounts 

By bringing together emerging and traditional systems, digital wallet providers gain operational autonomy and increase their competitive edge—all while enhancing the customer experience.  

The key to moving into this model is contactless payments, meaning that embracing NFC is no longer optional—it has become essential. As the global payments landscape continues to shift, platforms like IDEMIA’s Tap to Pay by Account present a strategic opportunity for wallet providers to lead the next wave of in-store innovation.  

“On our side, we are one of the unique technological providers, capable to bridge this gap between alternative payment rails and the EMV ecosystem. This is coming from the background we have on the digitization of any card asset into a device and the capability to bridge the EMV world with the account world.” Lassouaoui said. 

The post How Next-Gen Digital Wallets Are Redefining A2A Payments at Checkout appeared first on PaymentsJournal.

Is the banking industry facing a digital revolution, or has it already happened? Research shows that 60% of bank customers prefer digital-first interactions, yet many banks have not made enough of their services available digitally. This gap leaves the door open for fintechs to engage customers and prospects directly on their mobile devices.

There are many reasons customers now prefer digital banking, starting with the simple fact that everyone carries access to all their accounts in their pocket. Digital banking connects customers to a bank’s ecosystem, providing access to cutting-edge services and helping banks serve their customers more effectively—available whenever and wherever those customers need them. These additional digital interactions can also boost a bank’s bottom line.

When banks fail to provide these services, fintechs are often ready to step in. Even common financial offerings are frequently overlooked by legacy banks, creating opportunities for more agile competitors.

“Most of the top 20 banks still don’t have built-in invoicing and payment acceptance,” said Ian Benton, Senior Analyst of Digital Banking at Javelin Strategy & Research. “The inability to have your mobile app out with a customer—to be able to create an invoice, send it to them and accept payment within the banking app—is one of the factors making them look elsewhere.”

Research from Galileo delves into this very topic, examining what customers now expect from digital banking services and where legacy financial institutions have fallen short. The good news is that even late adopters can leverage innovative products to attract new customers and increase engagement among their existing client base.

Prioritizing Seamless Experiences from the Start

A successful digital banking relationship starts at the very beginning, with a streamlined onboarding process. By ensuring that digital onboarding and activation occur almost simultaneously, there is no delay between account opening and money movement.

An often-overlooked option is issuing a virtual card to new customers instead of making them wait for a plastic card to arrive in the mail. People are naturally excited by something shiny and new, so giving them a card they can use immediately after opening an account is likely to drive immediate usage and help establish a fresh habit. According to Galileo, instant virtual cards increase engagement rates and transaction volume within just 14 days of activation and boost revenue per account by nearly 20%.

“Folks are really engaged with the bank immediately after they open the account and for the next 90 days,” said Benton. “That opens the door for a lot of post-application onboarding things, like getting subscriptions and other payments moved over to the new account.”

To take this a step further, many fintechs now offer push provisioning—a feature that lets customers add a card to their digital wallet with a single tap, instead of manually entering card details or uploading an image. This gives them instant access to their accounts through mobile wallets. While common among fintechs, as many as 45% of banks and credit unions have yet to adopt this capability.

Reducing Costs of Acquisitions

The advantages of a digital process start with more efficiently bringing on new customers. Galileo found that the median cost of digital customer acquisition is 44% lower than for non-digital acquisition.

“It’s taking the people out of the equation,” said Emmett Higdon, Director of Digital Banking at Javelin Strategy & Research. “Humans are always the most expensive part, so it makes a difference if I don’t have to pay that extra branch person to sit behind a desk and wait for you to come in. The pure process of doing it online, in more of a self-service model, takes out a big chunk of the cost.”

A streamlined digital approach to acquisitions can also help a bank attract more of the right customers. Resources previously dedicated to onboarding can instead be redirected toward marketing and outreach efforts focused on profitable segments, such as small businesses.

Engaging the Existing Customers

Banking customers are already curating their own suite of financial services through multiple providers. Gen Z and younger millennials, for example, use more than six financial tools or services—over half of them outside their primary financial institutions. Yet many banks continue to focus narrowly on a limited set of products.

Banks, however, are well-positioned to deliver highly curated services themselves. With their wealth of customer data, they have the ability to craft personalized experiences. Too often, though, banks fall back on a static suite of offerings instead of proactively serving customers in the way fintechs do. One example is goal setting—a role banks are uniquely positioned not just to capture, but to actively create with customized detail.

“When you go to a big bank today, you have the option to click here to open a savings account,” said Higdon. “But there’s very little guidance beyond that regardless of what the customer’s specific goal is. That’s not going to do squat for me if I’m looking for help in saving for my child’s college education or for retirement.”

The ultimate goal is to respond to customer needs before a request is even made. This requires systems with sophisticated algorithms that can anticipate and deliver a differentiated experience. Customers will not only be impressed by the bank’s ability to anticipate their needs, but they will also be able to execute transactions more quickly, making engagement with their bank seamless. 

At the same time, banks can’t afford to waste resources offering products that customers don’t want or need. It’s not just a matter of inefficiency—those efforts dilute impact. Data from Accenture revealed that 91% of consumers are more likely to shop with brands that provide offers and recommendations relevant to them.

Empowering Customers with Innovative Tools

Products built around digital engagement offer banking customers a great deal of flexibility. In many cases, new offerings have improved on traditional, well-known services. Faster access to funds and more flexible spending options will always drive increased customer engagement.

However, until customers fully embrace digital banking, they can’t take advantage of these services—and banks can’t benefit from the resulting engagement.

Direct deposit is one example of this shift. What began as an added benefit has now become an expectation. On average, direct deposit increases lifetime customer value by more than 50% per account by driving higher transaction volume and sustained usage.

Now that feature has been compounded by digital advances like Galileo’s early access capability, which allows direct deposit customers to access their pay as soon as their employer deposits wages into their accounts—typically up to two days before the scheduled payday. Accessing these funds earlier can increase account use, drive adoption of other products, and boost card spend.

Another wave of digital innovations is reshaping how customers borrow, spend, and manage their accounts. Although buy now, pay later loans are a relatively new offering, advanced banks and fintechs are now enabling post-purchase BNPL. By allowing consumers to convert settled transactions into BNPL loans, this option extends financing to debit customers, who were previously limited to credit accounts. 

At the same time, customers often face the dilemma of choosing whether to keep cash in their demand deposit account (DDA) for debit card use or in a collateral account to support secured credit. Galileo’s Secured Credit with Dynamic Funding resolves this by automating the movement of funds between accounts, allowing customers to manage their money in one place. This eliminates the need for manual transfers when making larger purchases.  

Fraud protection is also being reimagined. With 96% of respondents citing security as the top reason for choosing a banking provider, the importance of safety is clear. Galileo’s Instant Verification process directly addresses this need by providing real-time verification of external bank accounts and ownership. It cuts verification times from days to seconds while detecting fraud attempts before they occur.

In truth, the digital banking revolution is already here. Customers increasingly expect every transaction to happen digitally and within seconds, and they cannot understand why it should be any other way.

The post Left to Their Own Devices: How Digital Services Drive Banks’ Revenue Growth appeared first on PaymentsJournal.

The correspondent banking model, which has dominated cross-border payments for years, is—at best—a deeply flawed system. It relies on manual processes, after-the-fact audits, and “trust” in foreign banks’ compliance, despite regulators confirming only 0.0001% of transactions are ever reviewed. And the ability to make a cross-border payment is critically dependent on correspondent banks—their foreign currency reserves and reach. Meanwhile, the rise of new and compelling systems like Mastercard Move and Visa Direct, along with emerging payment types such as stablecoins and real-time payments, while attractive to banks and their customers, have only added further complexity to an already fragmented landscape.

Traditional core banking systems, digital platforms, and supporting infrastructure were never designed to accommodate these new paradigms. As a result, banks remain largely unprepared—not only to manage the heightened risk and compliance obligations they bring, but also to efficiently orchestrate payments across these channels.

Gary Palmer, President and CEO of Payall Payment Systems, told PaymentsJournal that global payments orchestration with specialty intelligence, more than just a global gateway, has become a necessity for financial institutions looking to serve the surging cross-border payments market.

Comprehensive payments orchestration can digitize many labor-intensive processes (not just move money), such as counterparty risk management, real-time transaction monitoring, and multijurisdictional compliance. It can also function as a super switch—an intelligent hub that analyzes payment attributes such as size, commercial activity, or source of funds, B2B vs B2P, desired delivery speed, preferred recipient payment form factor—and routes the payment accordingly. The result? A new paradigm, aligned with new partners, that supports diverse mechanisms used to move funds around the world.

Legacy Bank Systems Weren’t Built for This

When a financial institution enables a transaction from a bank account, it typically delivers the payment across a domestic network. In the U.S., this could mean the ACH network, Fedwire, or even real-time payments systems like RTP or FedNow. These are the networks most core banking systems can interface with, albeit adopting new options like RTP and FedNow isn’t easy for banks or their tech partners.

However, the ways consumers move money from their bank accounts have expanded far beyond simple routing between accounts. For example, funds may now be sent from, or to, an account to a mobile wallet or a digital payments platform—transactions that often fall outside the scope of bank systems, both domestically and internationally.

“How does a bank move money around the world?” Palmer said. “Most financial institutions do this through a correspondent bank, but that introduces complications—different message formats, required data, and rules that must be followed before the payment is handed off to the correspondent bank.”

“The software that exists in core bank systems was never designed for the complexity and ever-changing nature of cross-border payments,” he said.

Another layer of complication in the correspondent banking system is that it relies on the SWIFT global messaging system, where almost all receiving participants are financial institutions.

Yet, since SWIFT delivers messages to member or participating banks for funds delivery to bank accounts, this only reaches 15–30% of the world’s population. Billions of people remain outside, unable to receive funds through banks that use the SWIFT system, they rely on mobile money, digital wallets, or cash to live from day-to-day.

However, each of these payment form factors operates under its own set of rules. Some rules are mandated by regulation, others are imposed by issuers to mitigate risk or fraud, and still others stem from the limitations of the product itself.

“For example, in some jurisdictions, mobile money wallets can’t accept a business-to-business payment; they can only accept a P2P or a retail payment or a remittance,” Palmer said. “Some have minimum payment amounts, some have maximum payment amounts, some have currency restrictions, and they all have different message formats.”

“There’s no such thing as a bank account number when you’re sending money to a mobile money or a digital wallet, so we’re talking about layered complexity and diversity that no bank system was ever built for,” he said.

And even if funds are going to a bank account, if the final leg of the payment journey is a real-time rail or domestic network in the U.S., the bank identifier is the RTN/routing transit number—not the ABA number. Yet for 50 years, every bank in the world has trained customers to ask for the SWIFT code, ABA number, or wire transfer number. But these won’t work for ACH in the U.S. Similar conditions exist elsewhere. How are billions of people retrained? Not possible—software is the key.

A Breakthrough of the Highest Order

As complex as the cross-border environment has become, there have been some recent steps forward. One of the most substantial developments affecting the market has been the emergence of Mastercard Move and Visa Direct—platforms that leverage the global payment rails of these credit card companies.

These solutions fill a gap created by the steady reduction in the number of correspondent banks in recent years. As a result, partnering with one of the remaining institutions has become increasingly costly and time-consuming.

Unfortunately, onboarding is only the first of many challenges facing banks that want to enter the cross-border payments market.

“That’s where you’re talking about issues that are affecting wire transfers, netting and pooling, and figuring out who owes what in what currency,” said Hugh Thomas, Lead Commercial and Enterprise Payments Analyst at Javelin Strategy & Research. “What time did the transaction happen? What were the two currencies doing at that time? Any number of additional layers of complexity that make moving funds back and forth not nearly as seamless as Venmo, or even cash.”

To combat these issues, Visa and Mastercard have leveraged their established infrastructure to create an alternative to correspondent banking.

They are strong competitors because they are already connected to domestic bank transfer rails through their card business. They also hold massive global liquidity across more than 100 different currencies and operate some of the most efficient foreign exchange trading systems.

More importantly, the reach of Visa Direct and Mastercard Move now extends far beyond financial institutions.

“What they have said is, ‘We need to serve everybody on the planet,’” Palmer added. “’This means we’re going to connect this infrastructure not only to the bank transfer rails, but we’re going to connect it to mobile money, digital wallets, and cash disbursement engines.’”

“They say to originating institutions anywhere in the world: ‘You don’t need a correspondent bank, you can connect to us,’” he said. “‘Here are our APIs and operating rules, connect to us and we’ll deliver funds fast to bank accounts, mobile money, digital wallets, and cash.’ This is a breakthrough of the highest order.”

The Promise of Payments Orchestration

Even though Mastercard Move and Visa Direct are game-changing systems for originating institutions, there is a caveat: the institution must be able to connect to these systems. And it’s not just one connection today, Visa and Mastercard offer multiple connection points for different types, routes or other distinctions. 

“They have their own set of APIs. They have their own set of rules that require new software and new capabilities. Before you do that, you need a payment orchestrator who has built the software to comply with the regs, who’s connected into their APIs and is perpetually maintaining that current state of connections because—just like with card issuing and card acquiring—there are periodic changes to the rules and the system, and the participants have to update their software.” 

However, connecting to Mastercard Move and Visa Direct is just one benefit of a robust payments orchestration platform. Payments orchestration consolidates multiple payment types into a single intelligent hub, reducing the need to manage disparate vendors and systems.

This means that payments can be routed intelligently across the safest, most cost-effective channels, creating a better customer experience with less friction.

Leading payments orchestration platforms also incorporate risk controls, fraud defense, and regulatory alignment. Additionally, they provide tools to support counterparty risk management, real-time monitoring, and compliance procedures.

Among all these benefits, one of the most important aspects of payments orchestration is that it brings options. This could mean enabling a new currency, a new recipient form factor, or expanding into a new country. It also gives institutions the freedom to send one-off payments of all sizes and types.

“A payment network that we’re connected to may say, ‘We handle B2B payments, not P2P,’ so it’s the type of payment that needs to be routed,” Palmer said. “Taking a step deeper, some correspondent banks won’t support certain industries. Maybe it’s gaming, maybe it’s chemicals manufacturing, or pharmaceutical manufacturing. Having software logic that allows for the interrogation of the data associated with the originator to make sure that you route it to the partner who supports the payment becomes important.”

Redundancy, Always-On Service

With the global contraction of correspondent banks, financial system instability in some regions, de-banking by correspondent banks of originating institutions, and geopolitical complications, redundancy is another key feature of payments orchestration. It’s not optional—it’s survival. The complex nature of the correspondent banking system means a bank’s relationships will likely shift over time.

“Financial institutions around the world often struggle to secure an American correspondent bank, and the process is costly,” Palmer said. “Even then, many lose those relationships within six to twelve months and must start the process over.”  

“A payment orchestrator like Payall helps address this problem. We can support an institution’s existing correspondent bank relationship while also providing access to alternatives such as Mastercard Move, Visa Direct, or other partners. This creates redundancy and ensures there is always a backup path for payments,” he added.

Such platforms can also enable intelligent switching in cases where a customer prioritizes speed over cost, routing the payment across the network that delivers it the fastest. Alternatively, the size of the payment may determine which rail it should travel on.

Given these complexities in the global payments landscape, building an effective solution from scratch has become nearly impossible. Even connecting to Mastercard Move or Visa Direct can cost a bank millions and take months to implement.

And even then, connections to correspondent banks will still need to be established in many cases. Each of these connections carries cost and time requirements—both of which can be significantly reduced by leveraging a payments orchestration platform.

 “A specialist in global payment orchestration with software built specifically for this purpose delivers significantly greater efficiency and simplicity for the originating institution,” Palmer said. “It’s a superior product that offers redundancy and reaches 90% to 95% of people worldwide.”

“It provides a financially competitive solution with low overhead for risk management and customer service investigations, and it is cost-effective to implement and operate,” he added.

The post Global Payment Orchestration = Redundancy, Options, Profits, Happier Customers appeared first on PaymentsJournal.

Independent Software Vendors (ISVs) and SaaS providers have long viewed healthcare as a rich target for vertical expansion. The market is large, highly regulated, and plagued with inefficiency. Many vendors break into this space by solving one part of the revenue cycle process, such as eligibility checks, claims scrubbing, or denial management. That narrow focus gets them in the door, but it omits the element that connects the cycle from end to end—payments.

Payments are more than a single transaction. It’s the foundation that ties together every part of revenue cycle management (RCM). For vendors already in the RCM space, embedding payments turns a point solution into a growth platform.

Unified Payments = Stronger Revenue

The strain on healthcare finances is clear. Hospitals lose an average of $5 million annually to denied claims, equal to about 5% of net patient revenue.*  Across the industry, providers spent nearly $20 billion in 2022 fighting denials, with more than half of that wasted on claims that ultimately should have been paid.**

At the same time, patient out-of-pocket costs continue to climb, shifting more revenue collection to the front desk, portals, and mobile channels. Healthcare organizations manage much more than co-pays. A hospital, for example, handles reimbursements from payors, vendor invoices for medical supplies, business-to-business transfers with partner organizations, cafeteria and food service transactions, pharmacy sales, and patient payments across dozens of departments.

Payments flow through the entire financial system and addressing only a portion leaves opportunity untapped. Why payments belong in the suite RCM has always been fragmented. One vendor handles eligibility, another automates coding, and a third manages denials. They all approach the same provider from different angles.

Strengthening the Revenue Cycle

An ISV that already plays in this cycle has an immediate opportunity: integrate payments and financial services functionality and deepen the value it delivers to healthcare clients and their patients. Patient and payor payments are a core part of RCM, and they matter enormously to providers. Healthcare organizations also manage vendor invoices, business-to-business transfers, and internal flows such as cafeteria and pharmacy transactions. Together, these represent the full picture of how money moves across the enterprise.

When ISVs address both RCM and the broader payments landscape, they create a more complete solution. Patient and payor collections strengthen the revenue cycle. Vendor and internal payments expand the reach to the entire financial system. The companies that bring these together position themselves as financial partners with staying power. Owning payments creates durability when a platform becomes the rail for money movement, it stops being a feature and starts becoming the foundation of the organization’s financial operations.

Payments are sticky by nature. Once embedded, they are extremely difficult to replace. That durability makes them one of the most powerful levers for long-term growth, extending customer lifetime value and creating room for expansion into adjacent services. This is where the opportunity becomes clear. Providers are looking for partners who can support the entire strategy for how money moves — from patients and payors to vendors and internal services like pharmacy and cafeteria.

The ISV that unifies those flows stops being a point solution. It becomes infrastructure, the layer that healthcare organizations depend on to function.

A Strategic Path Forward

Healthcare providers are under pressure to prove ROI quickly. They care about fewer denials, faster reimbursements, higher collection rates, and more satisfied patients. Payments are the most direct lever that ties technology investment to financial outcomes.

For SaaS companies, leading with payments opens doors to conversations that matter most: how the hospital’s financial system operates and how it can be improved. The path is clear. Start with any part of RCM. Layer in payments. Then expand into becoming the financial foundation for all money flows across the enterprise. That is how ISVs move beyond point solutions and secure their place as long-term partners.

Healthcare’s financial backbone is payments. If a SaaS company can solve even a slice of the revenue cycle, it can also solve payments. Providers are asking for every payment option, from wallets and ACH to buy-now-pay-later and embedded finance. Whoever unifies those flows will not just add value, they will become the infrastructure hospitals rely on.

That is where Elavon comes in. We provide the payment solutions ISVs need to expand into healthcare. By embedding modern payment options into their platforms, SaaS vendors can broaden their offerings, take ownership of provider payment strategies across patients, payors, vendors, and internal services, and position themselves as indispensable. Elavon enables SaaS companies to use payments as the lever for vertical expansion and durable growth in healthcare. Connect with us to learn more.

 *Journal of AHIMA

**ii Fierce Healthcare

The post Expanding Into Healthcare: ISV Growth Through Embedded Payments appeared first on PaymentsJournal.

Today’s AI agents and Gen AI tools have the potential to remake the financial industry, but only if leadership addresses the human element in AI transformation. This isn’t simply a feel-good strategy, it’s critical for ensuring ROI on AI investments. Although agentic AI could generate up to $450 billion in value by 2028 through revenue uplift and cost savings, Gartner predicts that more than 40% of agentic AI initiatives will be shut down by then because of “escalating costs, unclear business value or inadequate risk controls.”

Agentic AI and Gen AI investment offers the banking and finance sector a high-risk, high-reward scenario. AI success starts with understanding that even the most powerful AI models today need to be trained as if they are new employees who require time to learn and develop habits. In tandem, employees need new skills for working with and managing AI agents and processes, as well as new pathways to channel their innovation.

New roles for AI and people in banking

Agentic AI is the latest automation solution adopted by the financial services industry. That process began with rules-based robotic process automation (RPA), progressed to simple AI models that could leverage unstructured data, then evolved to Gen AI that can create new content, and now to AI agents that can orchestrate complex end-to-end processes with maximum autonomy. Unlike past automation tools, agentic AI acts like a team member, and like any new member it changes the team dynamics. All the people on the team will need to know how to work with the agent, including initiating, controlling, and validating the agent’s work.

Agentic AI is ideal for financial services because many tasks, like wealth management strategy development, are personalized for each client. AI can also automate and orchestrate repetitive and complex processes that currently require lots of manual work, such as know-your-customer (KYC) checks for new customer onboarding and compliance. Deploying AI for these use cases — and others such as hyper-personalized marketing in retail banking — can let institutions accomplish much more with the same number of people.

If AI agents are handling, let us say, 50% to 85% of repetitive processes, the workers completing the rest of those tasks will also need new skills to manage the agents. For example, bank IT departments are always overwhelmed with requests. With AI automation and agents, an IT team can complete more requests from the business side:

• Gen AI can generate a large proportion of needed code automatically.
• Agentic AI can analyze and resolve support tickets.
• Human IT team members can work on higher-value projects and oversee the AI — if they’re given the training they need to do so.

Readiness for AI implementation in banking

Despite its potential, there are few AI agents in production in the banking sector now, although there are many in the pilot stage. Trust and compliance are probably the biggest hurdles to full deployment, due to several challenges.

One is model training requirements.Many AI agents can achieve about 85% accuracy soon after deployment, but getting the rest of the way to 99% or 100% takes time and training by employees with proper skills. Successful AI model training also requires a strong data foundation, which may take time to build.

The second challenge is model risk management, including cybersecurity and governance.Agentic AI systems must comply with the organization’s ethics and with data privacy regulations. This requires the development of guardrails and transparent model validation processes, including documentation and prerequisites. Compliance-by-design principles can ensure that agentic AI or Gen AI-based systems are designed and built to facilitate validation by the model risk management team.

The third and potentially most overlooked challenge is change management. You cannot deploy agentic AI or Gen AI systems without onboarding all your teams, because otherwise adoption can be a problem. Although nearly 70% of workers say they welcome AI automation that gives them more time for more important work, 45% have “doubts about the accuracy and reliability of AI systems,” according to a Stanford University study. Those doubts, if not addressed through proper model training, model validation, and employee training, have the potential to undermine adoption and ROI.

Where could AI take banking in the next few years?

Banks that successfully implement agentic AI and Gen AI can expect major changes in several areas, such as these.

New brand engagement strategies

It’s easy to imagine agents handling virtually all payments for banking customers, so that they become invisible in the way Uber payments are now. For example, instead of paying separately for your hotel, car, and airfare when you book a trip, your card issuer’s AI agent might handle it all for you. If customers no longer need to engage with their financial services providers for day-to-day experiences, banks will need to find new ways to maintain brand awareness and loyalty.

Compliance and risk management improvements

When KYC and other processes are highly automated and agents can orchestrate vast streams of data for more accurate risk forecasting, banks can manage risks more effectively and maintain compliance more easily. This can help institutions avoid severe financial losses and weather whatever economic shifts the future may hold.

More focus on managerial skills and innovation

Employees will need skills for training, managing, and monitoring AI agents, as well as for whatever iterations of AI and automation come next. They’ll also need the opportunity to do more innovative and higher-value tasks in order to work to their full potential.

 We can’t be sure how the future plays out, but a lot will depend on how financial institutions strategize and implement their AI and employee training initiatives during the next couple of years. Approaching these projects with an eye on training, validation, and change management can help institutions succeed in realizing the value that today’s AI offers.

The post How Will Agentic AI and Gen AI Transform Banking? appeared first on PaymentsJournal.

Launching a card is a complex process with the potential for long-term financial gains—if executed flawlessly. Yet, it moves quickly, with an average timeline of just six to seven months from concept to launch.

Any major player in today’s financial landscape—from legacy banks to fintech apps to fledgling retailers—has at least considered launching a card. But before diving in, there are critical questions to answer: Who is the target market? What will make this card stand out from others already on the market? Which partners are essential to ensure its success?

A white paper from Galileo outlines the key steps to designing and bringing to market a successful credit, debit, or prepaid card program.

Defining the Objectives

The first step is to clearly define the objectives for the card. These may include building brand awareness, enabling easier customer payments, or serving as a central element of a financial offering rather than simply a secondary tool.

An important consideration is determining how the card will stand out from competitors in the market. There should be a compelling use case that encourages customers to choose it over other options in their wallets, which begins with a strong value proposition.

The value proposition explains why customers would prefer this card over others. For instance, the fintech app Wise, known for international money transfers, ensured that its first debit card supported spending in multiple currencies. This aligned with customer expectations and filled a niche that many other cards do not address.

That’s another important part of the value proposition: tying the card to the firm’s brand. A successful card will reinforce those expectations. A well-planned card will address specific problems for its customers. Users of a travel website, for instance, might want to integrate spending with planning, paying for a hotel at the same time it is booked.  

These capabilities can also evolve after the card is launched. The strategy can be iterated if something turns out not to work as intended. For example, a debit program might falter because customers don’t have enough cash in their accounts to feel confident making purchases, and it may need to be supplemented with a prepaid card. No plan is written in stone; if the market sends a signal that differs from the original plan, the market should be heeded.

Special Challenges for Credit Cards

When a company chooses to launch a credit card, there are special challenges that must be anticipated. This means entering the lending business with all that entails.

“The whole essence of the business is that you have to be ready to bear the risk of the portfolio,” said Brian Riley, Director of Credit at Javelin Strategy & Research. “If I open up 2,000 accounts with a $1,000 credit line, all of a sudden I have to have $2 million in the bank just reserved against those funds because I’ve got to qualify my lending capacity by the total exposure on day one.”

It makes sense to target a certain level of credit quality in line with the brand’s positioning. Consumers holding Walmart credit cards are likely to have lower scores than those using a card from a high-end hotel chain. This will affect revenue from the card. Higher credit scores are generally associated with more reliable payment behavior, while lower scores may result in greater profits from late fees and interest.

“Conceptually, you have control over the customers’ scores, but there’s a reality here,” said Riley. “You could say you want to target people with FICO scores of 760 or better. However, if you do that, you’re going to compete against American Express and Citi. You better bring your ‘A’ game, and it’s rare that a small issuer is going to do it. So you end up going to segments of the market that tend to be less robust.”

What Type of Customer Are You Serving?

Now it’s time to move from planning to execution. Understanding the potential customer base is an important part of putting together a launch plan. A simple metric, like the size of the potential audience, is a critical factor that will determine the team—both internal and external—needed to launch the product.

The target market may already be defined, but each customer niche has specific needs. A small business card will require a range of services—more than a simple consumer card, but less than a large enterprise card. A card focused on cross-border payments must have access to the best available exchange rates to remain competitive. An e-commerce business might seek to establish a physical presence by offering a plastic card rather than relying solely on a digital one.   

“An e-commerce vendor doesn’t have that physical brand presence that a lot of cobranded cards are going to have,” said Ben Danner, Senior Analyst, Credit and Commercial at Javelin Strategy & Research. “The blessing of a physical card is that it’s present in the customer’s wallet. When they’re out shopping, they’re going to open their wallet and physically see that card in there. In the e-commerce world, consumers can get lost in the kind of the myriad of different payment forms that are available. It’s all about trying to keep that brand top of mind.”

It’s important to devise branding for the card that aligns with the overall image of the customer. A jeweler may want to maintain a more prestigious feel than a grocery chain, while a fintech card targeting the upper end of the market may aim to convey elegance in its presentation.

The card should reflect the same design principles and values found on the website or in physical stores. The full brand experience should be integrated into the card’s design.

That can extend to the physical appearance of the card as well. For example, an outdoor retailer like REI might consider a wooden card or another environmentally conscious material to better align with its customers’ sensibilities.

This is also the time to consider developing a loyalty program. In today’s market, almost no card is launched without some type of rewards program, offering benefits that go beyond encouraging repeat visits.

“For a competitive rewards program, you have to offer X percent back because using the rewards program does cause a little bit of pain on the consumer side,” said Danner. “You have to make sure that you’re using your loyalty number and that you’re using, for example, the right gas station. But the payoff for the retailer is that you have spend data on the customer. And this applies to your partner bank as well. One of the wins for them is having this large database of loyal customers that they can collect data and interchange fees on.”

Do You Have the Resources to Launch?

The final phase of launching the card is assembling the team that will bring it to market. Smaller cards often require a great deal of external support to launch. Key partners to consider include:

• Issuing bank: Issues the cards and manages the accounts. These banks often collaborate with payment networks and hold licenses to issue cards.
• Processor: Manages the processes involved in authorizing, clearing, and settling electronic payment transactions on behalf of the financial institutions. They also provide services such as cardholder customer care, error and dispute resolution, and chargeback management.
• Manufacturer: Produces  the physical card, including the plastic and embedded technology, and provides the onboarding materials that customers receive in the mail.

There’s also the crucial role of the program manager, which many card issuers choose to handle internally. Program managers establish and evaluate the goals and objectives of the card while collaborating with the partners who help operate the program. This role requires familiarity with factors such as compliance requirements and the key objectives the card is intended to achieve.

Outsourcing program management allows the issuer to focus on areas of expertise, such as user experience or branding, while partners handle specialized functions. Whether program management is handled internally or through a partner, getting this aspect right is essential for the success of a new card.

Fortunately, outsourcing card program management isn’t an all-or-nothing decision. Many vendors can offload certain functions without taking on responsibility for managing the entire program. Other positions will may still require outside support, especially for smaller or first-time card programs.

One increasingly popular option is combining these services in a Banking-as-a-Service (BaaS) platform, which can simplify and shorten the launch path. BaaS providers generally place clients on a shared Bank Identification Number (BIN), which can make it easier to get a card program off the ground. However, migrating to another platform later will require obtaining a brand new BIN for the program.

As a trusted advisor with more than two decades of experience helping banks and fintechs develop successful payment programs, Galileo can play many of these roles. For first-time issuers, having a payment card expert is essential to provide fair advice based on real-life experience with hundreds of clients and millions of their cardholders. Whether it involves compliance, marketing, or building a fresh tech stack, Galileo has been there.

Getting to Top of Wallet—and Staying There

The entire purpose of this exercise is to reach the top of the customer’s wallet, becoming the first option they turn to when making any type of payment. Debit and credit accounts often struggle to differentiate from competitors, so the only real way to remain top of wallet is by creating a feature that truly sets the product apart. The launch of the card is the opportunity to establish that differentiator.

The rest of the planning, including building the infrastructure to manage the program, is essential to maintaining top of wallet status. Both elements are necessary for the long-term success of the card and the business.

The post From Idea to Swipe: How to Launch a Winning Card Program appeared first on PaymentsJournal.

Gen Z is the consumer cohort every B2C company is fixated on today. But what sets them apart isn’t just their digital fluency—it’s their insistence on choice. From the syrup in their morning coffee to how they consume entertainment—whether binge-watching, scrolling through short-form clips, or tuning into live-streamed gaming—this generation refuses to settle for a one-size-fits-all approach. And it’s not just about choosing—it’s about choosing the extra. A quick scroll through social media reveals viral “extra-hypes” that capture Gen Z’s appetite for indulgence, whether it’s a smoothie packed with creamy almond milk, organic strawberries, avocado, and sea moss, or 24K gold-coated chicken wings that scream luxury on Instagram.

In a Sea of Payment Choices, Credit Cards Win with Gen Z

When Gen Z pays for whatever is trending, they often reach for a credit card. Despite the relentless wave of new payment innovations, young consumers are embracing the enduring appeal of the card. As of Q4 2023, 84% of credit-active Gen Z consumers in the U.S. held at least one credit card (bankcard)—a sharp increase from 61% of Millennials at the same age a decade earlier. And true to form, when they choose, they choose big. Many Gen Z consumers skip the starter card altogether and go straight for premium products—case in point: the American Express Platinum at $695 per year. As Stephen Squeri, CEO of American Express, put it, “Years ago, we used to target them with a fee-free product.” That was then. Today, Gen Z and Millennials account for 75% of Amex’s new Platinum and Gold consumer accounts.

Customization Over Pre-Packaged Banking

The demand for choice extends beyond luxury purchases—it applies to banking, too. FinTechs like N26 have already caught on, allowing customers to customize their banking experience, selecting from different plans and payment cards. Meanwhile, many traditional banks remain stuck in the past, offering rigid, predefined account packages—a checking account, a banking app, a debit card—with little to no room for customization. If banks want to stay relevant, the future may lie in flexibility. Imagine a world where instead of assigning consumers to pre-set categories, banks allow them to choose their preferred card—a virtual card, a standard plastic card, or an “extra” metal card. Given Gen Z’s clear preference for premium, offering a metal card option isn’t just a gimmick—it’s a strategic move. As Emily Rueth, founder of Vicuse Payments Advisors LLC, notes, “premium metal materials for the physical card … elevates them to status symbols, evoking a sense of exclusivity rather than ubiquity.”

Choice Isn’t Just Consumer-Centric—It’s Profitable

Beyond consumer appeal, offering customization in banking isn’t just about experience—it’s about revenue. Studies show that personalization in banking reduces churn, increases engagement, and can drive annual revenue uplifts of 10%. And let’s not forget: the average U.S. consumer holds four credit cards. With over half of surveyed Americans stating that card design influences what type of card they choose to use on a regular basis, giving customers the option to choose an “extra” card could be the key to securing top-of-wallet status—instead of being just another card buried in the stack. For banks, the message is clear: If Gen Z demands choice, why not give it to them?

The post Gen Z: The Generation That Chooses—And Chooses the Extra appeared first on PaymentsJournal.

Few financial products have dominated the spotlight in recent months quite like stablecoins. With high-profile launches and new regulations, they are poised to make a substantial impact.

However, as a recent report from Ripple—2025 New Value: Stablecoin Trends in Business and Beyond—details, today’s landscape is just the tip of the iceberg for stablecoins.

More than just a crypto offshoot, stablecoins—particularly those where the value is pegged to a fiat currency— can address long-standing financial challenges like cross-border payment inefficiencies, treasury management complexities, and the limitations of today’s global settlement systems. They’ve also proven to be the digital asset of choice for traditional institutions that want to engage in the crypto ecosystem.

Solving for Inefficiencies

Most of the global finance leaders surveyed for Ripple’s report believe that stablecoins will have a massive or significant impact on business and finance, especially in the Middle East and Africa (MEA).

Stablecoins have been an important innovation for MEA because much of the region has faced longstanding issues such as heightened inflation, currency devaluations, and limited access to foreign exchange. Stablecoins can help mitigate or even eliminate these challenges.

In Latin America, cross-border payment inefficiencies have been a particular struggle. According to Mastercard, the average cost of sending remittances in Latin America was 6.3%, well above the 3% target established by the United Nations. With stablecoins, transactions are often nearly free.

Another issue with cross-border payments is the regulatory nuances specific to each country. Although crypto and digital assets have faced their share of regulatory uncertainty, these obstacles are gradually diminishing.

In the Persian Gulf, the UAE and Bahrain have established strong regulatory frameworks that enable stablecoins to play a significant role in both institutional and retail transactions. The European Union also recently passed its Markets in Crypto Assets (MiCA) regulations, which provide a comprehensive framework for stablecoin usage in the region.

One of the most historic milestones for stablecoins—and for the broader digital assets community—was the passage of the GENIUS Act in the United States. This legislation created a clear pathway for many organizations, including highly regulated financial institutions, to offer a stablecoin for the first time.

Stablecoins in the Enterprise Environment

The better-regulated stablecoin market has become highly attractive to many organizations. According to Ripple, many financial leaders indicated they were open to using stablecoins within the next three years, and roughly a third said they already use them in their day-to-day operations.

The top three use cases cited were cross-border payments, trading and trade settlement, and serving as an alternative to traditional banking systems.

Another significant advantage of stablecoins is their potential to dramatically improve financial access in underbanked regions, as they enable bank-less transactions. This means organizations in these regions—and beyond—can use stablecoins for payroll, savings, and payments, all with minimal transaction costs.

Businesses interested in the trading and trade settlement use case can also benefit from stablecoins’ unique attributes: 24/7 accessibility, enhanced liquidity, and reduced counterparty risk.

The Bridge to Digital Assets

Due to the powerful advantages of stablecoins, even participants from more traditional financial institutions are beginning to explore stablecoin strategies. Ripple’s research shows that approximately 86% of respondents are open to using stablecoins, while fewer than 10% have no plans for stablecoin adoption.

As more financial institutions move from strategizing to full-scale implementation, they are likely to explore additional digital asset initiatives.

Although central bank digital currencies (CBDCs) have fallen out of favor in the U.S.—largely due to the surge in stablecoin adoption—there is still potential for more CBDCs to emerge globally.

A CBDC is the official, government-issued digital version of a nation’s fiat currency, such as China’s e-CNY digital yuan or the Bahamas’ Sand Dollar. While privacy concerns have fueled some pushback, many regions are still pressing ahead with CBDC projects. In some cases, these efforts aim to counter the growing influence of stablecoins, which are largely backed by the U.S. dollar.

Stablecoin adoption could also drive a surge in tokenized deposits. These are digital representations of customer deposits held in bank accounts. The tokens are backed by funds held by the issuing institution and are typically designed for real-time transactions between financial institutions.

Citi recently highlighted the bright future of tokenized deposits, even as it announced it was considering launching a stablecoin.

Although stablecoins and tokenized deposits share many similarities—such as real-time settlement and low transaction fees—tokenized deposits are built to operate within a regulated banking environment. This is one reason tokenization initiatives have been undertaken by organizations like the Bank of England and the Bank for International Settlements (BIS).

In addition to CBDCs and tokenized deposits, organizations that adopt stablecoins are more likely to delve into the tokenization of real-world assets, crypto, and other blockchain-based technologies. However, stablecoins will likely remain the first step—a step financial institutions should already be preparing to take.

“FIs need to think beyond payments and about how embedded programmability features into financial workflows can enhance or streamline their operations,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research.

“Ripple frames stablecoins as being core to the future financial architecture,” he said. “Stablecoins are a fast, compliant, and programmable asset ready for institutional adoption. For FIs, this means rethinking settlement, custody, and financial product design to harness these rails before competitors do.”

From Hype to Utility

The infrastructure underpinning the digital assets industry, combined with improving regulatory clarity, is creating a zeitgeist for stablecoins. Institutions that adopt stablecoins today will be best positioned for the future.

That said, risks remain—particularly for financial institutions. They need solutions that not only ensure compliance but also protect their business from fraud. If an institution is considering issuing their own stablecoin, they’ll also need a bank-grade digital asset custody solution for secure storage and management.

This makes it imperative that these institutions partner with a stablecoin and digital assets provider that have a proven track record of working closely with industry regulators and global policymakers.

“Ripple’s RLUSD stablecoin demonstrates how compliant assets on blockchain rails can be integrated into enterprise workflows,” Hugentobler said. “These rails unlock new opportunities and models for FIs and service providers.”

“FIs and banks should take note—stablecoins aren’t just for cross border payments,” he said. “They’re for treasury and cash management, liquidity management, FX operations, and 24/7 settlement. If a financial institution or bank isn’t exploring stablecoin integration at this point, they’re behind the curve. There has been a significant shift from hype to utility.”

The post Stablecoins Are Driving a Financial Services Revolution appeared first on PaymentsJournal.

The correspondent banking model that has enabled cross-border payments for the past 50 years is built on trust; trust that each party in a complex chain will act in good faith and fulfill its obligations.

However, the absence of purpose-built technology and the dependence on manual processes at originating institutions and correspondent banks have prevented effective and efficient counterparty engagement and risk management. 

Want proof? The United Nations Office on Drugs and Crime estimates that between 2% and 5% of the global GDP, or up to $2 trillion, is laundered through banks each year. Also, according to Accuity Research, de-risking has driven a 25% reduction in global correspondent banking relationships. Ask any central banker and the message is the same: cross-border payments through financial institutions are high risk, slow, expensive, opaque, and not inclusive. Fear and friction define this business. 

The demand for cross-border payments has surged in recent years, highlighting the urgent need for new solutions that can address counterparty risk within the correspondent banking system.  Otherwise, digital innovators and fintechs will continue to marginalize banks for essential services (deposit taking), but disintermediate them on the originating side, taking their customers and profits. And the “real risk” at banks and payment systems from these players doesn’t go away.

Where It Breaks Down

In the current model, a respondent bank—typically a smaller or regional financial institution—approaches a larger correspondent bank and requests access to its global network to facilitate international payments on behalf of its customers.

“The bigger bank says, ‘Great, let us see your policies and procedures regarding KYC, AML, pick the abbreviation,” said Gary Palmer, President and CEO of Payall. “’OK, we’ve approved you,  here are commercial terms, funding policies and our message format. Every six months up to two years, we’re going to audit your records to see if you’ve followed your own policies.’ And it’s off to the races.”

Typically, the correspondent bank submits its policies and procedures for clearing payments and managing counterparty risk to its regulator, and they periodically audit these to ensure compliance.

Additionally, the central bank or relevant regulator requires a business plan from the originating bank as well and examines their adherence to procedures.

“Here’s where it breaks down,” Palmer said. “Those policies and procedures have been layered on top of each other—layer after layer—for 50 years. I learned this in 2017, when I met with dozens of originating institutions, correspondent banks, central banks, and regulators, and discovered there had never been software built as a part for any of the parties to digitize this business.”

“No core system, no digital bank platform and no risk or compliance engine has ever been built to address the problem set that each one of those institutions faces for cross-border payments,” he said. “They built core bank systems to do deposit accounts, car loans, maybe savings accounts or checking accounts, but never cross-border payments. So, the only way for a bank—whether it’s an originating bank, a correspondent bank, or an intermediate bank—to operate is by manual workflows.”

Nostro and Vostro

This model poses substantial risks and costs for financial institutions as well as frustrations and high costs to users. For example, a bank in Brazil may have customers who collectively make $4 billion in payments to recipients in the United States every year, with an average transaction size of $252,000. This process is facilitated by a U.S. correspondent bank.

In this scenario, the Brazilian bank might advertise on their website that it can make bank transfers to the U.S.

“There’s a concept called nostro and vostro where you’ve got banks that have pots of cash with one another,” said Hugh Thomas, Lead Commercial & Enterprise Payments Analyst at Javelin Strategy & Research. “The nostro is mine that sits with you, and vostro is yours that sits with me. They just sort of net and pool at the end of every day and figure out, ‘OK, you’ve got this much more vostro with me and I’ve got this much more nostro with you as a consequence of us having done these transactions.’ Those are, in many cases, manual processes.”

The nostro account created by the Brazilian bank may hold significant amounts of USD. These dollars sit on the bank’s balance sheet and are subject to market volatility until a customer decides to send their $252,000 payment to a U.S. recipient.

“Guess what happens next?” Palmer said. “A payment instruction goes to the backroom of the Brazilian bank where their customer made the international transfer. A human being looks at it and says, ‘Does my customer have enough money in their account? Do I have enough money in my nostro account? Does my correspondent support this type of payment? Oh, and the customer is in pharmaceutical or they’re in gaming or they’re in furniture construction—will my correspondent bank support the commercial activity or the source of funds?”

Adding to the complexity, Brazil, like many countries, has specific requirements set by its central bank for these payments. For example, if a transaction exceeds a certain threshold, then workers at originating institutions must collect additional data, such as a bill of lading or an invoice, which must then be reported to the regulator.

These country-specific nuances introduce additional manual checks to an already intensive process.

“Based on the size of the payment, what does my regulator say I need in terms of data documents and artefacts to substantiate the payment?” Palmer said. “Did my correspondent bank mandate any particular rules based on the size of the payment? What are my internal risk and compliance rules? This results in millions of manual touchpoints at originating institutions and correspondent banks every day.”

The Essence of Moving Trillions

While the answer to most of these questions may be affirmative, this time-consuming process must be repeated with each transaction. Moreover, these lengthy manual interactions increase the risk of errors or manipulation.

For example, a bank employee must not only review whether all the required documentation has been submitted but also ensure the documents haven’t been altered or forged. They may then verify whether the payment involves a sanctioned vessel, port, company, product, or currency.

As a result, a single payment could require reviewing hundreds of pages.

“Now the bank says, ‘What do we do with all this stuff? There’s no way to tie all this human-collected data, rule execution and decision-making with a payment and store it at the bank’s core.” Palmer said. “So, they file all this stuff away in paper folders, and it sits until either the Brazilian regulator comes in to ask for it, or the American correspondent bank or their regulator, as part of an audit or examination, asks for it.  And how effective is it to manually audit 0.000001% of all transactions?”

“You’re trusting the foreign bank – in the case of the correspondent bank – to execute these things because you can only audit a tiny number of transactions and you’re auditing them two months, six months, two years after the fact,” he said. “This has been the essence of moving $160 trillion last year through the banks around the world.”

Digitizing the Process

Though this model has dominated for decades, several forces are driving a shift to a new paradigm. First, the consumer experience with digital payment solutions has raised expectations across the board. When users can send peer-to-peer domestic payments in seconds, they expect the same speed and transparency in cross-border payments.

Along with these heightened expectations, cross-border payments demand has surged in recent years.

However, with no global standardization of payments regulations likely anytime soon, institutions must implement systems that enable counterparty verification without intensive manual checks. These platforms can digitize the due diligence process and radically improve the efficiency of onboarding counterparties.

“Imagine a series of AI agents surveilling that counterparty over time,” Palmer said. “Have there been changes in the ultimate beneficial owner? Have there been any citations, letters, or interventions from a regulator of the counterparty? Have there been any issues from a financial reporting perspective, or irregularities, or terms of profitability?”

“New software digitizes just about everything: originating bank applications, including document collection and diligence, the boarding process, the examination and evaluation of everything from the Wolfsberg questionnaire all the way to their critical infrastructure,” he said. “It digitizes the relationship—the CRM of the counterparty as well as enables 100% real-time see-through to how an originating institution executed their risk and compliance rules, replacing slow, costly, and human-centric periodic audits of a small percentage of transactions with perpetual visibility and digital decisioning of every transaction. This capability has never existed before and replaces trust with data, removing fear and friction at correspondent banks.”

The post From Trust to Truth—New Purpose-Built Infrastructure to the Rescue appeared first on PaymentsJournal.

The most important skill for B2B sales professionals is no longer persuasion; it’s mastering financial fluency. Yes, many sales veterans will read that line and laugh. But, as the adage goes, past performance does not guarantee future results.

And now more than ever, those results are reliant on an entirely new approach. More specifically, it’s a fintech mindset. Modern SaaS platforms require embedded finance as a fundamental component. B2B sellers need to understand business-to-business money movements. Sales dialogues now focus on revenue diversification, loyalty, CSAT, together with financial strategy and flexibility. The new standard of sales leadership is shifting toward CFOs and payments leads, together with fintech product architects who recognize embedded finance as a strategic business tool rather than an afterthought.

Vertical SaaS is leading the charge. Vertical SaaS companies are no longer just SaaS—they’re evolving into ecosystem-focused fintech hubs, embedding finance to deepen engagement, unlock new monetization paths, and simplify operations across industries. The restaurant management software provider Toast transformed from basic point-of-sale operations into a financial services platform that delivers payments, lending, and payroll solutions directly within its platform. The business transformation turned the company from a software vendor into a true financial partnership, from a reliable service to an indispensable and vital aspect that its clients could no longer succeed without. The financial services segment at Toast produced more than 80% of its total revenue by 2023, while software subscriptions generated less than 20%. This is just one example of SaaS platforms rethinking an approach, shifting from becoming a provider to an essential stakeholder, charting the course for long-term strategic growth.

The model continues to replicate across multiple industries. Platforms realize that embedding financial workflows strengthens their position at the core of user operations. For example:

• HR & Payroll: Rippling and Deel have expanded from workforce management into global payroll, spend controls, corporate cards, and vendor payments—becoming the financial backbone for distributed teams.
  
• E‑commerce: Shopify now offers integrated payments, merchant cash advances, card rewards, and automated tax tools, transforming from a storefront platform into a full financial ecosystem. In their 2023 annual report, Shopify disclosed that merchant solutions revenue grew 27% to $5.2 billion, driven primarily by Shopify Payments, and generated $1.1 billion in embedded finance revenue in 2023.
  
• Accounting: Xero’s recent acquisition of Melio underscores how accounting platforms are moving deeper into supplier payments, BNPL, and financing tied to earnings, mirroring similar trends at QuickBooks.

These companies understand that controlling financial workflows isn’t just an add-on—it makes their platforms indispensable. The platform gains revenue benefits from embedded finance through its flywheel effect. User engagement rises when customers can complete financial operations, including payments, working capital management, and cash flow management, from the same business application they use daily. Churn decreases. Monetization multiplies.

Last year, Juniper Research released a study that projected embedded finance revenue will increase 148%, from $92 billion last year to $228 billion in 2028. B2B sellers must adapt to this new market trend, which presents both obstacles and opportunities for growth.

Meet The New Buyer Personas

Fintech is no longer a back-office function. It’s at the heart of every strategic buying decision. Sellers who fail to understand how companies manage and move money risk becoming irrelevant, especially as new fintech-savvy buyer personas emerge and value is increasingly tied to monetization, efficiency, and financial control. 

The buying persona has evolved with these changes. It’s not enough to win over IT or Ops anymore. You must win over payments architects, FinTech product leads, and CFOs – or risk being boxed out. Those very teams represent ~60% of SaaS buying committees in vertical SaaS and platforms.

The stakeholders that now determine purchasing choices focus on revenue-enhancing solutions and friction reduction as well as working capital optimization. The questions these decision-makers ask now include:

• How can I turn existing cost centers into revenue opportunities?
• How can I increase stickiness, repeat usage and higher purchase value?
• How can I improve my LTV/CAC?

Winning teams frame their value in terms of money movement, monetization potential, and how your solution can turn an existing cost center into a revenue opportunity. The failure to engage in these terms and identify your internal expert advocate will result in early elimination from the buying process.

B2B Sellers Must Adapt or Perish

Solution sellers now represent the top-performing sales teams in this business environment, having leapfrogged feature sellers. Sales representatives now enter meetings with financial models and business plans instead of relying on technical specifications. They grasp which financial elements matter most to their clients regarding ARR and CAC payback and margin enhancement and demonstrate their product as a solution to achieve these targets. The solution providers recognize how to show their solution’s alignment with corporate finance targets, instead of focusing solely on workflow optimization.

Companies need to establish proficiency in using financial terminology and system models as part of their development process. The finance jargon, which once belonged exclusively to accountants and bankers, has expanded to include interchange rates, along with revenue recognition, net retention, and acquisition cost. A persuasive sales narrative depends heavily on these essential components. The ability to explain how your product helps improve LTV/CAC—lifetime value over acquisition cost, along with decreasing payment processing costs by implementing a native solution, typically leads to a second meeting, significantly increasing your chances of closing.

Leaders in sales must transform their method of team enablement. Training programs need to expand beyond basic product feature education and objection response techniques. The training curriculum needs to feature lessons about embedded finance and partner ecosystem strategies, as well as financial buyer communication skills. Sales enablement resources need to demonstrate product functionality alongside the financial metric improvements the product enables. Vertical platforms require special attention because they handle large transactional data but lack internal financial service capabilities. Sellers who demonstrate their ability to convert usage data into underwriting signals, along with their expertise in using embedded payments for increased conversion rates, deliver a path to business growth rather than a standard product.

A fintech mindset has become essential for B2B sales operations. It’s table stakes. An inability to show customers how your solution impacts their bottom line, competitive advantage, and CSAT means you will lose both the present sale and future prospects.

The sellers who thrive in today’s market don’t just pitch solutions; they shape strategies. They position themselves as partners in growth and innovation, not just as vendors. The real innovators aren’t following trends, they’re helping their customers set them.

The post Why Embedded Finance Is Rewriting the B2B Sales Playbook appeared first on PaymentsJournal.

As consumer expectations for seamless buying experiences continue to rise, independent software vendors (ISVs) that embed payments into their platforms position themselves to capture greater market share in a growing and increasingly competitive software landscape. Consider this: the global ISV market clocks in at USD 2.35 billion in 2025, growing to USD 5.5 billion by 2030, reflecting a compound annual growth rate (CAGR) of 18.5 percent.ⁱ

With such rapid growth ahead, distinguishing your business requires more than a presence in the market—it demands forward-thinking innovation. So, how do you differentiate your business and capture a greater share of the market?

A strategic approach is essential to building scalable, adaptable solutions that support long-term growth in a rapidly evolving industry. ISVs that understand this are more successful in a crowded marketplace. How you implement these services, however, is what truly sets you apart. Your financial services framework should extend beyond payments to deliver a comprehensive, value-driven experience.

Implementing lending functionality through API integration is part of a broader approach to delivering greater value to your customers. Capitalizing on this trend now can give your business a competitive edge in a market poised for exponential growth. Analysts estimate the embedded lending market will reach USD 7.66 billion in 2025 and grow to USD 28.43 billion by 2032, with a CAGR of 20.6% from 2025 to 2032.ⁱⁱ

Let’s look at how embedding lending functionality into your software can maximize your revenue potential while scaling your business. To understand the tangible benefits of this approach, it’s important to explore how embedded lending can directly contribute to your bottom line. Primarily, ISVs can monetize embedded lending by earning referral fees or revenue shares. This creates a valuable new income stream without requiring significant investment or operational overhead.

Not only does it open up new revenue streams, but your software solution enables users to access financing options without leaving the software environment. This creates a smooth and intuitive experience that enhances customer satisfaction and loyalty. The advantages extend beyond lending alone—by enabling ISVs to offer flexible financing solutions, you empower your clients to boost customer purchasing power, which drives higher conversion rates, lowers cart abandonment, and increases average order values.

Let’s explore a specific use case: a home services-focused ISV that offers scheduling software with integrated payments and embedded lending tailored for plumbing companies. By incorporating point-of-sale financing directly into the platform, the ISV empowers plumbing businesses to offer immediate lending options for emergency or high-cost jobs.

For example, when a customer needs a new HVAC unit, ABC Plumbing can present a financing solution at checkout, making the expense more manageable. Once approved, the financing provider pays the plumbing company in full right away, ensuring the job can proceed without delay.

This model creates value for all parties involved. The consumer benefits from flexible payment options that ease the burden of unexpected expenses. The plumbing company receives prompt payment, improving cash flow and enabling timely service delivery. Most importantly, the ISV deepens its role as a strategic operational partner, reinforcing its value to the service provider while also generating revenue through a share of the lending activity.

As embedded finance continues to reshape the software industry, integrating lending functionality offers ISVs a strategic edge. ISVs can deliver more value to their users, differentiate themselves in the market, and grow their businesses in new and sustainable ways. We can help.

U.S. Bank | Elavon – Putting it All Together

It’s paramount to find the right payments partner that can develop the framework for your success. Backed by the strength and stability of U.S. Bank, Elavon can empower you to optimize your payments and financial services strategy to accelerate your speed to market, maximize your revenue, and scale your business for future growth. Discover what’s possible with our award-winning APIsⁱⁱⁱ, comprehensive integrated software solutions ecosystem, and Avvance™, our point-of-sale lending solution.

Whether you’re new to the industry or a seasoned ISV, we’ll help you build your long-term strategy. Decades of experience working with partners has driven us to develop an exceptional implementation, training, and incubation experience that enables you to achieve your maximum potential as a partner with us. It’s why more than 1,000 integrated partners, 1,700 financial institutions and 350 ISOs/MSPs trust us to grow their business.

Find out what’s possible. Call us at: 800.725.1243.

ⁱ Mordor Intelligence

ⁱⁱ Coherent Market Insights

ⁱⁱⁱ 2023 API World Awards – “Best in Payments APIs”

The post Embedded Lending as a Growth Strategy for ISVs—How to Maximize Revenue Potential appeared first on PaymentsJournal.

From the early days of check and credit card processing to wire transactions and today’s real-time options, each payment rail has developed along its own lines, necessitating separate hardware, software, and operational teams, amounting to a set of parallel rails that often do not intersect. This puts each of the payment systems in its own silo, with little interoperability among them, creating duplicated costs and efforts and fragmenting customer experiences.

“Many legacy core banking systems were built 30 or 40 years ago,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “They weren’t built to accommodate the newer real-time payment systems that exist today.”

As payment rails expand in their capabilities and complexity, those limitations have become more of an issue for financial institutions. Customers want the flexibility that comes with multiple payment options. For example, sometimes they need to complete a transaction as quickly as possible, whereas other times they need to complete one as inexpensively as possible. 

The Trouble With Legacy Systems

Legacy payment systems frequently get in the way of providing these options. Some banks that would like to offer new rails to their customers are wary of the costs. Even if the bank decides it’s worthwhile to include a new payment rail, it’s also creating another silo, another process separate from the others.

“If a business or a bank wants to connect to all those networks for different payment types, they have to spend the money to engineer a connection to the payments network,” said Don Apgar, Director of the Merchant Payments Practice at Javelin Strategy & Research. “They have to test it, certify it, connect it to their internal systems, and have a way to audit control it.”

The process could also create additional customer friction. Banking clients may not care which payment rail their payment rides on, but they do want the opportunity to send funds quickly, or cheaply, or some combination thereof. And the more sophisticated the customer, the more options they expect their bank to provide. 

Accounting for the Opportunity Cost

Expanding into new payment rails isn’t just about how to pay for it. Everything comes with an opportunity cost.

“There isn’t an organization alive that has free IT resources,” Apgar said. “Everything’s on a backlog list. Everything’s on a 12-month rolling project plan. It’s nice to be able to say yes, we’d like to connect to this new rail, but that’s not the most important thing our IT team needs to work on right now.”

Given customer demands, it can become an issue not of whether to make new options a priority but rather how soon the organization can free up the resources to make it happen. If the entity chooses to work within its existing systems, the question becomes whether to add newer capabilities or overhaul the entire system.

Let the Hub Make the Decisions

Many organizations deal with these challenges by turning to payment hubs. Rather than managing a set of parallel rails, the process turns into a set of spokes with a central control point.

These systems unify all of a financial institution’s payment processes, from account-to-account payments and card processing to real-time transactions. By coordinating these, a payments hub can position the bank to innovate, compete, and thrive in a payments market that will continue to evolve at lightning speed.

A payment hub makes all the various payment types available to an organization, without the need to maintain its own connections. It gives banks the ability to let their customers set up their own rules for payments, and through optimal routing, the hub can find the appropriate rails to move the transaction most efficiently and according to the customer’s needs.

“If you’re the CFO of a large company and you’re paying bills, you may know what all the networks do,” Apgar said. “But you still have to make decisions on a payment-by-payment basis, balancing availability, speed, and cost.

“With a hub, you can set up a business rule that says, ‘Make sure payments get there as fast as possible, with no exceptions.’ Or you can ask to send more payments via the cheapest path and to notify the initiator if there’s a conflict. You’re not having to make those decisions on a payment-by-payment basis. The hub automates most of that logic.”

A Win for All Involved

A refined payments hub can benefit all parties involved in an organization’s payment processes.

For a head of technology, it removes the headache of managing disparate and siloed systems and all that entails, including such concerns as regulation, compliance, and outages. For a head of the payments business, it supports the twin—and occasionally competing—imperatives of revenue generation and cost containment. It also simplifies the launching of new payment products. And for a head of operations, it reduces the specter of errors, delays, and breaches by streamlining the entire process and letting the rails interact with each other.

“Interoperability has long been one of the challenges, because the different rails aren’t necessarily interoperable,” Tavilla said. “For example, if you want to send a real-time payment, the institution sending the payment might be set up for FedNow, but the one that’s receiving it might have to default to ACH or one of the other options. If the systems weren’t operating together, that creates inefficiencies and makes it difficult to move the money easily and seamlessly.”

Even the newer capabilities are not always interoperable. It could require investing resources separately for a financial institution to connect to each rail. A payments hub helps route and orchestrate behind the scenes, making the system more efficient financially but also easier to set up and train the staff in how to use it.

Most important are the benefits a payments hub provides to the customers. Their preferred ways of paying are supported seamlessly, and new products are designed and launched to cater to their needs and expectations. It simultaneously provides them with more options and makes their decision-making process easier.

Leading the Industry

What a payments hub comes down to is future-proofing the business. Customer demands and products evolve and emerge regularly, so a business risks losing customers to competing institutions if it is not set up with capabilities to route and process transactions quickly and efficiently. And it has to be ready for new payment systems to emerge.

“That’s what your customers will demand,” Apgar said. “If you can’t meet their needs, you risk them going to a different financial institution that offers the service that would.”

The leading, most advanced refined payment hub solution is ACI Connetic, which constitutes a redefinition of payments, covering processing, monitoring, and delivery through a highly advanced technological lens. It unifies payments, from A2A to cards to wires, including advanced authentication/fraud detection, all in a single architecture.

ACI Connetic provides all of these benefits to organizations and their customers while uniting the goals of those customers and the stakeholders within the organization. It provides the efficiency, revenue, and resilience that the heads of technology, operations, and the payments business are seeking.

Learn more about how modern solutions like ACI Connetic can break legacy limits and power digital growth.

The post All in One: How a Payments Hub Eliminates the Pain Points appeared first on PaymentsJournal.

The Friction vs. Fraud Dilemma

It appears that the ‘holy grail’ in payment systems is to simultaneously reduce friction and fraud, offering a seamless authentication process that does not sacrifice security. Traditionally, a secure solution was often associated with complexity, adding user friction—something consumers tend to avoid. Similarly, reducing friction typically opened doors to increased fraud, presenting a dilemma where one seemingly had to choose between convenience and security. This dichotomy has posed challenges for businesses and kept that sought after ‘holy grail’ far out of reach.

The Evolution of E-commerce and Payment Security

In the wake of the expansion of the Internet in the late 1990s, e-commerce has gained traction. Payment cards are transitioning from primarily being used in physical stores—with cardholders present, known as Card Present or Point of Sale (POS) transactions—to increasingly supporting remote purchases, referred to as Card Not Present (CNP) transactions. E-commerce has continued to expand rapidly, now accounting for an estimated 14.4% of global commerce. Concurrently with the rise of e-commerce, there has been a shift towards more secure EMV chip technology for in-store, Card Present transactions, while initiatives like 3D Secure were developed to secure online, CNP transactions. However, possibly due to the need to balance user friction and security, some e-merchants, particularly in the U.S., have hesitated to adopt the original version of 3D Secure. This may explain why we see fraudsters increasingly targeting online, CNP transactions today. This has had a huge impact, evidenced in the staggering 73% of all U.S. card fraud last year that originated from online purchases, a significant rise from 57% in 2019.

Innovative Card Solutions: Numberless and Beyond

However, emerging innovations in payments could bring us closer to that illusive ‘holy grail.’ We see businesses merging the familiar and trusted physical card with the interactivity and real-time capabilities of smartphones to enable groundbreaking solutions. An example of this is the recent rise in numberless cards, where the 16-digit card number, or PAN, and the expiry date are not printed on the card’s front side but accessed via an app. Removing these details from the physical card’s surface allows for more creative designs, transforming the card into a fashionable accessory that helps card issuers achieve that sought after top of wallet status. Another innovation in payment technology is evidenced by the way that a physical card can now be tapped against a smartphone to activate the card upon receipt, sidestepping the need for a call center call or an ATM visit to activate the card. These innovations are ways that the card itself can be leveraged “beyond just paying.”

Bridging Physical and Digital for Enhanced Security

The blending of physical cards with digital technology could also help to resolve the dichotomy between fraud and friction and introduce a novel approach to reducing CNP fraud. Put yourself in the shoes of the user, shopping online on your smartphone, looking to purchase sneakers. Now, imagine if you could authenticate yourself by simply tapping your payment card against your phone. Suddenly, for online, Card NOT Present, purchases, your physical card is “present” for authentication. This method marries convenience with robust fraud prevention, potentially transforming online shopping and making the card even more important to the cardholder. This integration could indeed achieve the ‘holy grail’ of simultaneously reducing friction and fraud.

A card can do so much more.

The post Using the Card “Beyond” Payments to find the Holy Grail appeared first on PaymentsJournal.

The conversation around artificial intelligence in the larger world talks about endless possibilities and true intelligence—once a far-off dream. In business, of course, the conversation is more focused on big questions like “How can this help us?”, “What are the advantages over what we do today?” and “How will this improve the customer experience?”

The answer depends on the business, as AI can bridge gaps and fill cracks in areas of expertise and process flows that will be unique to your company. But what is truly clear, looking across the businesses eager to take advantage of the AI gold rush, is that too many are answering those questions with “we’ll figure it out later” and rushing headlong into using the technology.

That’s natural, given how exciting AI is and the obvious ways it can streamline processes and save time and even money. But it’s a disservice to the teams using AI if it’s not easy and intuitive to do so, and it underscores the challenges around AI.

AI Is Being Widely Used, but Perhaps Not Effectively

A late 2024 Capitol One report found that 87% of survey respondents were confident in their organization’s AI capabilities, but scratching the surface tells a slightly different story.

In that same study, Forbes notes that only 35% of businesses have a strong data culture that would make that possible. The adage “garbage in, garbage out” still holds true when it relates to data and AI. In addition, Forbes wrote that only 35% of tech practitioners believe their organizations have the necessary skills and expertise to implement complex AI projects.

This quote from the linked article above, from author Deborah Perry Piscione, makes it clear that 98% of executives who feel they must incorporate AI are potentially just throwing money after something that is not being effectively rolled out.

“The stark reality is that most employees lack the technical skills to effectively use AI tools, while leadership teams often push ahead without clear strategic direction. This has created a dangerous disconnect where expensive AI systems gather dust or, worse, generate unreliable outputs that erode trust,” Piscione pointed out.

How can businesses embrace this technology in a way that works, then? I’ll give you a recent example from right here at Bottomline.

Data to Help Decision-Making and Action

Within our Paymode network, over 550,000 businesses make and receive payments, which means tracking all our customers is a big task. That’s especially true when those clients can use different payment types, membership levels, and business relationships that create complex layers and webs of data.

The ask for Bottomline’s data science team was to provide insight and reduce that complexity in one specific aspect: Assist customer-facing teams in predicting when customers are likely to change their accepted payment types or membership levels. This proactive approach enables teams to connect with customers and engage in constructive conversations about any potential changes. A simple task on paper made incredibly complex by the data involved, the sheer number of businesses, and the need to build trust in the results with the customer-facing employees who need to take meaningful action.

“You can give data scientists a request, and they’ll make magic happen, but if we do this isolated from business users and experts, the results may not be understandable or trusted by the people who need to use them,” said Vinay Khosla, Bottomline’s Director of Product Data and Analytics. “We always work very closely with internal stakeholders to verify the business-usefulness of the results and build their business knowledge and expertise into our models. This approach ensures the output of the AI is clear, shows the reasons behind the results, and suggests appropriate actions to take. This gives the customer-facing team confidence in the output and enables them to effectively communicate with customers.”

By demystifying AI, it becomes a valuable tool driving better business outcomes. The output of the prediction model flows into an easy-to-use dashboard that the relevant teams can use. I liken it to a jigsaw puzzle, where you open the box and see all the pieces without understanding how they fit together to make a beautiful picture. Instead of offering a thousand pieces of data to sort through to help predict when a customer may be making a significant account change, the dashboard delivers the key data points and recommended actions. The user sees the completed jigsaw and can make informed decisions.

For example, a customer that has been receiving an increasing number of Premium ACH and virtual card payments to draw down their check stack may be looking to switch solely to Premium ACH across their entire stack of 50 network payers. A support representative can see that immediately and make a call to offer to help.

Bottomline has a range of AI-driven initiatives, that demonstrate our ongoing commitment to innovative technology. One of these initiatives aims to simplify vendor enrollment onto the Paymode network, making the process more straightforward, intuitive, and secure. This approach makes it easier for customers to enroll and entrust their data to Bottomline and enables our internal teams to offer support if needed. 

Khosla makes it clear that the way forward for AI in business is about taking complex data, making it simple and straightforward, and working with business experts to build vital business knowledge. This path ensures the results are useful for anyone in the organization. Basically, lots of completed jigsaws. Anything less could mean adoption is slow or even non-existent.

“Ultimately, AI’s potential is sky-high if we can make it something our organization is excited to use. It’s my job to ensure what we’re delivering to our teams is something that says ‘okay, here’s what’s happening with X customer, here’s the step you may want to take’ so they’re not spending the time sifting through data to figure that out,” Khosla said. “We’re well on our way to making AI part of the day-to-day fabric of this company, and if we do that right, everyone from our employees to our partners and clients will benefit.”

The post Demystifying AI: Turn Complexity into Clarity appeared first on PaymentsJournal.

As the worlds of technology and financial services converge, the pace of innovation is increasing exponentially. The advent of AI, cloud-based, headless architecture, and ‘everything-as-a-service’ presents a challenge to ISVs looking to adapt to a rapidly changing ecosystem and remain competitive in a crowded marketplace. So, how can you future-proof your business for scalable growth and differentiate yourself from the competition?

Let’s take a look.

Changing Market Dynamics

Developing a high-quality software solution that addresses specific market problems is fundamental, but reaching a wider audience, scaling your operations, and optimizing your revenue potential often means partnering with technology providers that can provide additional value. Integrating payments is one such use case. However, simply offering payments within your software solution has become table stakes. Beyond offering payment processing functionality, ISVs need to embed more value throughout the payments lifecycle to provide a seamless, and connected, end user experience.

Whether it’s offering flexible lending solutions via API integration or providing alternative payment methods, embedded finance means increased revenue streams, stronger company valuations, and stickier relationships with your customers. In fact, embedded finance is outpacing ISV market growth. By 2030, embedded finance will account for $320 billion in revenues worldwide¹. ISVs that understand this, and take advantage of payments, banking, and money movement capabilities set the stage for their success.

Understanding Vertical Use Cases

Banking and money movement APIs enable ISVs to rapidly build and test functionality to address, and exceed, quickly changing marketing expectations. In a general sense, it can mean managing same-day ACH transactions, sending real-time payments/disbursements, originating check payable requests, and accessing important account information to move money.

Of course, how these APIs add value is dependent on your industry and the market challenge you are trying to solve. For example, a healthcare software solution’s main goal may be to streamline revenue cycle management and automate time-consuming and arduous manual processes. Imagine the additional value provided to the end user with embedded FBO functionality. The ISV can now provide a secure, digital, and seamless process for insurance claim disbursements.

In the home services vertical, you may want to offer your merchants the ability to offer flexible lending options for large ticket home improvement purchases. An integrated point-of-sale lending solution provides financing options for consumers while providing instant merchant funding – all while providing you with an additional revenue stream and helping your merchants generate more sales. It’s win-win.

Putting it All Together – U.S. Bank | Elavon

Backed by the strength and stability of U.S. Bank, Elavon can provide the best of both worlds—the financial services infrastructure of one of the country’s most established banks and the agility needed to navigate the competitive software industry and constantly evolving payments industry. Whether you’re new to the industry or a seasoned ISV, we’ll help you build your long-term strategy.

Decades of experience working with partners has enabled us to develop an exceptional implementation, training, and incubation experience that enables you to achieve your maximum potential as a partner with us. It’s why more than 1,000 integrated partners, 1,700 financial institutions and 350 ISOs/MSPs trust us to grow their business.

Find out what’s possible. Call us at: 800.725.1243.

¹ BCG+QED Investors

The post Payments as a Growth Strategy: How ISVs Can Optimize Revenue Potential with Embedded Finance appeared first on PaymentsJournal.

Time is money. So, it isn’t lost on you that there’s a lot of expense involved with having your finance team log in to various bank portals, transfer balances onto spreadsheets, and perform tedious calculations just to get a handle on your cash position. But it turns out that managing cash manually and monitoring it with spreadsheets comes with several other hidden costs as well.

1. If the organization is facing a crisis, like a significant revenue drop or unexpected expenses, you might have limited contributions to a strategy pivot since you can’t tap into real-time insights. Once you’ve turned things around and your CFO wants to know if it’s an appropriate time to acquire a competitor, you might fall short again and not be able to provide the certainty they need since your numbers are stale or missing. When you can pull up your cash and liquidity positions with the click of a button, however, you can be a far more agile and active collaborator in the business.
   
   
2. It’s also tough to keep up with every finance-related law, regulation, and standard when there’s no centralized treasury system in place, so your compliance risk can be higher, too. Take Foreign Bank Account Reporting (FBAR), which requires any US-based corporation that has ownership or control of foreign accounts with an aggregate value of $10,000+ in the calendar year to file certain data with the IRS. Compiling everything you need manually can take hours, especially if there are several bank accounts requiring paperwork. But with many of today’s cloud-based treasury solutions, you can produce the needed report (and many others) in minutes, getting the required information to the necessary parties easily and in a fully compliant fashion. Plus, you can also proactively find and tackle potential compliance issues with 100% visibility into your whole treasury operation in one place.
   
   
3. Managing cash with spreadsheets and antiquated systems is also a drain on your talent. Today’s employees want to contribute in meaningful and impactful ways – not spend their time tallying up account balances or extracting data from various teams and systems. If this is the only work that’s available in the treasury department, and your systems and processes leave a lot to be desired, you risk losing employees. Then, you need to spend significant time and resources on backfilling. This isn’t an ideal situation given that almost 60% of treasury and finance functions reported a talent shortage in 2023.
   
   
4. Managing your organization’s cash manually also impacts scalability. As you grow, you’ll need more and more employees to keep up with the work and get the job done. We just discussed the difficulties related to that. If you centralize treasury operations into a comprehensive and user-friendly tool, on the other hand, your existing headcount can handle more banks, bank accounts, currencies, and subsidiaries as you expand geographically, for example. Increasing operational complexity is a lot easier to handle with the right tech solutions solidly in place.

Costs of Transforming Cash Management

Slow, inefficient cash management workflows aren’t going to cut it for these reasons, and others. But there’s a cost to upgrade, too. A bit of a balancing act needs to happen as a result.

Traditionally, many companies have jumped right to Treasury Management Systems (TMS). But these tools are very costly and take months (or years) to stand up, which delays any return on investment. A TMS can also require the help of outside consultants to deploy, adding significantly to the overall cost.

There are other strong contenders available these days in the form of SaaS treasury management tools. They offer the same robust functionality around cash visibility, cash forecasting, reconciliation, and cash optimization but come with much more appealing price tags. They provide the functionality you need, so they’re easier to launch and enable treasury teams to extract value quickly.

There aren’t added or unforeseen costs as there can be with other types of treasury management tools, the modern solutions are typically a SaaS subscription and a minimal implementation fee.

Today’s Cash Management Tools Do More Than Improve Visibility

Effectively managing your organization’s cash is critically important and getting there is even more achievable these days with the treasury management tools on the market. Getting these solutions in place can have the added benefits of improving your decision-making abilities, boosting compliance, aiding employee retention, and empowering growth.

The post Inefficient Cash Management Practices: 4 Hidden Costs Missing from Your Radar appeared first on PaymentsJournal.

‍The Evolution of Card Payments and the Rise of Online Transactions

In the late 1990s, card payments entered a new era with the internet’s mainstream adoption. Traditionally, cardholders would swipe or dip their cards into a point-of-sale (POS) terminal in-store. This allowed some form of authentication to be carried out. However, the rise of e-commerce introduced card-not-present (CNP) transactions, where cardholders enter their details online without a physical interaction. This made it impossible for merchants to carry out in-person forms of authentication.

The Role of Zero Liability Policies in Online Card Payments

One factor that likely encouraged consumers to embrace online card payments was the protection offered by the Zero Liability policy. This ensured that cardholders were not held responsible for unauthorized charges should the card be used fraudulently, or the goods arrive incomplete or not at all. If an issue arises, consumers can initiate a chargeback process, requiring the merchant to prove that goods were delivered, and that the transaction complied with all relevant rules and regulations to avoid liability. Under certain circumstances, the liability for a fraudulent transaction will shift from the merchant to the card-issuing bank (a so-called liability shift). However, it is important to note that regardless of who is ultimately held liable, managing the chargeback process costs the issuer an average of $37 per disputed transaction.

The Surge in Transaction Disputes and Its Impact

Recently, there has been a notable increase in transaction disputes. In 2023, U.S. consumers disputed approximately 105 million charges worth an estimated $11 billion, with this number expected to rise by 40% by 2026. This surge can partly be attributed to the increasing simplicity of disputing transactions. 36% of US consumers view the ability to dispute charges in their mobile banking app as “extremely valuable.” This, alongside growing customer awareness of consumer rights, influenced by financial influencers (“finfluencers”), meant that banks had to simplify this process in order to remain competitive.

Combatting Friendly Fraud with Advanced Solutions

A significant portion of these disputes, around 86%, are categorized as friendly fraud, where legitimate transactions are mistakenly or intentionally contested by cardholders. To counter this, various initiatives have been implemented across the payment ecosystem. For instance, Mastercard has developed an AI-based solution that analyzes multiple data points to identify potential friendly fraud. If the AI analysis indicates that a dispute is likely to be friendly fraud, the card issuer then presents the data to the cardholder, allowing them to cancel their claim. Similarly, Visa has expanded the list of compelling evidence that a merchant can submit, helping merchants to build a stronger case against potential friendly fraud.

The Financial Impact of Chargebacks on Issuers

The chargeback process is a huge expense for issuers. In 2023 alone, there were 105 million chargebacks in the US. This, multiplied by the average of $37 per chargeback, would result in a cost of almost $4 billion for US issuers.

Technological Solutions for Fraud Prevention

Thus, it is important for banks to find effective solutions to combat both friendly and malicious fraud in order to remain competitive. A promising solution, based on FIDO passkey technology, enables consumers to create a digital signature and authenticate their online purchases by tapping their credit or debit card to their smartphone. This method prevents fraudulent transactions, as malicious fraudsters cannot complete an online payment unless they are in possession of the physical card itself (much like how they cannot pay in a physical store without the card). Similarly, friendly fraudsters would find it difficult to dispute transactions they verified by tapping their own card (just as they would struggle to contest a purchase made in person). This approach demonstrates how credit and debit cards can be leveraged beyond payments, enhancing security and convenience for consumers, banks, and merchants alike.

A card can do so much more.

The post Leveraging the Payment Card to Combat Friendly and Malicious Fraud appeared first on PaymentsJournal.

In January, hackers launched a cyberattack on what might seem an unlikely target: PowerSchool, a provider of student systems for the educational industry. While the young individuals tracked by PowerSchool may not have much money of their own, the children’s identities are worth a great deal to cybercriminals.

A report from Javelin Strategy & Research, 2024 Child & Family Cybersecurity Study, highlights the online threats that children face, and what parents can do to mitigate these risks. For many criminals, a child’s identity can be just as valuable as an adult’s.

“Once that information is out there because a kid gave it up through a social engineering attack, cybercriminals have enough data to start opening up new accounts,” said Tracy Goldberg, Director of Fraud and Security at Javelin and the author of the report.

Targeting the Affluent

Children from more affluent households are at greater risk of being targeted and compromised by cybercriminals. Among children victimized by identity theft, more than half come from households with an annual income exceeding $100,000.

These children often have greater access to social media and other online accounts across multiple devices. They are also more likely to use payment cards, mobile accounts, online gaming, and other e-commerce platforms that cybercriminals target. Criminals have also become increasingly sophisticated in identifying and exploiting children from wealthy families.

“It doesn’t take long for cybercriminals to connect the dots if they know where a child goes to school,” said Goldberg. “They can also determine things like where they’re going on vacation. If the parents are connected to the child, they can figure out LinkedIn connections and where their parents work. They can connect the dots pretty easily.”

Among child ID fraud victims, social media ownership is a common thread. Nearly all child identity fraud victims in the past six years were active social media users when their identities were compromised. This highlights the importance of  parents preparing their children for the threats posed by social media.

“A lot of these kids are socially engineered into giving up information about themselves,” said Goldberg. “If they meet someone on an online gaming platform, they oftentimes reveal pieces about themselves that make it pretty easy for cyber criminals to figure out whether they come with family or not.”

A Crime That’s Hard to Detect

Once a child’s identity is stolen, criminals often take over their payment accounts. credit and debit cards being the most commonly compromised instruments. More than half of such victims found that their mobile numbers and login credentials were misused soon after their identities were stolen. Had those accounts been more closely monitored and secured with stronger identity verification, victims might have been alerted that their identity had been stolen or that personally identifiable information (PII) had been compromised long before any fraud occurred.

Using a child’s identity allows criminals to conduct traceable transactions with ease, making these activities appear trusted and worry-free. Neither parents nor children are likely to monitor such breaches. However, the stolen information can still be exploited, even though children themselves would be unlikely to get a loan on their own.

“If the hackers have all of those bits of data, they can open up a credit card, they could open up a peer-to-peer account like a Venmo, they could do all types of things,” said Goldberg. “What makes the children so attractive is that new account fraud on a child’s credit report isn’t going to raise flags because kids aren’t getting credit reports.”

“It’s not typically until a child buys a car for the first time or goes away to college to get an apartment or tries to get a student loan that then they find out that their credit has been compromised,” she said. “There have been all these things on the credit report that the child didn’t open. But at that point it could be several months to years after the initial compromise.”

The Threat of Synthetic Identities

When criminals compromise children’s identities, as in the PowerSchool breach, they reuse bits of their PII in new ways. Traditional credentials, such as email usernames and passwords, can lead to full account takeovers or new account fraud through synthetic identity creation.

Cybercriminals exploit these stolen fragments of personal information by assembling them from multiple sources to create synthetic identities—essentially fabricating a new identity.

“They take maybe the Social Security number of someone who’s recently deceased, the date of birth of someone who lives down the street, and the address from a child that they’ve compromised,” Goldberg said. “It’s all legit pieces of information, but they’re putting it together to create a fake identity. Unless the algorithms on the back end are detecting that this date of birth does not go with this Social Security number, it’s not going to raise a flag.”

To protect children from these types of attacks, an identity protection service (IDPS) is key. Only 5% of parents and guardians report that they covered their children by an IDPS before they became victims of identity fraud. But 95% said they enrolled their child in IDPS only after the victimization. Some parents and guardians never make the investment, even if their children experience identity theft.

“Our Social Security numbers are out there,” said Goldberg. “But because we have credit reports that we’re tapping into on a regular basis, we’re getting alerted. Every financial institution, for the most part, will let you know what your credit report looks like. Anytime I log into my Bank of America account, I’m getting an overview of what my profile looks like. Kids don’t do that.”

Parents need to take the lead in teaching their children about the dangers that are out there.

“The main thing is educating kids to not share information about themselves,” said Goldberg. “Just like stranger danger. You wouldn’t go out and tell somebody at the supermarket who you are, where you live, what your phone number is. Don’t do that online either.”

The post Stealing Children’s Identities: The Threat That Parents Overlook appeared first on PaymentsJournal.

For everyday consumers, using a debit card is a simple and direct choice, transferring funds straight from their banking account. For businesses, however, it’s a different story.

The Durbin Amendment to the landmark Dodd-Frank banking law, passed in 2010, limited the transaction fees that card processors could impose on businesses. This had the happy side effect of ushering in a wave of fintech innovation by new companies offering creative solutions, bringing real competition to the payment-routing landscape.

But the changes didn’t stop there. In July 2023, a revision to the law mandated that all U.S. debit cards be branded by a network unaffiliated with Mastercard, Visa or Discover. This gave merchants the autonomy to choose which network would facilitate each individual transaction, a process known as debit routing.

This opened the door to additional competition from smaller players such as NYCE, STAR, PULSE, and Accel. The upshot was a confusing array of options to choose from, but with the upside of additional savings and flexibility for merchants who are familiar with these processes. For any business that accepts debit cards, the opportunity is significant.

The Power of Debit

Despite the fact that technology and regulation have fueled the emergence of a plethora of new payment options, debit cards remain the preferred choice for millions of consumers.

According to platform data from payment services leader Adyen, debit transactions made up 58% of all electronic transactions in the U.S. in June 2024, excluding those made with cash or checks.

“The modern retailer must accept debit cards–a no-brainer in today’s market. From everyday payments like grocery and fuel to subscriptions and services, debit cards are one of the most popular ways to pay in the U.S. Retailers should be looking for ways to optimize the flow and routing for this highly utilized payment method.” – Ben Danner, Senior Analyst, Credit and Commercial at Javelin Strategy & Research

Learning from Experience

For merchants, the Durbin Amendment introduced a range of routing platforms, each with its own advantages and costs. However, selecting the optimal choice for every individual transaction is hardly practical.

Fortunately, another recently developed tool can help merchants navigate these new opportunities: artificial intelligence. A robust machine learning program can analyze past transactions to optimize the processing of future ones, ideally providing cost savings with every payment.

For example, in 2023, Adyen processed $1 trillion in transaction volume. This represents $1 trillion worth of data that can be used to guide merchants toward the optimal outlet for their payments. Powered by AI, each of these transactions was driven by real-time machine learning decisioning. As Adyen continues processing transactions, it remains committed to researching and implementing holistic, data-driven strategies to optimize decisions across the entire payments funnel.

These investments have culminated in Adyen’s Intelligent Payment Routing for US Debit solution. While many similar solutions focus on increasing conversion rates or reducing merchant costs, Adyen’s offering stands out as the only AI-based solution capable of delivering both. In a pilot program involving more than 20 enterprise businesses, including eBay, 24 Fitness, and Microsoft, Adyen helped participants achieve not only an average of 26% in cost savings but also a 0.22% increase in authorization rates. One customer, in particular, experienced substantial results, with Adyen delivering cost savings of over 50%.

“Least-cost routing is not new, but what has gotten complex are card issuer algorithms that look at a range of attributes around a transaction, including what network the transaction uses when considering whether to approve or decline it.  Introducing AI to learn based on this transaction throughput enables Adyen to not only optimize routing for cost, but also for performance.” – Don Apgar, Director of the Merchant Practice, Javelin Strategy & Research

Developing Intelligence

The businesses that participated in the pilot program have already experienced the benefits of Intelligent Payment Routing. These businesses varied widely, from eBay to 24 Hour Fitness, but any business handling a large volume of debit payments is likely to see advantages from the service. Businesses with low to medium average transaction values—typically under $100—and high transaction frequency are particularly well-positioned to benefit the most.

Some of these business include:

• Retail and e-commerce
• Fast-food and sit-down restaurants
• Insurance and healthcare
• Subscription services
• Event venues
• Ride-sharing services
• Online travel agencies

The list also extends to include any other industries where consumers frequently use debit cards. In addition, network token and digital wallet transactions are eligible to make use of Intelligent Payment Routing.

How It Works

While Least-Cost Routing programs have been available for some time, Intelligent Payment Routing for US Debit represents a giant leap forward. By leveraging AI, the solution reduces transaction costs by determining the optimal route for every transaction. By expanding routing options, it improves authorization rates at the same time. This service uses Adyen’s ecosystem data from both online and in-store debit transactions, allowing retailers to maximize their bottom line across all sales channels.

Intelligent Payment Routing analyzes a variety of factors for each payment, including the scheme and the issuer, to select the best network based on success rates and processing fees. This ensures decision-making prioritizes performance and cost efficiency.

The results speak for themselves. In Adyen’s pilot program of over 20 enterprise businesses, one customer reported $600,000 in savings within just the first month.

With so many routing options available, it’s important to note that Intelligent Payment Routing employs no favoritism. Unlike some competitors in this space who run their own networks and may prioritize their interests over those of merchants, Intelligent Payment Routing is designed to optimize outcomes for retailers. Merchants should ensure their routing system is focused on meeting their needs—not those of the system’s owners.

The Bottom Line

Intelligent Payment Routing offers merchants a golden opportunity to optimize for higher performance while reducing costs. Whether it’s a domestic enterprise trying to compete in North America, or a global enterprise looking to expand operations in the U.S., this technology can significantly increase profit margins.

Discover more about the benefits of Adyen’s Intelligent Payment Routing solution, as well as the effective strategies to reduce the total cost of payments.

The post Artificial Intelligence: The Key to Saving More on Every Debit Payment appeared first on PaymentsJournal.

Beyond accelerating settlement and clearing times or giving merchants a pathway to better liquidity, real-time payments hold transformative power on a global scale. According to ACI Worldwide’s Real-Time Payments: Economic Impact and Financial Inclusion report, real-time payments are bringing millions of people into the financial ecosystem, opening new markets for financial institutions, and bringing lower costs and higher efficiency to consumers, businesses, and governments.

Published in collaboration with the Centre for Economic and Business Research, the report demonstrates—for the first time—an empirical link between real-time payments and financial inclusion and the associated enhancements in financial security, entrepreneurship, digital transformation, and the expansion of banking services that financial inclusion brings.

As the report’s introduction notes, “Real-time payments are a win-win proposition for all stakeholders in the world’s payments ecosystem.”

‘At Every Level of Society’

The study focused on 40 countries, reviewing historical banking data and applying a predictive model. Among the findings and projections:

• Real-time payments in 2023 boosted the gross domestic product across all 40 countries by $164 billion (or the equivalent of the labor output of 12 million workers).
• By 2028, the GDP contributions from real-time payments will reach $285.8 billion, a 74% increase from 2023.

Real-time payments—whereby payers and payees can complete their business in seconds through digital tools rather than waiting for days with legacy methods—fuel economic growth “at every level of society,” the report notes, and create market efficiencies in the economies they touch.

The report also examines specific developments and opportunities in various regions: Africa, Asia Pacific, Europe, Latin America, Middle East, and North America.

The driving factors vary—in Africa, a youthful population is enjoying robust real-time payment ecosystems, while North America is seeing more incremental growth—but a larger story is emerging across the globe: Real-time payments are transforming economies and creating opportunities for businesses and consumers.

A Matter of Inclusion

The report takes a deep dive into financial inclusion, studying data from 28 countries to chart the link between real-time payments and the expanding reach of financial services. By 2028, more than 167 million people previously excluded from the financial system could have bank accounts. The 10 countries poised to see the most uplift into financial inclusion are a mix of nascent and mature economies. Pakistan is number one (with an estimated 63.5 million people newly banked by 2028), and Turkey is number 10 (1.5 million), with economic powerhouses like China (13.8 million) and the United States (4.9 million) at numbers five and seven, respectively.

Although the inclusionary effects of real-time payments are profound in rapidly developing economies—much attention has been granted to the rise of such payments in India, for example—the reach is more egalitarian. Those historically left behind even in advanced economies can be allowed to leverage more affordable and accessible financial services through real-time payments and subsequently avoid predatory fees and loans.

Real-time payments can eliminate the barriers caused by fees and delays in payment timing and reduce the late fees that often occur amid payment lags. This means that apps, QR codes, and mobile wallets can be the portals for previously unbanked and underbanked citizens to access products that could transform their lives.

Fees have a particular impact on unbanked or underbanked populations. For example, a recent U.S. Consumer Financial Protection Bureau report on overdraft and non-sufficient funds fees found that the median fee amount was $35. Roughly half of consumers in the CFPB study were not prepared for the overdraft fee, and those who incurred fees were more likely to come from lower-income households. In addition, lower-income households are more likely to experience income volatility or live paycheck to paycheck. This makes certainty about the timing and availability of funds even more critical.

“In some areas, the barrier to becoming banked has likely been cost,” said Elisa Tavilla, Director of Debit Advisory Services at Javelin Strategy & Research. “You usually have to maintain a minimum balance in the account or pay maintenance fees. Maybe they weren’t in proximity to physical branches, which used to be the primary way to access banking services. Now, with digital and mobile, banking is a lot more accessible no matter where you are.”

The Financial Uplift for Merchants and Banks

The dramatic effects of real-time payments go far beyond consumers. Merchants also experience reduced transaction fees—or none at all—when they accept real-time payments. Receiving funds in seconds rather than days can be crucial for businesses that rely on daily cash flow. Instant settlement also helps merchants keep better tabs on their inventory and reduce their overhead.

The ACI Worldwide report indicated that real-time payments generated $116.9 billion in savings for consumers and businesses in 2023, mainly due to lower transaction fees and reduced settlement float times. These savings are predicted to grow to $245.8 billion by 2028.

The effects of real-time payments can also be seen in the most basic marketplace meetings. Tavilla noted that she had recently been in Thailand (No. 9 on ACI Worldwide’s list of the top markets for financial inclusion uplift) and saw that “street vendors who used to accept only cash now have a QR code posted.”

“When the money gets deducted directly from a bank account, the merchant immediately knows they’re getting paid,” she said. “It’s just convenient, and everybody seems accustomed to using it.”

These remarkable efficiencies—coupled with the surge in financial inclusion—present significant opportunities for banks. The report identifies the top markets for increased profit opportunities by 2028 through accountholder growth aided by real-time rails. Again, Pakistan takes the top spot ($173 billion), followed by Argentina ($3.4 billion), with major economies like India, China ($21.2 billion), the United States ($18.9 billion), and Brazil ($8.9 billion) also in the top 10.

That influx of newly banked citizens brings opportunities to build new products and services and grow new generations of customers.

As the report notes, “Real-time payments have asserted their role as a powerful enabler for societal transformation.”

*All data contained within this article comes from the Real-Time Payments: Economic Impact and Financial Inclusion Report

Dive into the complexities of real-time payments modernization with ACI’s recent research.

The post Transforming Economies: The Global Impact of Real-Time Payments appeared first on PaymentsJournal.

The way businesses pay and get paid is still evolving. Complex, manual systems continue to be replaced by smarter, more automated and integrated tools that save time, generate cash back, cut costs, and improve security.

As we turn the page on another year, I want to delve deeper and explore several key trends reshaping business payments and how they can impact organizations. I’ve pulled these themes from thousands of hours talking with businesses, fintechs, card brands, vendors, and others in the B2B payments space this past year.

Embedded Payments:  Built into Your Workflow 

Imagine making a payment without having to leave the platform you’re already using. No switching systems, no extra steps. That’s the magic of embedded payments.

By weaving payment functionality directly into tools like ERPs or procurement systems, businesses can speed up processes, reduce errors, and gain better control over cash flow.  Partners of our business payments network Paymode, for example, get to offer a familiar, branded experience to customers.

How does this work in practice? Bottomline simplifies the payment experience for our partners’ end-users in four steps:

1. Their customers send payment instructions to their regular systems as usual. 
2. Partners then send all data via API to our Paymode network to facilitate payments. 
3. Paymode processes the payments to suppliers and handles any exceptions. 
4. Payment data and rebates flow back through the partner’s systems, which display payment details back to the end user.

For accounts payable teams, this means fewer headaches and more time for strategic work. Suppliers, meanwhile, get paid faster and can focus on maintaining and strengthening their customer relationships. Those benefits are why embedded payments are set to become the norm, making every step of the payment process feel seamless in a way that wasn’t possible previously.

Vendors already using Paymode are familiar with Premium ACH and virtual card, two of the signature payment offerings for Bottomline. New suppliers opt-in to receive these payments because they offer rich remittance details and process efficiency for their Accounts Receivable (AR) function. Vendors get AR data when and how they ​want it via formats they prefer, scheduled reports, live payment trackers, and more.

AI: Your Secret Weapon for Smarter Payments 

Artificial intelligence has moved from a buzzword to a familiar ally for businesses, especially as it relates to payments and payment protection. It’s helping companies detect fraud before it happens, reconcile accounts in record time, and even forecast cash flow with precision. 

AI shines by spotting patterns in mountains of data that humans can’t process quickly, and supplements the fraud prevention powers and automation offered by solutions and experts today. It flags issues like duplicate invoices or unusual transactions, reducing risk and saving money. For Bottomline, for example, machine learning capabilities allow for steadily improving accuracy when ingesting and reading invoices.

AI’s full range of applications are still being developed and understood, but businesses should expect its role in AP and cash management to grow.

Software as a Service Payment Platforms: Flexible Tools for a Changing World 

Gone are the days of archaic and cumbersome on-premise payment systems. SaaS platforms have taken over, offering the flexibility businesses need to adapt quickly to change. These cloud-based solutions can handle growing payment volumes and keep operations running smoothly, even as markets shift, and business needs evolve. They can be rolled out as white labeled solutions, connected to embedded solutions, or accessed directly through a software provider.

Another win for SaaS? Automatic updates. Businesses don’t have to worry about falling behind on compliance or missing out on new features. Add in advanced reporting tools that give real-time insights, and it’s clear why we’re nearing all-encompassing adoption of SaaS.

Vendor Onboarding: Building Relationships with Trust 

The first step to a successful B2B partnership is a smooth, secure onboarding process for vendors.  With more complex supply chains and growing fraud risks globally, businesses can’t afford to cut corners here. 

Modern onboarding tools use automation supplemented by expert reviews to check vendor details, verify compliance, and unearth potential red flags—all in a fraction of the time it would take if everything was done manually. These capabilities and expertise build vendor trust from day one and set the stage for strong, lasting partnerships. As fraud threats grow, secure onboarding is no longer a nice-to-have; it’s essential. 

At Bottomline, for example, enrollments are matched against over 300 data points to ensure a vendor is who they say they are, and no vendor can receive a payment until they are automatically reviewed and their details are looked over by an experienced team of in-house fraud prevention experts. Bottomline keeps the Paymode network secure by blending advanced technology with 15 years of experience fighting fraud.

Personalized Payment Terms: Flexibility Wins 

What if you could customize payment terms for every supplier relationship? That’s becoming the expectation as businesses prioritize flexibility to strengthen partnerships. Early payment discounts, extended terms, or tailored schedules offer personalized options that create win-wins for both buyers and vendors.  At Bottomline, we have clients who offer payment via Paymode within 10 days of invoice receipt or within 45 days if the vendor insists on a check payment, driving adoption of more convenient, secure electronic payment types.

Businesses benefit with more control over their cash flow, better predictability, and stronger supplier loyalty. Advanced analytics tools are helping companies break down vendor data and craft payment terms that make financial sense for both parties.

Security and Compliance: No Room for Mistakes 

Cyberattacks are on the rise, and regulators are paying close attention. This makes enhancing security and compliance for payments more critical than it has ever been. Businesses are adopting tools with built-in safeguards like encryption, tokenization, and fraud monitoring to protect sensitive data. 

Compliance is equally important. Navigating global regulations can be daunting, but robust tools make it easier, ensuring businesses stay on the right side of the law in any locale where they do business without wasting resources. In a world where trust is everything, prioritizing security and compliance is non-negotiable, given its potential to protect not just data and money, but also a company’s reputation.

Looking Ahead 

The future of B2B payments is exciting—and full of opportunity. Embedded payments, AI, SaaS platforms, secure onboarding, personalized terms, and rock-solid security are shaping a smarter, more efficient landscape.  The trick is figuring out where to spend your time and resources in 2025 and beyond to drive the business forward and realize your target gains in efficiency, security, and cost savings.

At Bottomline, we’re here to help businesses embrace these changes with solutions that simplify complexity and drive growth as they embrace these solutions for better payments and bigger results.

The post 6 Business Payments Trends to Watch in 2025 appeared first on PaymentsJournal.

From One-Stop Shops to Many-Stop Journeys

As Gen Z—a cohort born between the mid-to-late 1990s and early 2010s—comes of age, the financial services industry is increasingly shifting its focus from Millennials to this younger, more digitally native generation. Unlike Baby Boomers, who often relied on a single “primary bank” for multiple financial services, Gen Z is redefining the banking landscape. This generation does not stick to one single provider; instead, they tap into a broad ecosystem of financial services, often spanning across traditional banks, FinTechs, and Neobanks.

Findings from a recent Javelin report demonstrate the high likelihood of Gen Z switching their primary financial institution.

“Younger customers are certainly a higher flight risk for their primary bank account relationship,” said Ben Danner, Senior Analyst of Credit & Commercial Payments at Javelin Strategy & Research. “These customers will take advantage of the cash incentive bonus offers, are comfortable with opening and closing accounts digitally, and seek an improved mobile banking experience. Switching is also less painful for a younger customer that may have less connected services to their account.”

This “fragmentation of banking” is even more pronounced in developing markets, where historically underserved populations have leapfrogged into financial inclusion through innovative FinTech solutions. For instance, in Kenya, M-Pesa, the mobile payment platform, helped drive banking penetration from 27% in 2006 to 75% by 2016.

Payments: An Underleveraged Channel for Customer Engagement

This unbundling of financial services poses a formidable challenge to traditional banks accustomed to keeping everything from checking accounts to mortgages under one roof —a model favored by Baby Boomers. Compounding the issue, many consumers are more familiar with FinTech brands (69%) than the newer offerings from incumbent banks (59%). This leaves traditional financial institutions struggling to effectively communicate their innovations as they compete with a growing roster of agile competitors in the financial services space.

In the light of this fragmentation, how can banks stay relevant and preserve customer relationships? Payments—the most frequent touchpoint between banks and customers—offer an effective yet often underutilized channel for engagement. The humble debit or credit card, used multiple times daily, has untapped potential to reinforce customer loyalty, brand recognition and “customer mindshare.”

From Top of Wallet to Top of Mind

What steps can banks take to transform the card from a simple piece of plastic into a tool for meaningful customer engagement? One approach is personalization. Allowing customers to choose their card design—whether by printing a cherished photo, such as their grandchildren, on the card surface or opting for a sleek, clean, minimalist aesthetic by removing visible card credentials like the card number and expiration date (these details can instead be placed on the back or accessed via an app)—can create a stronger emotional connection.

Functionality and material can also set cards apart. Features like LEDs that light up during transactions or premium materials such as metal or even glass offer novelty and exclusivity. For a truly standout offer, banks can combine features and materials—for example a metal card with a built-in LED, elevating the customer experience even further.

For years, banks have focused on making their cards “top of wallet.” In today’s fragmented financial landscape, the opportunity lies in going further—leveraging cards to make the bank and its brand “top of mind.” Banks that seize this opportunity and transform everyday payment tools into symbols of engagement and innovation will position themselves as leaders in an unbundled financial services future. Only time will tell which institutions rise to the challenge.

The post Staying Top of Mind: Mitigating the Unbundling of Banking Services appeared first on PaymentsJournal.

The institutional adoption of crypto and digital assets is at a higher level than ever. According to Ripple’s 2024 New Value Survey, the overwhelming sentiment among North American respondents is that digital assets and crypto will have a dramatic impact on business, finance, and society.

That being said, there is still some reticence, especially among North American organizations. Concerns about the lack of regulatory clarity and the potential for fraud, coupled with a reliance on legacy systems, have kept many of those institutions from adopting a modernized payments infrastructure that incorporates digital assets.

Key insights from the report are below, including the payments challenges that organizations face and the ways they’re leveraging blockchain-based solutions to overcome these challenges.

Digital Assets Will Impact Organizations Considerably

Ripple polled roughly 1,800 financial leaders across a spectrum of roles, including financial institution executives, fintech leaders, and commercial treasury management professionals.

Over 85% of respondents said that digital assets will have either a massive or significant impact on the business world. An even higher percentage anticipated that these effects would be even more substantial in the finance sector.

North American leaders’ expectations regarding the impact of digital assets on finance align closely with their European counterparts and are slightly higher than those from Asia Pacific. However, respondents from the Middle East, Africa, and Latin America expressed greater expectations for the influence of digital assets.

Blockchain was highlighted as a potential gamechanger across the board. Roughly 89% of respondents said they either use or plan to use blockchain-native currencies for payments, including stablecoins, central bank digital currencies (CBDCs), and cryptocurrencies. Use cases identified include the buying, selling, and trading of digital assets, payment acceptance, and cross-border payments.

Over half of North American participants believe that faster payment and settlement is the primary benefit of incorporating blockchain-based currencies, and that particularly applies to cross-border payments. The next most cited benefit was the always-on availability digital assets provide, followed by the cost savings they deliver. 

There is Still Payments Progress to be Made

While organizations recognize the benefits of adopting digital assets technologies, there is still progress to be made in implementing the necessary technology and infrastructure to support crypto.

Approximately 70% of commercial leaders reported still using bank transfers, such as wire and ACH, for cross-border payments. Additionally, they relied more heavily on digital wallets and credit cards compared to their global counterparts.

The technologies they use to manage their cross-border money flows are bank platforms, payment providers, and enterprise resource planning systems, in that order. Treasury management systems like Kyriba ranked as the fourth most popular option.

Credit cards remain a fixture in the U.S. and may be one reason the country lags behind global peers in adopting emerging innovations like open banking, digital wallets, and other payment alternatives. The convenience and processing of credit cards—compared to ACH—are likely reasons why payment leaders rely on them, even in spite of higher fees. 

As a result, the most frequently reported cross-border payments challenge for North American financial leaders is the high cost and fee structure associated with these transactions. When asked about the types of fees their business incurs most often in cross-border transactions, organizations cited foreign exchange fees, transfer fees, and platform fees as the top three.

Challenges with Cross-Border Payments Persist

After fees, respondents identified poor data security as their next biggest challenge with cross-border payments. This includes risks associated with incorporating digital assets, where many cited the security of the technology and price volatility as the most pressing concerns.

Personal career risk was another significant concern among respondents in North America, where it was notably higher than among peers in other regions. Enterprise finance professionals, in particular, expressed greater concern about reputational risks.

The fact that financial professionals are concerned that crypto advocacy could jeopardize their career indicates there still isn’t an overarching comfort level with digital assets and crypto in this region. This could be due to the lack of a clear regulatory framework for digital assets, or bad press about crypto fraud and other bad actors.

Blockchain-Based Benefits

While the concerns are genuine, financial leaders are hopeful that stablecoins, crypto, and CBDCs can ease several pain points for businesses. The top four issues that digital assets can help resolve are a lack of financial transparency, limited global payment network reach, poor data quality, and long settlement times.

These issues can be mitigated with blockchain-based solutions. For example, blockchain and distributed ledger technologies could reduce cross-border payment fees by minimizing the number of intermediaries involved in the payment flow.

This is particularly relevant for organizations sending payments in more exotic fiat currencies or in hard-to-reach regions. Blockchain can also eliminate the lack of liquidity and the settlement delays that can arise from processing through central or intermediary banks.

The transparent nature of blockchain can allay concerns about poor data quality by helping transaction parties verify payment details and reduce the potential for errors or fraud. In addition, the distributed nature of blockchain helps prevent unauthorized access and safeguards transaction data.

While there may always be price volatility concerns with certain cryptocurrencies, some cross-border payments platforms ensure customers are not subject to price fluctuations. For instance, Ripple Payments uses digital assets and stablecoins as a bridge between fiat currencies in a cross-border transaction.

With Ripple Payments, there is no need for additional intermediaries or correspondent banks, settlement is nearly instant, and customers aren’t required to hold crypto on their balance sheet.

Clear Payments Needs

Payments are fundamental to any organization’s success, and there will be increasing demand for convenient, secure, and instant transactions, especially in cross-border use cases. Though not all financial services companies suffer from many of the tech integration and maintenance issues that some of their global peers do, they are still hindered by legacy systems that come with increased fees and poor liquidity.

Overall, the sentiment of Ripple’s survey substantiates the assertion that digital assets technologies will continue to gain traction in North America. The main reason is there are clear payment pain points that crypto and digital assets can solve.

More companies will begin to centralize their business strategies around digital assets and the blockchain-based movement will gain momentum. Though there may be concerns around crypto now, as more financial leaders realize that crypto-based payment solutions are faster, more efficient, and less expensive ways to move funds around the world, these concerns will fade into the background. 

The post Digital Assets in North America: Trends, Use Cases and Challenges appeared first on PaymentsJournal.

As businesses increasingly engage in global transactions, modern cross-border payment solutions allow them to enhance speed and efficiency, generate cost savings, improve cash flow, and expand their reach. Local banks can play a crucial role in addressing these needs by providing faster, more reliable payments with blockchain.

However, these benefits have not reached every corner of the economy. For too many small and medium-sized enterprises (SMEs), international payments are still too expensive, too complicated, or simply unavailable.

According to a whitepaper from Ripple, half of all SMEs are now engaged in international business, and many are in urgent need of real-time, low-cost, and border-agnostic payment solutions.

This creates a compelling revenue opportunity for regional and community banks. Small businesses want to work with smaller banks—two thirds of them, according to a recent survey of community financial institutions, indicated they preferred to use small and regional banks.

Indeed, SMEs are willing to shop around for a bank that meets their needs. In 2023, 13% of SMEs reported switching their primary bank in the past two years—more than double the 5% who made the switch in 2022.

Roadblocks for International Payments

Although small businesses are transacting across borders more than ever, their experiences with global payments can still be costly and frustrating. Some of the key pain points include:

High costs and hidden fees. Banks typically charge around 2% to 3% of the total funds for a cross-border transaction. In addition, foreign exchange conversion rates further increase transaction costs, with some providers even charging a fee just to calculate the conversion rate.

Long wait times for funds to settle. Even when everything goes well, global payments still take an average of three to five business days to settle. The added time required for global payments slows down the transaction process and disrupts exchange rates. Globally, 14% of all cross-border payments are never completed, with an average cost of $12 per failed transaction.

Poor transparency. Traditional payment methods lack the infrastructure needed to provide real-time payment information. As a result, many overseas transactions occur without clear insights into their speed, status, or cost. Businesses are forced to work around their bank’s schedule rather than their own.

Burdensome operational overhead. Managing capital flows across various accounts in every country of a company’s operation can be complex, involving different currencies, regulatory environments, and financial institutions. Few small businesses have the resources or human capital to manage this on their own.

Serving the Market

The traditional way of conducting cross-border transactions is through the correspondent banking system.

SMEs’ payment needs are often serviced by a narrow subset of these large correspondent institutions, even though transactions with them can be financially and operationally burdensome. For instance, banks often require customers to maintain pre-funded accounts in local currencies on both sides of the transaction to ensure adequate liquidity. Additionally, more complex intermediary payment chains—especially across challenging corridors—can lead to higher fees.

A Visa survey of U.S. small businesses found that correspondent banking fees and foreign exchange fluctuations made cross-border payments less transparent. Some 42% of U.S.-based SMEs cited a lack of clarity as a concern. Because SMEs don’t generate the revenue that larger enterprises do, they often endure relatively poor service from their bank, and worse pricing.

Partly due to these obstacles, correspondent banking relationships are more vulnerable than ever. Despite the growing global nature of business, the number of correspondent banking relationships has declined by nearly 30% over the past decade.

Seeking Solutions

Still, payments solutions are evolving rapidly. Today, there are payment processors that specialize in efficient, transparent cross-border payments for SMEs. The faster these transactions settle, the less concern there is around exchange rates, allowing businesses to leverage more reliable and timely transactions.

Companies offering innovative financial services to SMEs stand to increase revenue and cement their competitive position. The B2B payments market is expected to reach $174.3 trillion by 2030, and local banks have a significant opportunity to capitalize on this growth.

The emergence of enterprise-ready solutions provides financial institutions with immediately accessible on-ramps to support SMEs. By simplifying the correspondent banking system, services like Ripple Payments can increase settlement speed and reduce costs for both providers and SMEs. This allows local banks to solve SME-specific problems, acquire new customers, and generate additional revenue streams. By diversifying their payments stack with Ripple, regional and community banks can offer affordable, superior cross-border payment capabilities to SMEs that even outweigh services offered through larger institutions.

For more info on how SMEs engage in cross-border payments, check out Ripple’s recent whitepaper, Big Opportunity in Small Business Payments.

The post Modern Payment Solutions Are Fueling the Globalized Economy appeared first on PaymentsJournal.

As payment processes increase in variety and become more complex, they also represent a greater opportunity for retailers and digital businesses. Strengthening your payments setup can boost your customers’ experiences and scale with operational efficiencies at the same time. Optimizing payments doesn’t just increase efficiency and reduce the burden on your finance team. It can also unlock significant profit potential for your business.

These opportunities are underlined by all the new payment methods that are thriving around the world. In parts of Asia, for instance, 40% of consumers prefer using digital wallets like Apple Pay and Google Wallet to pay online. Buy Now, Pay Later is gaining popularity in European markets like Norway, Sweden, and the Netherlands. And Pay by Bank is a rising payment method in markets ranging from Brazil to Hong Kong.

That presents a number of targets for businesses to keep aiming for. The key is to shift perspective – digital enterprises need to leverage their payment methods strategically as a revenue driver to gain an edge in this highly competitive industry.

Source: Adyen Digital Report 2024: Unlocking potential: Drive business growth with payments optimization

Emerging Payment Methods

The subscription model is one payment method that has flourished in the U.S. as well as other parts of the globe. Recurring payments are convenient and seamless for customers, who can “set it and forget it” with a credit card or other local payment method. Three quarters of all businesses say they want to invest in a subscription model in the year ahead.

The subscription market is projected to grow globally from $690 billion in 2024 to over $900 billion by 2028. A survey from Adyen found that 72% of people subscribe to a film or TV entertainment plan, half subscribe to an entertainment plan for music, and a third subscribe to a food-delivery plan such as Uber One.

“Subscription based payment models have been a resounding success in the U.S. market. I’ve seen figures showing the average amount of subscriptions a typical consumer has ranging from three all the way up to twelve. The subscription economy is all about generating recurring revenue streams while offering customers convenience benefits and options to choose their level of service. If it resonates with the business model, a subscription program is a great way for merchants to grow their customer base and generate valuable recurring revenue.”

 – Ben Danner, Senior Analyst, Credit and Commercial, Javelin Strategy & Research

Another online payments experience that is gaining popularity among both consumers and retailers is Click to Pay. Click to Pay uses a process called an express flow that lets customers store their payment details securely. They don’t have to fill out their details for each purchase, allowing them to complete a transaction with just a few clicks. It’s an especially helpful solution for guest checkouts, where a customer does not have an existing account with a digital business.

What makes Click to Pay such a vital option is that so many online sales get lost at the moment of checkout. In fact, 74% of consumers surveyed will be deterred from making a purchase if their preferred payment method is not available online, and 44% will abandon their cart altogether.

The good news is that businesses can create a mobile-optimized and secure checkout in minutes, with just a few lines of code. An optimized checkout page delivers a superior payment experience, boosting your sales conversion.

“Click to Pay makes a ton of sense in ecommerce as a simple way to confirm the identity of the person using the card presented for payment. Two-factor authentication has been proven to be effective in reducing many types of fraud. Consumers are familiar and comfortable with the process, and generally appreciate that the extra step is working to their advantage to protect their sensitive personal, financial, and payment credentials. Javelin believes that 2025 will be a tipping point that sees the majority of ecommerce retailers adopt Click to Pay technology.”

–Don Apgar, Director, Merchant Payments Practice, Javelin Strategy & Research

Vital Security Measures

Partnering with an experienced payments provider does more than offer your customers a new way to pay. It also secures the remittances once customers have made an order, protecting the business from fraud and other losses.

Take declined payments, for instance. There are a multitude of reasons why payments can be declined, including insufficient funds, technical issues, and wrongly formatted messaging, such as when the CVC or expiration date data may be set up differently depending on the issuing bank.

Recovering payments is much easier with the right solution. For instance, Adyen’s RevenueAccelerate help your business recover declined payments two different ways:

The right partners can also help you recognize genuine customers and detect threats via fraud-detection technology. These systems use historical and cross-platform data between businesses to detect abnormalities.

To authenticate their customers and fight against fraud, many businesses have turned to biometric processes. These can range from the familiar thumbprint on the phone to more sophisticated measures, like analyzing a customer’s common decisions to detect suspicious anomalies. Worldwide, 40% of consumers use biometrics to authenticate online transactions. Markets in Europe and Asia have also been introducing regulations that mandate the use of authentication.

The key for online businesses is to balance convenience and security by offering the best authentication experiences. By leveraging payments innovation, businesses can detect and prevent fraud faster and reduce its impact with smarter methods of authentication.

The Path to Strategic Growth

Modern payments processes are about more than efficiency and convenience.  Making full use of payments data is helping businesses discover new solutions and identify customer needs. Some 80% of the surveyed enterprises agree that payments data supports how they streamline business processes.

Source: Adyen Digital Report 2024: Unlocking potential: Drive business growth with payments optimization

The value of partnering with the right financial technology platform goes beyond just payments. A platform that combines payments, data-rich insights, customer loyalty, risk management, and banking infrastructure is the key to unlocking innovation and growth for enterprise businesses.

Payments, when optimized right, become a revenue driver instead of a cost center. Businesses that partner with the right fintech platform are able to make payments a crucial element in their growth strategies, giving these online businesses an edge in a very competitive and saturated market.

Adyen’s robust, all-in-one platform empowers digital enterprises to navigate the most complicated challenges of 2024: unlocking profits, simplifying global complexities, and going beyond payments processing. Find out how Adyen can help your business get the most from its payments.

The post From Potential to Profit: Turning Payments Into a Revenue Center appeared first on PaymentsJournal.

The rise of digital wallets has been subtle, often going unnoticed as people use them with a quick swipe on their phones or deep within the privacy of their laptops. Some consumers making purchases with services like PayPal and Google Pay might not even realize they’re using a digital wallet.

Yet, their usage is widespread. According to McKinsey, digital wallet penetration among Americans is approaching 90%. One study by Forbes suggests that a majority of Americans now use their digital wallets more frequently than traditional payment methods. Another study found that digital wallet usage is expected to double between 2023 and 2028, when there are projected to be 1.4 trillion digital wallet transactions worldwide.

The ongoing rise in customer satisfaction with digital wallets has led to their growing adoption—and vice versa. In March, J.D. Power and Associates reported that nearly half of all U.S. consumers had used a digital wallet in the past 90 days, a 12 percentage point increase from 2023. Overall customer satisfaction with digital wallets is also up, with ease of use—both online and in person—being the top factor driving this increase.

The most widely used digital wallet is PayPal, utilized by 40% of digital wallet holders, followed by Apple Pay at 28%, and Venmo at 22%. Apple Pay is the preferred choice among consumers who use their digital wallet for purchases five or more times a month, while those who use their wallet just once a month tend to favor Venmo and Cash App Pay.

The growth in this area has created ample opportunity for new competitors to innovate and offer consumers services they didn’t even know they needed. And a new bank-issued digital wallet, Paze^SM—from Early Warning Services, LLC, an innovator in financial and risk management co-owned by seven of the largest banks in the U.S.—could be the next major solution to disrupt the industry.

Several Advantages

It’s easy to see why consumers are gravitating toward digital wallets. Like many new technologies, the main appeal here is convenience. Studies show that consumers want their payment experiences to be more streamlined, and digital wallets—capable of executing payments with a single touch—make purchasing products and services online incredibly convenient.

They’re also faster. Payments made with a digital wallet can be completed more quickly than traditional payment methods. This is particularly true in online environments, where the need to manually enter card data is eliminated.

Equally important, digital wallets offer this convenience without compromising security. They typically protect data through encryption, and most require multi-factor authentication before approving transactions.

Data suggests that safety is the primary reason consumers prefer bank-backed digital wallets over guest checkout options. The vast majority of consumers trust their own bank’s security protections more than those offered by alternative payment methods.

Stumbling Blocks Remain

Digital wallet users are still navigating a few pain points. People who are unfamiliar with them often fear that setting up a digital wallet  will be more complicated than they would like.

Many shoppers have expressed a willingness to use digital payment tools if they were already set up for them. A Paze Pulse report indicates this could be an opportunity for digital wallets that come preloaded on consumers’ phones.

Another hurdle is that not all businesses are prepared to accept digital wallet transactions. Some merchants only accept digital wallets online, while others do so only in person. This inconsistency makes it difficult for some consumers to fully transition from their traditional wallets to digital ones.  

Benefits for Merchants Too

The convenience and security of digital wallets don’t just benefit consumers—retailers stand to gain as well. Some of the key advantages include: 

• Using a digital wallet for online purchases reduces friction and saves time since neither the customer nor the vendor needs to manually enter card information. 
• The technology for accepting digital wallet payments can be easily integrated into existing checkout systems.
• Offering multiple payment options gives customers the flexibility to pay how they prefer.
• Digital wallet usage is higher among affluent consumers. While slightly less than half of U.S. consumers use digital wallets, that number jumps to 55% among those earning more than $100,000 annually.  

Research also shows that consumers tend to spend up to 31% more when using a digital wallet for transactions. This impact is even more pronounced in the restaurant industry, where diners using digital wallets have contributed to a 33% increase in spending.

Smoothing the Way for eCommerce

Although ecommerce is a part of modern life for most American consumers, it still presents some difficulties for many shoppers. More than 70% of all online shopping carts are abandoned before checkout. One of the primary reasons this occurred was, according to consumers, that the checkout process was too long or complicated.

Digital wallets remove those concerns making ecommerce transactions smoother and more reliable for all concerned. With its stored, secure credentials, a digital wallet eliminates the need for customers to manually re-enter lengthy payment information during checkout.

Security is another major concern for people shopping online. More than 60% of the respondents to a recent Chubb survey said they have altered their behavior or reduced their usage of digital payment platforms due to concerns about cyber scams or other fraudulent activities. With features like tokenization and multi-factor authentication, digital wallets can protect sensitive customer data from being compromised during transactions, reducing the risk of fraud.

All these factors are becoming more significant as consumers make more transactions on their smartphones. There will be more than $500 billion in sales made via smart phones and other mobile devices in 2024. These devices are exceptionally well-suited for processing information and securely managing a significant amount of data.  

Before long, the question won’t be whether someone has adopted a digital wallet. We’re approaching the point where the real question will be: Are you offering your customers the option they want: to pay with a digital wallet?

Paze and Paze related marks are wholly owned by Early Warning Services, LLC and are used herein under license. Learn more about Paze

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It is a fact that our world continues to become an increasingly digital one, with many once ubiquitous physical objects being retired as relics of the past. Consider road maps, for example—most of us haven’t used them in years, and younger generations likely never will, thanks to digital navigation tools like Google Maps and Waze. Yet, despite the rise of digital solutions, there remains a strong appetite for experiences that blend physical, sensory, and human elements.

Certain physical formats, such as board games, continue to thrive. In an era saturated with digital gaming, traditional board games have not only retained their popularity but are even experiencing market growth, projected to more than double in value between 2024 and 2032.

When Physical Meets Digital: Creating Memorable User Journeys

In other cases, physical and digital formats are combined to create compelling user experiences. IKEA, for instance, leverages augmented reality to help customers visualize furniture in their homes, enhancing a predominantly physical experience with a digital twist. Similarly, companies like Chatbook enable users to create physical photo books from photos stored on smartphones or social media platforms, blending a primarily digital experience with a tactile component.

Leading the Charge: How Gen Z is Driving Digital-Physical Integration

Unsurprisingly, younger consumers are at the forefront of this transformation. Last year, 39% of Gen Z clothing buyers in the U.S. discovered new brands or products via social media. However, as Shopify aptly notes, “although consumers expect a digital-first shopping experience, they also crave connection.” This sentiment extends to banking, where 70% of U.S. Gen Z’ers visited physical bank branches in 2023 to access banking services. In an increasingly digital world, “the human connection is still the differentiator in building trust.”

Reflecting on the Future: How Big- and FinTechs Are Merging Cards with Digital

As Gen Z—digital natives—favor a blend of digital and physical experiences, FinTech companies like Trade Republic seem to have found the sweet spot. Trade Republic, which recently launched its retail banking service, combines an almost entirely digital experience with a striking physical metal card featuring a reflective surface that acts like a mirror. Each time the customer uses the card, they see their own reflection. In an era of hyper-personalization, it’s hard to imagine that one can take personalization further than enabling the cardholder to see themselves reflected in the surface of the card each and every time they use it. Similarly, Apple has blended digital and physical experiences, introducing the Apple Pay digital wallet in 2014 and following it up with the physical Apple Card—crafted from titanium—in 2019.

Physical Cards as a Gateway to Digital Security

Another innovative approach to the merging of digital and physical is the use of physical cards for cold storage of digital assets and secure authentication. By embedding private cryptographic keys into the card’s chip, users can tap the card on a smartphone to self-custody and control their digital assets, keeping their funds safe from hacks and account freezes. At the same time, this physical card can provide a cryptographically secure, password-free user experience for authentication, eliminating the need for vulnerable SMS codes or OTPs. This technology not only secures transactions but can also reduce false declines and prevent account takeovers, making the physical card a key to secure, modern digital life. The card becomes your key to securing your digital life and asset.

Unlocking Tomorrow: Merging Digital and Physical

Looking ahead, it seems that the most successful innovations in banking and payments will be those that seamlessly integrate digital and physical elements, leveraging the unique strengths of both.

The post The Hybrid Consumer: Embracing the Best of Both Digital and Physical appeared first on PaymentsJournal.

Virtual cards—digital versions of physical credit or debit cards typically used for online transactions or recurring payments—offer a powerful opportunity to streamline operations while enhancing security. When combined with the power of AI, virtual cards provide a safe way for individuals both inside and outside of the organization to purchase the goods and services they need.

Enhanced Internal Control

The success of virtual cards lies in their ability to provide targeted, controlled spending. Unlike traditional company-paid credit cards, virtual cards are issued with a specific intended use or purchase scenario. This could be for a single purchase or a series of purchases.

When a virtual card is issued, it is configured with built-in internal controls tailored to its specific purpose. Any purchase made with this card must adhere to these controls; if it doesn’t, the transaction is declined at the point of sale. Controls can include spending limits, effective date ranges, and merchant restrictions based on the merchant’s name or category.

For example, Mike, a construction manager at a commercial construction company may need to buy materials or tools while on-site. Mike could be issued a virtual card with a merchant category control that limits purchases to suppliers of construction materials or tools. To maintain budget control, the card might also have a spending limit and an effective date range specific to a particular job. These enhanced internal controls reduce the risk of fraudulent spending, as cardholders are restricted by more than just the company’s overall credit limit—they’re bound by targeted constraints that align with the card’s purpose.

AI Helps Further Reduce Fraud Exposure

While enhanced internal controls significantly reduce fraud risk, certain vulnerabilities remain. AI plays a crucial role in addressing these gaps.

Take Mike’s virtual card purchase, for example. He might buy thousands of dollars’ worth of materials from a home improvement store but hidden among the legitimate items is a $500 gift card for himself. The transaction meets all the internal controls: It’s at a valid merchant, within the spending limit and occurs during the allowed date range. However, the fraudulent purchase is concealed within the receipt’s line-item details. This is why receipts must be submitted with full line-item details. Only by auditing these details can fraudulent spending be detected. AI can be instrumental in discovering potential fraud like this. The methods it uses depend on whether the receipt is submitted as an image or as data.

Detecting Fraud in Receipt Images

Fraudsters sometimes create fake or altered receipt images. For this type of situation, AI uses several methods to detect fraud:

Pixel-level analysis: AI can analyze individual pixels to identify inconsistencies in texture, lighting, or noise patterns. Edited portions of an image often have different pixel characteristics compared to unaltered parts.

Machine learning: Machine learning algorithms can be trained on a large dataset of authentic and altered receipts to recognize patterns specific to genuine receipts from specific merchants.

Deep learning and convolutional neural networks (CNN): Deep learning models, particularly CNN, are highly effective in detecting image alterations by identifying patterns invisible to the human eye.

Shadow and reflection analysis: AI can analyze the natural shadows, reflections, and lighting present in a receipt image. When a receipt is digitally altered, these features may become inconsistent with the rest of the image.

Detecting Fraud in Receipt Data

Receipts can also be submitted as data, either directly from online purchases or converted from images using AI-powered optical character recognition (OCR). AI analyzes this data for potential fraud by:

Anomaly detection in spending patterns: AI systems can analyze large volumes of receipt data to detect unusual or unexpected spending patterns.

Duplicate receipt submission detection: AI can detect when the same receipt is submitted multiple times, either accidentally or fraudulently.

Cross-referencing with external data: AI can verify the authenticity of receipt data by cross-referencing it with external databases.

Fraudulent modifications in amounts or items: AI can detect subtle changes in amounts or item descriptions that may indicate fraud. In our gift card example, AI can identify when expensive items are falsely itemized under allowable categories, such as labeling personal electronics as office supplies.

A Safer Path Forward

The combination of virtual cards, which inherently provide enhanced internal controls, and AI-driven receipt fraud detection offers operational managers a powerful tool for safeguarding purchases. Built-in safeguards like transaction limits, vendor restrictions and real-time monitoring make it harder for unauthorized expenses to go unnoticed. In an environment of ever-increasing ways in which bad actors are committing fraud, AI-powered virtual cards not only reduce the risk of fraudulent spending, they also allow organizations to modernize their financial operations in new and secure ways.

The post How Virtual Cards and AI Revolutionize Safer Operational Purchases appeared first on PaymentsJournal.

With ACH payments processing over 31.5 billion transactions valued at $80.1 trillion in 2023, the importance of bank account validation cannot be overstated.  

For many organizations, the focus on validation may stem from a need to comply with Nacha regulations. While compliance is essential, businesses that view account validation solely as a regulatory obligation are missing out on the broader benefits that come with a more strategic approach. Fraudsters are becoming more sophisticated and basic validation methods may not be enough to protect against these evolving threats.  

By leveraging advanced account validation technologies, organizations can not only meet compliance requirements but also drive significant business value through enhanced fraud prevention, improved decision-making, and operational efficiencies. 

Why Compliance-Driven Account Validation Matters 

As a baseline, bank account validation is a process designed to verify that a bank account is legitimate and can be used for transactions. Typically, this is done by checking the format of account numbers, confirming that the account is open and active, and ensuring that the routing number is valid. These checks are vital to complying with Nacha’s Account Validation Rule, which requires organizations to use a “commercially reasonable fraudulent transaction detection system” to screen WEB debits for fraud.  

While basic validation methods are sufficient for meeting regulatory requirements, they do little to address the broader risks that come with processing ACH payments. 65% of organizations were victims of fraud attacks in 2022. Today, forward-thinking businesses are going beyond this baseline by analyzing other key elements in combination with the routing and account number such as consumer identity information and payment performance. 

Robust fraud detection is Key 

In 2023, $3.1 Trillion in illicit funds infiltrated the Global Financial System. Fraudsters are becoming more sophisticated, often using tactics such as synthetic identity fraud or account takeover to bypass basic validation checks. These advanced validation solutions that create a more accurate risk profile enable businesses to catch potential fraud that might slip through with more basic validation methods.  

Some advanced systems can detect if an applicant is using a non-residential phone number, has multiple SSNs associated with a bank, or if there’s a mismatch between the provided name and bank account. For instance, in an analysis of bank account payment performance data, bank accounts linked to three or more SSNs are found to be ten times more likely to experience a fatal return, such as an R03 (invalid account number) or R04 (unable to locate account), compared to those associated with fewer than two SSNs. Other providers of bank account validation services analyze bank accounts over time to better pinpoint high-risk bank accounts. 

By combining multiple data points and analyzing connections like consumer information, bank account transaction patterns, stability, and payment performance, along with bank account routing and account numbers, businesses can prevent fraudulent transactions before they occur, significantly reducing potential losses.  

Beyond fraud prevention, advanced validation technologies can also provide valuable insights that enhance decision-making across the organization. For example, during customer onboarding, these technologies can reduce the need for manual verifications by assessing bank account data in real-time. This enables organizations to dynamically route customers through onboarding, streamlining those with positive performance, while applying additional screening for higher-risk accounts.  

By introducing calculated friction when necessary, such as deploying real-time microdeposits to verify authorized access to a bank account, ensures only legitimate customers and accounts are approved. Automated decisions to dynamically route customers based on risk can allow for faster onboarding and payment processing and reduce friction for legitimate customers. This allows businesses to enhance operational efficiency but also improve the overall customer experience by minimizing unnecessary delays and ensuring the right amount of verification is applied to each customer. 

Managing Financial Risks Means Bottom-Line Improvement 

The impact of verification is particularly critical when it comes to managing financial risks and ACH returns. By reducing the frequency of ACH returns and associated fees, businesses can see substantial improvements to their bottom line. For example, R03 (unable to locate) and R04 (invalid) are “returns with no recourse,” meaning the transactions are final and can’t be disputed or reversed, leaving organizations without the ability to recover the funds. This finality poses a significant financial risk, as businesses are left to absorb the loss. By implementing robust verification processes, organizations can minimize the likelihood of encountering these return codes. Accurate and timely validation of bank account information ensures that transactions are initiated with valid, active accounts. This not only protects the organization from financial loss but also more secure and successful ACH transactions. 

Perhaps most importantly, advanced validation provides businesses with data-driven insights that enable more informed decision-making. The value of advanced validation is evident across industries. In the automotive sector, companies use these solutions not just for Nacha compliance, but to validate bank accounts before extracting car payments, to reduce ACH returns. In the real estate industry, property management firms leverage advanced validation to prevent rejecting potentially good renters during application while more accurately identifying high-risk-lenders at risk for payment issues. 

As the financial landscape continues to evolve, businesses that embrace advanced account validation will be better positioned to mitigate risks, improve operational efficiency, and drive growth. By going beyond basic compliance, these organizations can unlock valuable insights that provide a competitive edge in an increasingly complex digital economy. 

John Gordon is the CEO of ValidiFI, the leading provider of predictive bank account and payment intelligence. 

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Many merchants are hesitant to take the plunge on new payment methods because they are concerned about the time or resource investment, as well as the ever-present threat of fraud.

However, in many cases, the benefits of adopting emerging payments dramatically outweigh the drawbacks. For instance, many younger consumers might not qualify for a credit card, but they can qualify for a buy now, pay later loan, which typically requires only a soft credit check. Adding BNPL support could aid a merchant in making inroads with a younger clientele.

Though mobile payments might often be associated with a younger demographic, contactless payments and digital wallets have reached ubiquity among all ages. The current use cases for these methods are only the tip of the iceberg—tap-to-phone contactless technology could revolutionize payments for small businesses, and digital wallets can give loyalty programs a substantial edge.

Instant payments are a fixture of daily life in many countries, and the open-banking staple has the potential to be just as impactful for U.S. merchants. The same goes for crypto and digital assets, which can connect merchants to a global highway.

Because these five payment trends—contactless payments, BNPL, crypto, digital wallets, and open banking—will dominate the future payments landscape, merchants should consider ways to integrate them.

Contactless Prevalence

The heartbeat of emerging payments is the mobile phone. Contactless payments gained traction during the pandemic because they are more hygienic than other payment methods. After the pandemic faded, contactless payments have continued to pick up steam because they are effective and secure.

Tap-to-pay transactions don’t include a customer’s account details, so a consumer must physically initiate the transaction, which makes it more difficult to send a contactless payment accidentally.

They are also faster—contactless transactions usually require a single action, like tapping a card or pushing a button on an app. Point-of-sale card transactions can often lag due to card approval times or PIN entry, and cash transactions are even less efficient.

Due to those benefits, customers have come to expect contactless options, and the demand will only increase. Though contactless payments are here to stay, tap-to-pay transactions are only half of what a mobile phone can do in the payments realm. The technology exists for tap-to-phone payments, in which the same contactless payment chip that smartphones use to transmit payment data can receive payments, giving almost any phone the capability of being a payment terminal.

Adopting tap-to-phone is a game-changer for smaller businesses or gig economy merchants who don’t have the need or the resources to purchase regular terminals. A business owner could receive contactless payments on their phone from contactless-enabled cards and mobile devices.

“Once the use cases manifest themselves, tap-to-phone will become increasingly popular,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research, in a conversation with PaymentsJournal. “There is a growing middle ground where individuals need some business capabilities on their personal account. We’re at a tipping point where, even going into next year, we’re going to see tap-to-phone become far more prevalent than it has been.”

A Path for Digital Wallets

Though many contactless payments are made without digital wallets, ease of use has made digital wallets an increasingly popular option. Mobile wallets like Apple Pay and Google Pay give customers a way to store their credit and debit cards and make faster transactions at the point of sale.

Simpler transactions will reduce wait times and increase customer satisfaction, and digital wallets also offer an additional way for businesses to interact with customers. For instance, Starbucks’ mobile app integrates directly into a digital wallet that allows customers to make payments, earn rewards, and order ahead.

The loyalty aspect is critical because it can drive engagement and fuel repeat purchases. Digital wallets also provide merchants with invaluable data about consumer spending habits, allowing for targeted marketing and personalized offers.

Beyond loyalty, digital wallets can store a range of items useful to consumers, including coupons, tickets, and gift cards. However, one of the barriers to digital wallet adoption is that many consumers still have to carry their physical wallet to house their ID. For digital wallets to surpass their physical counterparts, digital IDs must become more prominent.

Digital ID programs have lagged in many U.S. states, and merchants likely feel they have no power to move legislation forward. However, digital identification regulations are often developed with merchants’ preferences in mind, so business owners can have a say in digital ID acceptance, standards, and training in their industry.

“Those are all good things, but most businesses aren’t going to take that initiative on their own, especially smaller businesses,” said Christopher Miller, Lead Emerging Payments Analyst at Javelin Strategy & Research. “There’s an opportunity here for payments providers to supercharge digital ID acceptance by providing guidance to their merchants. It could differentiate them from other financial companies and potentially create a path forward for digital wallet acceptance.”

BNPL Expansion

Another key trend for digital wallets is support for more payment types, such as BNPL services. BNPL has become an established payment method in a short time, and brands like Klarna, Affirm, and Afterpay make deals with large merchants on a near-daily basis.

Consumers of all walks of life have been attracted to the plans because they can split a purchase into installments and avoid the high interest rates and late fees that often come with credit cards. Even in brick-and-mortar stores, customers increasingly expect to break their transactions into installments.

“The main selling point for merchants is that BNPL has been touted to increase the average order volume by 2% to 3%,” said Ben Danner, Senior Credit and Commercial Analyst at Javelin Strategy & Research. “However, the business has to pay a fee to support BNPL, which can range from 3% to 10%, depending on the type of financing that’s offered. The merchant will have to decide if the sale is worth the fee.”

Though it might not be right for every merchant, BNPL is a must-have for businesses that have traditionally supported installments or financing, such as appliance and electronics stores. BNPL has also gained traction in the travel industry.

BNPL companies have worked to expand beyond big-ticket items to everyday spending categories. Because consumers are increasingly returning to stores, many BNPL companies have adapted to offer physical cards, but there are still more use cases for BNPL.

“The big BNPL companies like Affirm and Klarna are moving beyond simply partnering with merchants, and they are aggregating information from many businesses into their e-commerce platform,” Danner said. “It’s like their own marketplace, which of course features the financing options they offer at various businesses. For merchants, there is the opportunity to be featured in Affirm or Klarna’s marketplace, which can drive sales.”

Opportunities in Open Banking

The emerging open-banking model also offers new ways for merchants to reach customers. In open banking, consumer financial data is opened to third parties—through the approval of the consumer—to hasten digital transformations. Merchants can also realize that benefit, and it comes with substantial freedom. Businesses are able to shop around for the best rates on loans and financial products.

Instant payments are the pulse of open banking, and merchants can leverage them to make secure and efficient payments to suppliers and partners. Real-time settlement also facilitates reconciliation and other accounting functions.

Instant refunds can bolster customer satisfaction in the event of a warranty claim or a return. If a merchant relies on contractors or gig workers, it can offer real-time payouts to keep those partners engaged.

Though some merchants might be hesitant to adopt bank-to-bank transfers, there are two instant payment rails—FedNow and RTP—that are firmly established and connected to an increasing number of financial institutions.

Adoption of Instant payments will gain traction as more Americans become comfortable with paying by bank and as there is a more established regulatory framework. To the latter end, the Consumer Financial Protection Bureau has just released its long-awaited rules to govern open banking, which are set to go into effect in just two years.

Digital Assets

The regulatory environment around digital assets and crypto has been much more contentious, and that could be one reason merchants might shy away from accepting crypto payments. However, key innovations in digital assets offer substantial benefits for businesses.

For instance, blockchain technology can be much more than a highway for crypto; it can be a secure infrastructure for digitizing and verifying all sorts of assets. Tokenization is the process of creating a digital version of a physical asset, and it can be a boon for merchants in industries that rely on paper documentation.

An auto title or a house deed could be tokenized and transferred in the fraction of the time it takes to conduct the process through physical documentation. A tokenized asset can be bought and sold in real time, and it can also be easily fractionalized and sold to multiple parties.

Stablecoins might be the digital asset technology that has the most widescale impact on merchants. The volatility of cryptocurrencies is well-documented, but major stablecoins are built to track a fiat currency, such as the U.S. dollar, one-to-one.

One of the most compelling use cases for stablecoins lies in cross-border payments. Despite increased demand for cross-border transactions, there can often be issues with sluggish payment settlement, difficult currency conversions, and country-specific regulations.

Stablecoins can be an instant cross-border solution, which is one of the reasons some of the biggest companies in the financial industry have invested heavily in the technology. PayPal has launched its proprietary stablecoin, PayPal USD (PYUSD), which has quickly gained traction.

Stripe initiated support for Circle’s USDC stablecoin on its platform and saw transactions processed in 70 countries on the first day of the service. The company then made one of the largest acquisitions in crypto history with its $1.1 billion purchase of stablecoin company Bridge.

As stablecoins receive more support from payments processors, they become a compelling option for merchants who have, or wish to realize, a global reach for their businesses.

Early Adopters

Though emerging payment methods can make an impact on a global scale, they can be just as significant for a local artist who sells paintings at a farmer’s market. Merchants that support multiple forms of payment can increase customer satisfaction and save significant time and expense in the long run.

Though there are always concerns with new payment methods, the well-established use cases for BNPL, digital wallets, contactless payments, crypto, and open banking will keep them relevant for years to come, and new use cases will continually emerge. As the future regulatory framework takes shape, merchants that are early adopters of emerging payments could reap powerful benefits.

The post Why Businesses Should Pay Attention to Emerging Payment Solutions appeared first on PaymentsJournal.

For any business, payment reconciliation may not be the most glamorous task, but it’s certainly one of the most critical. The process of ensuring that all transactions align accurately between the accounting books and bank statements is a cornerstone of financial integrity. Yet, it’s often overlooked or neglected, especially as businesses grow and operations become more complex. This neglect, however, can quickly snowball into a significant risk, impacting both business stability and long-term growth.

The Importance of Payment Reconciliation

Payment reconciliation is more than a bookkeeping routine; it’s a vital financial safeguard. The process involves comparing sales and transactions recorded in your financial systems against entries in your bank accounts and other financial documents. This may sound straightforward, but the real world is far more complicated. Discrepancies can occur due to entry errors, chargebacks, or even unauthorized transactions. These mismatches, if left unresolved, can lead to inaccurate financial reporting, unseen fraudulent activity, and poor decision-making.

For businesses, especially those dealing with high transaction volumes or complex payment ecosystems, ignoring payment reconciliation is akin to navigating a ship without a map. Without clear and accurate financial data, a business could be making critical decisions based on faulty assumptions. Worse, in industries where compliance and regulatory scrutiny are high, unresolved discrepancies can attract fines or other legal consequences, further eroding trust and financial stability.

Why Businesses Fail at Reconciliation

Despite its importance, many businesses either struggle with or entirely neglect the reconciliation process. The reasons are often tied to the growing complexity of managing diverse payment methods, operating in multiple currencies, or scaling operations across different markets. Manual reconciliation, in particular, becomes a near-impossible task in such environments, leading many businesses to simply hope that everything adds up at the end of the month. This is a dangerous gamble.

The absence of a robust reconciliation process creates opportunities for undetected fraud, financial mismanagement, and ultimately, business instability. As payment ecosystems evolve, businesses that fail to invest in proper reconciliation tools are setting themselves up for costly errors. Inaccurate financial data doesn’t just impact day-to-day operations; it skews financial forecasting, disrupts cash flow management, and complicates financial planning—all crucial elements for sustainable growth.

The Digital Era and Reconciliation

Thankfully, technology has transformed the landscape. The digital era offers automated reconciliation tools that streamline the process and vastly improve accuracy. Automated systems can match transactions across various platforms in real-time, flagging discrepancies and reducing the risk of human error. These systems are particularly valuable for businesses operating in complex environments where sales flow through multiple channels and payment methods.

But technology alone isn’t a panacea. Effective reconciliation requires a strategic approach that goes beyond simply adopting new software. Businesses need to ensure that their reconciliation processes are integrated seamlessly into their broader financial management systems. This means selecting solutions that not only automate reconciliation but also enhance cash flow management and financial forecasting. When done right, automation frees up resources and allows businesses to focus on more strategic activities.

The Cost of Neglecting Payment Reconciliation

The consequences of poor or non-existent reconciliation processes can be severe. Businesses that neglect this crucial aspect of financial management may face spiraling costs due to undetected errors, fraud, or compliance issues. In the long term, these financial blind spots can erode profit margins, damage business relationships, and limit growth opportunities. Simply put, reconciliation is a critical investment in business stability.

Moreover, neglecting reconciliation can lead to liquidity issues. Unreconciled accounts may overstate a company’s financial health, leading to inaccurate cash flow projections. This, in turn, can create challenges in meeting financial obligations, whether that’s paying suppliers, employees, or even tax authorities. In environments where credit is tight or competition is fierce, these missteps can be the difference between thriving and merely surviving.

Sustaining Success for Businesses

For businesses looking to maintain stability and achieve long-term growth, payment reconciliation should be seen as a strategic priority, not an afterthought. Investing in advanced reconciliation tools and developing a structured process is essential. These efforts will not only enhance operational efficiency but also strengthen the financial foundation upon which your business grows. The cost of neglecting this vital process is simply too high in today’s competitive and fast-paced market.

Payment reconciliation may be a behind-the-scenes activity, but it plays a front-and-center role in determining business success. Companies that prioritize this process will find themselves better equipped to navigate financial challenges, make informed decisions, and seize new opportunities for growth.

The post Neglecting Payment Reconciliation: The Hidden Threat to Business Stability and Growth appeared first on PaymentsJournal.

There have been stunning breakthroughs in the payments space over the past few years, and many businesses and financial institutions have devoted significant time and resources to researching and adopting new payment methods. Although paper checks might seem outdated, over half of Americans wrote a check last year, and many organizations still rely on them.

Though fraud is a constant focus for businesses, many fraud teams have shifted their attention to emerging payment methods. As Jennifer Pitt, Senior Fraud and Security Analyst at Javelin Strategy & Research, found in her latest report, The Pervasiveness of Check Fraud: Banks are Paying the Price, check fraud is an increasingly rampant threat that financial institutions must address.

Comfort Level

Older adults tend to write more checks each month than younger people, in part because it’s a payment method they have grown comfortable with over the years. Some consumers also send checks as gifts because of the personalization aspect, allowing them to write a personal message to the recipient.

“Many Americans are also still under the mistaken impression that checks are more secure than peer-to-peer platforms, ACH transfers, and digital payments,” Pitt said. “The Javelin report found that most Americans believe those methods are either as secure as or less secure than checks.”

Credit cards were the only payment method that most Americans believed was more secure than checks. That is likely because credit cards have been around for longer and older adults tend to rely on tried-and-true payment methods like credit cards, checks, and wire transfers.

In Search of Checks

Credit cards and wire transfers have fraud risks of their own, but criminals have developed increasingly effective ways to commit check fraud. Although consumers are writing fewer checks, the amounts written have been increasing. In addition, many small businesses issue checks to pay bills or even payroll.

Some utility companies still require payment by check, and federal and local governments will often mail stimulus or treasury checks.

“Over the past few years, there have been more headlines about mail theft,” Pitt said. “Organized street gangs and criminal syndicates have moved away from drugs and other activities because those crimes are often prosecuted harder and there are stiffer penalties. Fraud, and particularly check fraud, carries minimal penalties at the moment.”

Often, criminals will rob mail carriers to steal an arrow key, a master key that opens every mailbox. Once criminals have the key, they will access mailboxes and steal any mail that has personally identifiable information. They are especially in search of checks, because those are easily counterfeited.

One way to counterfeit a check is through check washing, a method that has been around for over a decade. Criminals use normal household chemicals to wash the ink from the check and are left with a valid check that still has all its security measures intact. Bad actors will then change the amount and the payee, but sometimes they will leave the original signature intact.

Check cooking is a relatively new method whereby criminals scan a check into a computer and utilize software to change the check’s information, after which the check is reprinted.

“It’s also possible to manufacture checks from scratch using data from a stolen check,” Pitt said. “At the moment, it is harder to manufacture a convincing check, so check washing and check cooking are the more prevalent forms of check fraud.”

The Big Picture

Though most financial institutions have strong fraud and security measures, checks have fallen by the wayside in many instances. Only 22% of the companies that Javelin surveyed use check fraud detection solutions, which doesn’t align with how rampant check fraud has become.

Many financial institutions have made investments into artificial-intelligence-powered fraud detection tools because AI excels at sifting through data and identifying patterns. AI can be just as potent in detecting check fraud, such as in instances when check signatures are different or a check’s amount does not match historical data.

The technology to combat check fraud exists, but organizations must invest in it. Another key component of a check fraud prevention program is education. It is critical for banks and credit unions to educate their customers on the risks of using checks and the benefits of digital payments.

“What typically happens with fraud professionals is we shift all our resources to the hot topic of the moment, and we can lose sight of the big picture,” Pitt said. “However, the criminals have not lost focus, and they will shift to any avenue that is open. It’s important for banks and credit unions to inform their customers of the risks checks pose. No one should be putting checks in the mail right now.”

The post Amid Payments Innovations, Check Fraud Remains a Threat to Financial Institutions appeared first on PaymentsJournal.

We’ve all heard the story: someone at work or on a podcast shares how they—or perhaps a friend, or a friend of a friend—forgot their wallet at home one morning yet managed to navigate the day, buying lunch, commuting, and making purchases, all with just their phone. The moral is clear: the world is filled with digitally native consumers who are so immersed in the modern world that they no longer rely on physical payment methods. If merchants don’t meet them where they are, these consumers will take their business elsewhere.

Research suggests that consumers are growing more confident in making purchases without physical payment methods. But a world where only a mobile device is needed  for all transactions is still a long way off. A study from Javelin Strategy & Research, Have You Been on a Digital-Only Carpet Ride?, looks at what it would take for this digital-only day to happen—and how far we are from it.

A Slow Shift

The first step is to understand that the physical wallet has become a metaphor for anything that carries credit cards, driver’s licenses, and similar items. Within the realm of payments, the key questions are: how many consumers have made the shift from digital-first to digital-only payments, and how many are likely to do so soon? And if they haven’t already, why not?

“I kept finding these fake-sounding surveys, and I just don’t believe 76% of all consumers are using a digital wallet,” said Christopher Miller, Lead Analyst for Emerging Payments at Javelin Strategy & Research and a co-author of the study. “We are overstating the sense of how normal this is. This report was to put our marker in the sand and establish that there are stages to digital wallet usage. And we’re nowhere near the end.”

Digital wallets and online payments have been encroaching on physical payments and wallets for the past 30 years. While this progress has been slow and uneven, it has remained steady. For example, coins and coin purses have nearly vanished from the typical American’s pocket, payphones have all but disappeared, and tolls and vending machines have shifted almost entirely to transponder or pay-by-mail operations. Yet, every time consumers are asked about their preferences, cash reminds us that the rumors of its demise have been greatly exaggerated.

The 2024 North American PaymentInsights Emerging Payments Survey reinforced the persistence of cash usage: 93% of 18- to 24-year-olds have used cash in the past year, with 55% doing so in the previous seven days. Perhaps even more noteworthy is that these figures do not vary substantially across age groups. In fact, 18- to 24-year-olds exhibit higher cash usage rates than 55- to 64-year-olds.

This suggests that the mythical cohort of digital-only users is not emerging even among the youngest generation, who have grown up in a digital-first environment.

“It’s not old people versus young people or the rich versus the poor,” said Miller. “This is consistent across the board.”

Multiple Purposes

Cash is not the only reason physical wallets have been a tougher nut to crack than coins. A physical wallet holds more than just payment tools such as cash and cards; it also carries business cards, reward punch cards, identification, insurance cards, and hotel keys. Each of these has its own digitization process with unique adoption and acceptance curves. Many of these items have gradually found homes in digital wallets, just as payment methods have.

“There’s a whole range of things in most people’s wallets,” Miller said. “If they use any of these items and encounter any kind of challenge with going digital-only, they would say ‘Why should I bother?’”

The number of people who are willing to go digital-only is around 1% to 2%. Across age, gender, education, region, employment type, and banking habits, the same percentage shows up. While the percentage is small, it does mean that payment platforms would do well to offer digital capabilities.

“If you don’t offer it, someone is likely not to buy from you, even if that’s only 1% to 2% of all consumers,” he said. “Because it’s clearly the direction where things are likely to move.”

Miller categorizes the common usage of digital methods into three groups. “Digital-first” is steadily growing, as is “digital-optional,” but we haven’t even truly entered the phase of “digital only” yet.

Exploring the Possible

It is possible to disconnect a house from the grid and run it off a battery backup from a phone. While these things are technically feasible, people don’t adopt them as habits because the necessary infrastructure is not in place to support them.

“When we talk about what is possible, yes, it is possible that 1% to 2% of people do it,” Miller said. “And lots of people have a one-time experience because they forgot their wallet. But none of these people are like, ‘Yeah, I should do that tomorrow. And the next day. And the next day.’ None of it’s there.”

The post In Search of the Fabled Walletless Day appeared first on PaymentsJournal.

Financial institutions have customer bases that span multiple generations. While baby boomers are financially well-established and open to adopting new technologies, it might be tempting for banks and credit unions to focus on making digital banking inroads with older generations.

However, as Gregory Magana, Digital Banking Analyst at Javelin Strategy & Research, highlighted in his latest report, The Boomers Are OK— and Shouldn’t Be Your Digital Banking Priority, boomers shouldn’t be the central focus if most institutions’ digital strategies. That said, there are specific strategies that banks with an older customer base can employ to optimize their services for baby boomers.

A Lifetime of Financial Needs

One of the main reasons why financial institutions should not base their digital strategy around baby boomers is that they are not as much of a churn risk as younger generations. In Javelin’s survey of boomer preferences, most baby boomers said they are either extremely unlikely or very unlikely to switch banks in the coming year.

“They are much rosier about their financial situation than younger generations,” Magana said. “When boomers were asked how they feel about their primary financial institution on a 10-point scale, most of them responded with a nine or a 10,” Magana said. “They are the happiest and stickiest customers a financial institution could have, so why would a bank mix anything up?”

Third-party rivals like Venmo, Credit Karma, and PayPal are a concern with younger generations because they have moved beyond peer-to-peer payments and credit score monitoring to offer competitive banking accounts. This concern is less pressing with boomers, as most baby boomers said they haven’t used any third-party services in the past 12 months.

Another concern with younger customers is the potential fragmentation of their primary banking relationship when new financial needs arises. They may move into a new house, require an auto loan, or open a credit card with another institution.

“When it comes to baby boomers, that fragmentation is already baked in,” Magana said. “They have had a lifetime of financial needs. They probably already have an auto loan, and they have multiple credit cards. They are not as likely to seek out products at another institution and potentially switch banks if they like the experience there more.”

Legacy Affinity

Another reason boomers shouldn’t be a digital banking priority is they still have a strong affinity for legacy channels, which they prefer over mobile and online banking platforms.

“When boomers were asked about the factors that motivate them to stay at their primary financial institution, the most important aspect for them is if a bank has convenient branches,” Magana said. “Mobile banking is much lower down on their list of priorities, coming in after convenient ATMs, low fees, and good customer service. All their needs are grounded in real-world channels.”

Boomers have seen significant technology innovations throughout their lives and aren’t averse to using digital channels. However, when it comes to more complex banking tasks, they tend to prefer traditional, legacy channels.

For instance, if a baby boomer is opening or closing an account, they are more likely to visit a bank branch. For actions like reporting a suspicious transaction, challenging an overdraft fee, or reporting a lost debit card, boomers prefer contacting a call center.

Basic Behaviors

Boomers have adopted online banking, but most only perform four online banking behaviors on a monthly basis: checking balances, reviewing transactions, paying bills, and transferring funds within the bank.

When it comes to mobile banking, there are only two activities they typically perform: monitoring balances and reviewing transactions. For more complex banking behaviors like checking credit scores, activating and deactivating debit cards, sending money using Zelle, or financial planning, they are more likely to visit a branch, contact a call center, or avoid performing the activity alltogether.

“Boomers aren’t the fount of digital engagement that many younger generations are,” Magana said. “When baby boomers were asked which channel they use to perform certain high-complexity banking activities, they mostly said they don’t perform those activities at all.”

Improving the Boomer Experience

Though financial institutions shouldn’t base their digital and mobile banking strategies around baby boomers, there are still ways banks can optimize their platforms for this generation.

Financial institutions should focus on streamlining the online banking experience to make it more intuitive and functional while offering education resources geared towards encouraging boomers to move beyond basic online banking. Additionally, banks and credit unions should work to increase boomers’ confidence in digital customer service, reducing their reliance on call center support.

“The initial concept for this report was to explore digital banking strategies for baby boomers,” Magana said. “Upon research, the data indicated that financial institutions should mostly focus their digital banking efforts elsewhere. However, many of the tactical solutions that streamline the boomer experience could also improve the overall experience for younger generations in the long run.”

The post Should Boomers Factor Into a Digital Banking Strategy? appeared first on PaymentsJournal.

There are more ways to send and receive payments than ever before, but the added complexity isn’t always a boon for merchants. While emerging payment methods like instant payments offer significant benefits for businesses, there is no easy way for a consumer to pay a business instantly.

QR codes are the missing link for merchants to achieve instant payments acceptance, according to QR Codes & the Instant Payments Imperative, a new whitepaper from AWS and Matera. The report examines the instant payments landscape and details how QR codes can help bridge the gap in the U.S.

Greater Capabilities

Most consumer payments are already made directly from a bank account using check, debit card, cash, or ACH. To pay instantly from a bank account, consumers just need a way to share bank account credentials securely. Though consumers might be inclined to shift to instant payments, many businesses and financial institutions don’t feel they have the resources to offer instant payments.  That’s where QR code technology comes in.

In countries like China and Brazil, using a mobile device to pay via a QR code is the prevailing way to pay at stores, restaurants, e-commerce platforms, and even public entities. In the U.S., consumers are familiar with URL-based QR codes which direct them to static information.

However, QR codes have far greater capabilities. Unique payment QR codes can be encoded with all payment instructions to send a payment without sharing bank account details or other personal data.

Once a customer scans a payment QR code at the point-of-sale or at online checkout, money is moved from their bank account to the merchant’s account in seconds. There are an endless number of use cases aside from retail—bill payment, events, transit, healthcare, university fees, and more.

Pushing Payments

Instant payments require consumers to authorize them, which is why they have been called “push” payments, as opposed to “pull” payments like credit cards and ACH transfers. Push payments don’t require third-party providers, payment networks, or processors—just two bank accounts.

However, the customer must know the correct account and routing number to send funds, which makes instant payments more secure. Customer authentication might seem like a point where instant payments would bottleneck, but payment QR codes can streamline the process by removing the guesswork for consumers.

In addition, QR codes can be compatible with the existing U.S. instant pay rails. However, to reach their full potential, a standard must be established that ensures each payment QR code is encoded the same way. A standard protocol means any organization or consumer can decode any payment QR code and process the transaction automatically.

There has been recent movement toward a payment QR code standard by the Accredited Standards Committee X9 (ASC X9), which sets standards for the financial services industry. That process is still in the early stages.

Accelerating Momentum

In the meantime, the accelerating adoption of near-field communication (NFC) technology may be the precursor to instant payments. Many consumers are already familiar with NFC as the tech that powers contactless mobile payments through digital wallets like Apple Pay and Google Pay.

Previously, Apple Pay only supported payment via card, but Apple recently announced that it will expand the digital wallet’s compatibility to include instant payments. That functionality will allow customers to make payments directly from their bank account using Apple Pay.

As consumers start to understand the benefits of instant payments, the NFC-powered model will gain momentum. However, NFC is merely the tech that connects a phone to a point of sale. QR codes can be printed out or displayed on a device at the point of sale, which gives them much more utility and flexibility for businesses than NFC-based instant payments.

In addition, many older mobile phones don’t support NFC, so QR codes will be more effective in reaching a wider audience.

The Perfect Mechanism

Instant payments offer palpable benefits for consumers and organizations. They are faster, more secure, and substantially less expensive than the alternatives. Consumers have proven that they will explore payments alternatives, and they are equipped to adopt instant payments—smartphones are ubiquitous among U.S. adults, and consumers are increasingly familiar with digital wallets and mobile payments.

Thanks to FedNow and RTP the U.S. is primed to join the instant payments revolution, and payment QR codes can be the perfect mechanism to make instant payments a part of everyday life in the U.S.

The post QR Codes: The Missing Link To Instant Payments Adoption appeared first on PaymentsJournal.

Payments serve as essential conduits in the financial landscape, mirroring the critical nature of services like plumbing, they facilitate the seamless flow of money. Disruptions in this flow are as impactful as interruptions to utilities like water, immediately felt and significantly disruptive. Positioned atop this financial “plumbing” is the customer interface, often taking the form of a payment card, which allows the customer to execute transactions. Controlling the customer interface holds significant value, enabling brand promotion, data collection, marketing influence, and monetization of customer behavior.

We witness a remarkable diversification within the landscape of payments, with various customer journeys unfolding simultaneously. For some of these journeys, payment marks the conclusion as the customer “checks out”, when paying for an item in-store. Conversely, emerging payment models, akin to those used by Uber or Amazon Go, weave payment so seamlessly into the customer experience that it becomes almost invisible. This marks a departure from conventional “check-out” paradigms to ones where customers “check-in” at the beginning, without a noticeable “check-out” at the end.

These “check in” journeys present a paradox:

• While advancements in payment technology facilitate these journeys, the act of payment itself fades into the background.
• Despite consumers becoming more aware of payment options, the act of payment becomes nearly invisible.

The shift in payment methods extends beyond new transactional journeys to include alternative form factors, such as smartphones and wearables like watches and wristbands, in traditional “check-out” scenarios. This evolution presents a challenge to banks, which have traditionally dominated the “check-out” customer interface. Payments via smartphones or wearables often leverage third-party e-wallets as the primary interface, with that third-party’s branding being front and center. Nevertheless, banks are not simply conceding their position; they are innovating in response, notably by launching their own e-wallets. Pix in Brazil and Swish in Sweden are two highly successful examples, with Pix reaching over 140 million users—approximately 80 percent of Brazil’s adult population—within two and a half years of its launch, and Swish amassing 8.4 million users in a country of 10.5 million. Major US banks are also set to introduce Paze, indicating a similar strategic direction. Given that a vast majority of consumers would prefer a wallet from their bank over a wallet from anybody else, this presents a huge growth opportunity. In addition, banks are also enhancing the user experience by reimagining payment cards with elaborate designs, offering personalization options down to the individual level, and employing premium materials like metal. Metal cards, distinguished by their distinctive weight, sound, elegance, and allure, have captivated customers globally, driving improvements in customer acquisition and spend for banks and other payment card issuers offering metal cards to their customers.

The battle for the primary customer interface is intensifying in the future of payments. Banks, armed with their own wallet products and sophisticated payment cards, are strategically positioning themselves to ensure they remain more than just operators of the underlying infrastructure. By enhancing the customer interface, banks aim to elevate their role within the evolving payments ecosystem, ensuring they provide not only the essential ‘plumbing’ of financial transactions but also a distinguished, customer-centric experience that fosters brand loyalty and customer engagement.

The post Claiming the Customer Interface in the Future of Payments appeared first on PaymentsJournal.

Payroll is fundamentally about trust. An employee’s salary is often their only source of income, and they trust they will receive their paycheck on time and in full. If there are delays or errors, it can consequentially affect a company’s ability to attract and retain talent.

With globally distributed teams and growing employee expectations for faster access to wages, instant payments should be considered–but always keeping country-specific nuances, fraud risk challenges and prevention measures in mind.

In a recent webinar, The Death of the Payday, Peter Tapling, Managing Director at PTap Advisory, Albert Owusu-Asare, CEO at Cadana, and Sunil Joshi, Senior Director of Product Management at Nium, discussed how emerging payment technologies can transform the payroll experience.

Country-Specific Nuances

Payments systems, and the regulatory frameworks that govern them, are unique to each country. That means global payroll platforms must account for distinctions with not just each employer, but with each employer’s country.

For example, a wire transfer in U.S. dollars can take anywhere from minutes to days to arrive, depending on the destination. The cost of the wire can fluctuate based on the sending bank, intermediary banks, and the destination bank.

“The complexity increases with local payment methods like India’s UPI, the UK’s Bacs, or RTP in the U.S.,” Joshi said. “All those payment platforms have different timings, costs, amount limits, and metadata. Payments to tax agencies or third-party benefits providers add an additional challenge, because they often require specific payment methods or the inclusion of metadata for reconciliation, and requirements vary by recipient.”

In addition to payments scheme differences, the regulatory environment in each market can impact a payroll platform. For example, the General Data Protection Regulation (GDPR) in the European Union imposes strict rules on the transfer of personal data outside of the EU. Non-compliance with GDPR and similar regulations can lead to significant penalties.

Some countries like China, India, and Argentina, have currency controls that restrict or regulate the flow of their national currency out of the country, or that limit conversions into foreign currencies. Many countries require payment service providers to obtain specific licenses or registrations to operate legally.

Fraud Challenges

The complexity of global payroll operations means fraud is a constant challenge. It can be difficult for companies to verify that the right individual is being onboarded or an account isn’t linked to suspicious activity. Account verification is even more critical when using instant payments rails because of the speed and the irrevocability of the transfer. The growing consumer adoption of digital wallets and mobile money services in addition to traditional bank accounts also increases the opportunity for fraud.

For payroll platforms that serve small- to medium-sized businesses, there is a significant risk of onboarding a fraudulent business that will use a payroll service to steal funds from an unsuspecting third party’s bank account and transmit it to fake employees.

“There have also been cases where a criminal takes over an employer’s account and leverages it to launder stolen funds, often causing losses that are significant enough to wipe out the profit margins of a payroll platform. In other instances, employee profiles have been taken over by cybercriminals who redirect the worker’s paycheck to a different account,” Joshi said.

Prevention Mechanisms

Though fraud is a formidable challenge, there are ways to mitigate it. A robust risk check during onboarding can help payroll services identify fake employer profiles. In addition to performing a basic Know Your Business (KYB) check, a payroll provider should also evaluate an employer based on hundreds of other risk parameters (e.g. country of origin, IP address of applicant etc). They should also ensure the business owner has a clean criminal record and confirm the employer’s bank account is owned by the business and in the owner’s name.

Fraud that is perpetrated through account takeover can also be mitigated by strong security practices and limits, or step-up authentication controls, based on suspicious behavior patterns. That could be when an employer or employee suddenly links a new bank account, or when the name on the account doesn’t match the employer or employee.

“There’s always high risk when moving money,” Joshi said. “Someone could steal bank credentials and send fraudulent payouts, and often payroll platforms are left holding the bag. There must be strong fraud prevention mechanisms with every payment. However, even though fraud prevention is critical, it should never introduce unnecessary friction into the customer experience.”

Selecting Solutions

Fraud threats coupled with country-specific challenges can make it hard for payroll platforms to navigate global operations on their own, especially without the scale and experience of processing payments in each of these countries.

The best way to mitigate that complexity is to select a partner that has substantial experience, and collaborate on a strategy to test and launch payroll services in each market. Due to country-specific nuances, it’s critical to find a platform that can deliver comprehensive payroll solutions through a single platform and a single API.

The solution should do more than provide access to instant payments rails. A payroll provider should select a partner that can help them build an understanding of each market and determine the appropriate payment method for the situation. For example, Nium, a real-time cross-border payments platform, has helped global payroll firms, pay employees and contractors around the world.

“Access to real-time payment schemes has become the table stakes for global payroll operations,” Joshi said. “The differentiators among payments partners will be high success rates, country-specific customizations, effective fraud risk controls, and a collaborative mindset.”

The post The Impact of Instant Payments on Payroll appeared first on PaymentsJournal.

Criminals are increasingly targeting consumers directly, but that doesn’t mean the threat to merchants has abated. In triangulation fraud, for example, cybercriminals create fraudulent e-commerce storefronts and offer steep discounts on popular items. The orders are fulfilled by legitimate merchants, but the payment data is compromised.

According to Visa’s Spring 2024 Threats Report, triangulation fraud alone can cost merchants up to $1 billion per month. It is just one of the increasingly sophisticated methods criminals use to target consumers and organizations. However, merchants can utilize solutions to optimize their fraud prevention mechanisms and navigate the shifting fraud landscape.

Biometric Buffer

In an increasingly online world, one of the main challenges merchants face is simply verifying that customers are who they say they are. Consumer identity verification is a critical part of the payments process, but recent data from Visa suggests that by 2026, 30% of organizations will no longer be able to rely on their current identity verification and authentication solutions.  

One of the main ways merchants can enhance their authentication services is to adopt biometric authentication methods like fingerprints and facial scans. Cybercriminals are increasingly using technology and AI to impersonate customers, which makes biometric verification even more important as an added layer of protection for merchants.

Solutions like Visa Payment Passkey Services can bind consumers’ account credentials to their devices. That means customers can use the same biometric verification they use to unlock their phone or authorize downloads to pay for purchases.

Visa’s system is differentiated from other biometric verification systems because it doesn’t require merchants or issuers to take part in the authentication process. Visa Payment Passkey Services is built on the company’s Fast Identity Online (FIDO) server that authenticates consumers’ identities autonomously.

FIDO authentication uses standard public key cryptography techniques to offer a verification method that deters phishing attempts. Unique passkeys are created and assigned to a device and are much stronger than passwords. In addition, integration with Visa Payment Passkey Services is a turnkey, one-time process that doesn’t require companies to build servers or integrate the platform into their tech stack.

For merchants, using biometric methods to verify customers’ identities makes transactions more secure and reduces fraud. There are benefits to consumers as well, because many have already adopted biometric authentication on their phones. When a customer uses their phone to verify their identity and make a payment in one action, it not only protects them but also reduces friction at the point of sale. 

AI Authentication

Because criminals use artificial intelligence to attack businesses, merchants must have AI capabilities themselves. Cybercriminals use AI to find flaws in organizations because the technology excels at identifying patterns in massive amounts of data.

As merchants grow, many expand their operations and supply chains to include multiple third-party services and vendors that could be based anywhere across the globe. Each of those connections presents a possible weakness, and criminals use machine learning models to constantly test organizations for flaws and find ways to exploit them.

One powerful new defense for merchants is Visa Deep Authorization. The AI-driven solution runs on a  deep learning recurrent neural network model and petabytes of contextual data. The model can monitor every transaction on the network and assign risk scores to each. The scores are created in real time and sent along with payment data to banks.

The AI model can flag fraudulent transactions faster because it can identify patterns on a larger scale, helping merchants mitigate fraud before it happens.

Visa Deep Authorization also works fast enough to accommodate the real-time payment rails many businesses increasingly use. The platform can uncover suspicious behavior that was previously unknowable, like when a dormant debit card suddenly becomes active and is used in unusual ways.

Purchase Return Authorization

Another emerging type of tech-based attack is purchase return authorization fraud. Criminals obtain point-of-sale devices, either by theft or by posing as merchants. Then they program the devices with legitimate merchant credentials.

The criminals conduct thousands of dollars in purchase returns to gift cards, then they cash the gift cards out at ATMs. Purchase return authorization fraud attacks have gone up 83% in just the past five months, and it is estimated that each successful attack causes roughly $115,000 in fraud losses to banks.

Incorporating AI-powered fraud mitigation solutions like Visa Deep Authorization is critical, because AI can detect when there are unusual patterns like those that occur in purchase return authorization fraud. When criminals begin a string of unauthorized chargebacks, AI can let merchants know sooner.

Friendly Fraud

The constant threat of fraud has put consumers and merchants on guard. It can lead merchants to identify false positives, which can irreparably harm a customer relationship. A disturbing rise has also been seen in the number of legitimate transactions that consumers report as fraud.

This is called “friendly fraud,” or first-party fraud. For example, a customer might forget about a subscription and report the charge as fraud. Or a child or other family member could use a person’s card without permission, prompting the cardholder to report the transaction as illegitimate.

In each of these cases, the customer is disputing a legitimate charge, and there is evidence that friendly fraud makes up as much as 75% of all chargebacks. That makes it the second-most prevalent form of fraud merchants face.

Because friendly fraud is expected to increase, moving to biometric verification systems like Visa Payment Passkey Services is even more important. Biometric identification can eliminate purchases by unauthorized users. In the event of a dispute, it can also be used as a definitive record that the customer authorized the purchase.

Powerful Defenses

Criminals are increasingly using complex means to attack merchants, so companies must adopt solutions to mitigate fraud. Biometrics and artificial intelligence are two solutions merchants can use in their fight to protect themselves and their customers.

Visa Deep Authorization and Visa Payment Passkey Services can easily be integrated into a merchant’s operations, and that makes them powerful defenses against cybercriminals.

The post How Merchants Can Stay Ahead of Increasingly Complex Fraud Attempts  appeared first on PaymentsJournal.

The promise of next generation of artificial intelligence, generative AI, allows us to imagine a future when vast swaths of human knowledge are used to solve any number of issues. In the ever-changing digital economy, this future has already arrived.

In particular, AI-powered tools are improving the approach to secure payments. With AI, patterns indicating fraud can be detected in seconds, allowing scammers to be caught before they have executed their schemes. Now, the use of generative AI gives merchants and their processors the upper hand in combating even more fraudulent transactions.  

But criminals also have access to AI and are using it to refine their techniques as quickly as they can. Giving merchants every tool to safeguard against these techniques while ensuring seamless digital payments has never been more crucial.Merchants need cutting-edge tools and experienced, knowledgeable partners to make the best use of AI and keep their payments secure.

Collecting Data

Through large language model (LLM) AI tools like ChatGPT, AI has the potential to help payments providers not only combat methods of fraud that merchants have yet to imagine but also acquire, engage, and retain customers. By using LLMs and robust collections of data, generative AI models can predict fraud before it happens. Today, merchants already can use predictive AI in the areas of risk management, engagement strategies, and analytics to improve their profitability.

The key to building a powerful AI system, whether improving existing predictive AI models, or looking ahead at adopting generative AI techniques, is the massive amount of data required to make learning possible. In the payments landscape, that means assembling enough information to see patterns in fraud attempts, whether that is the language used or the origin of the transaction.

For more than 30 years, Visa has been employing AI to enhance its services and provide secure, seamless transactions for customers. With more than 100 unique models, Visa launched its global AI Advisory Practice, a suite of dedicated AI advisory services. The service is focused on providing insights and recommendations that will empower merchants to unlock the potential of AI and utilize generative AI effectively.

Measuring Up to Industry Standards

By implementing AI, both predictive and generative, merchants need knowledge and data of fraud schemes to stay ahead of potential threats. To that end, Visa also offers the Merchant Risk Intelligence Suite (VMRI), whichallows merchants to analyze their transaction data against industry benchmarks. The service provides relevant metrics, including authorization rates and fraud rates, so retailers can determine where they excel and where they might be falling short.

VMRI allows merchants to improve their authentication practices by putting more scrutiny on third-party purchases. They can also leverage technology such as tokenization to ensure more secure transactions. With this suite of AI-powered tools, Visa can help businesses increase their approval rates, reduce their fraud rates, and boost transaction activity and profits.

Beyond Fraud

As merchants leverage AI’s capabilities to safeguard against potential threats, they also can use the technology to explore other areas—some of which might not seem, at first blush, to be responsive to AI.

Consider rewards programs. Today’s consumers expect more than just traditional points-based benefits from their loyalty programs. They want to be rewarded for their purchases and loyalty and for their engagement with a brand. Retaining loyal customers depends on providing them with consistently positive experiences, particularly at the point of purchase, when the brand is top of mind. Experiencing the decline of a card because of unwarranted fraud suspicions will leave a bad taste in a consumer’s mouth.

Yet customers also expect their financial providers to protect them from unauthorized activity. Visa’s AI-powered tools can enhance customer security while reducing the number of false positives at checkout.

Another initiative that can help with customer engagement and retention is Visa’s Web3 Loyalty Engagement Solution. The service helps brands meet next-generation customers in the digital worlds where they increasingly live their lives, through immersive programs like gamified giveaways, augmented-reality treasure hunts, and new ways to earn loyalty points. By connecting Web2 with Web3 innovation, the program allows customers to apply rewards toward not only virtual experiences but also real-world ones. 

Getting Started

Getting started with AI can seem intimidating, but the first step is to familiarize yourself with the different AI use cases – including when predictive AI can help, and the cases where generative AI is the better option. Organizations should look for use cases that align with their goals, and they may be surprised by how many they find. In addition to fraud prevention, AI can help in areas such as digital acquisition, loyalty enhancement, and the streamlining of operations.

Building a strong foundation in data infrastructure, governance, and transparency is also key. A robust set of data is an important step toward building out AI tools to help detect fraud and further customer engagement.

Finally, consider collaborating with an experienced payments network, such as Visa, that understands how AI benefits the entire payments ecosystem. Choose a partner that prioritizes data integrity and privacy and maximizes fraud detection while minimizing customer friction.

The post Enhancing Merchant Security and Customer Engagement Through AI appeared first on PaymentsJournal.

The financial world saw real-time payment transactions set a new record last year, with 266 billion transactions occurring globally. However, this record is expected to be surpassed, as real-time payments are projected to more than double¹ over the next five years, reaching 575 billion by 2028.

This growth is driven not only by financial institutions but also by a unique collaboration between governments, regulators, banks, and fintechs. Countries with the most to gain—those with large populations, cash economies, low credit usage, and poor financial inclusion, such as Brazil and India—have been leading the way in establishing real-time payments for everyday use. The next major frontier will be developing real-time remittance and cross-border payment corridors to support international trade.

Success Factors

ACI’s fifth annual Prime Time for Real Time report examines the real-time payments landscape and identifies the factors that will fuel its growth over the next decade.

In countries with thriving real-time payment ecosystems, five common drivers have emerged:

Active collaboration
Whether by government mandate or industry consensus, real-time payment systems thrive through collaboration between financial institutions, payment service providers, government institutions, and third-party stakeholders.

Strong merchant incentives
To spur adoption of its UPI service, India’s government removed merchant discount rates and issued all merchants QR codes, making it easy to accept UPI payments.

Open and inclusive payment ecosystems
Larger banks will need to forge new partnerships with fintechs and smaller banks to remain competitive and drive transaction volume.

Constant flow of user-friendly use cases
Real-time payments thrive in countries where innovative use cases like tax bills or subscription payments have driven mass adoption.

Cross-border ambition
Efforts to extend real-time to cross-border payments are finally paying off, with Asian countries leading the way.

Real-Time Around the World

Global regions have taken very different approaches to real-time implementation. While Asia is the global leader in real-time payments, North America appears to have the most potential for growth. Here’s how the markets are currently shaking out:

South Asia

India leads global real-time payments by a significant margin, handling 129 billion transactions in 2023. This exceeds the combined total of the rest of the world’s top 10 real-time payment markets and accounts for nearly half of all global real-time transactions.

The introduction of UPI in April 2016 was a game changer, enabling real-time payments through QR codes mobile numbers, and virtual IDs. Thanks to demonetization mandates and the inclusion of non-bank players, UP is now accessible across 500 banks.

Moreover, Pakistan—whose Raast payment method went live in 2021—is forecast to experience some of the world’s fastest growth in this area over the next five years.

Asia Pacific

Asia Pacific is the largest regional market, with four of the global top five real-time payment markets by volume. Thailand, South Korea, and China are third, fourth, and fifth in the top five nations with the most real-time payments.

Overall, Asia Pacific processed 185.8 billion real-time payments in 2023, with real-time payments representing 24% of all electronic payments in the region.

Europe

In Europe, the EU Instant Payments Regulation, which passed earlier this year, is expected to drive instant payments volume across the 27 EU member states. Instant payments are forecast to account for 13% of all electronic payments in Europe by 2028, up from 8% in 2023.

Ireland is expected to experience the fastest growth in real-time payments worldwide over the next five years. Croatia is in second place, although only seven institutions have signed up for the national real-time payments scheme so far.

The Netherlands ranks fourth in the EU for instant payments transaction volume, with more than 1.3 billion instant payment transactions in 2023. Despite this, its instant payments scheme is one of the most innovative in Europe. While new payment schemes are typically driven by governments and central banks, in the Netherlands, it was the payment service providers and banking community that led the process when it launched in 2019. Thanks to early nationwide adoption of SCT Inst as the default payment method for all digitally initiated single transfers, the Netherlands achieved a smooth transition to low-cost and seamless instant payments.

Americas

Brazil’s PIX may be the world’s gold standard for real-time payments. According to ACI Worldwide, more than three-quarters of Brazilians now use the PIX real-time platform, which handles 75% of South and Central America’s real-time transaction volumes. The system continues to expand: The launch of Automatic PIX is expected to transform recurring payments, allowing Brazilians to use PIX for streaming services, bill pay, and subscription clubs. This will likely be followed by buy now, pay later plans and point-of-sale financing processes.

Mexico was an early adopter of real-time payments in Latin America, launching its Sistema de Pagos Electrónicos Interbancarios (SPEI) system in 2004. Despite its head start in the region, adoption of real-time payments has been slow due to the region’s high unbanked population and lack of awareness about electronic payments. ACI forecasts annual growth in real time payments at just 7.9% from 2023 to 2028—the lowest forecasted growth in all of Latin America.

North America is a major growth market to watch, primarily due to the launch of the FedNow® Service in 2023. Real-time payments are still in their early stages in the U.S., accounting for only 1.5% of the total payments volume in 2023, leaving significant room for expansion.

Real-time payments in the U.S. are minimal compared to paper-based payments and non-real-time electronic payments, which account for 18% and 80.5% of all transactions, respectively. However, due to its significant financial influence, the U.S. still ranks 12th worldwide in terms of transaction volume.

Middle East and Africa

Finally, in a bit of a surprise, Africa had the highest real-time share of electronic payments of any world region in 2023, at 40%. The region recorded 8.2 billion real-time transactions last year.

Nigeria led the region in real-time payments, with 27.7% of transactions using real-time methods in 2023. The COVID-19 pandemic was a key driver of this growth, encouraging consumers to shift from cash to electronic payment methods.

Egypt, which entered the world of real-time payments in 2022, accounted for just 1.4% of overall payment volume in 2023. However, it’s expected to represent more than a third of payments in the region by 2028.

The Next Big Thing

For financial institutions looking to monetize real-time, the next big opportunity will be connecting multiple real-time schemes to create new corridors. Last year saw numerous bilateral agreements in Latin America and Asia as neighboring countries began establishing real-time cross-border rails for QR code and P2P payments.

Asian countries continue to lead in this area. Payments using India’s UPI scheme can now be made in Malaysia, Indonesia, UAE and France, while users of Malaysia’s DuitNow can now make QR code real-time payments from Indonesia, Singapore, Thailand, and China.

But the rest of the world is catching up. G20 initiatives, EU Instant Payments mandates and the Nexus blueprint are expected to drive progress in 2024 and beyond. The blueprint aims to standardize and connect national payment systems, unlocking economic, competitive, and operational advantages, and both governments and financial professionals are poised to reap the benefits.

*All data contained within this article comes from the 2024 Prime Time for Real-Time Report.

Dive into the potential of real-time payments with ACI’s recent research, and explore the markets that are leading the way in instant payments adoption. 

The post Real-Time Hits the Big Time, with More Room to Run appeared first on PaymentsJournal.

Bots are a tenacious threat to businesses large and small. Even as fraud prevention teams are developing new solutions, criminals are continually advancing their bots and leveraging artificial intelligence to scale their attacks.

A recent study from NeuroID, a part of Experian, which evaluated 55 financial services providers over a seven-week period, found that 71% of these companies experienced bot attacks in that timeframe. And for those attacked, 43% were hit by next-generation fraud bots almost exclusively.

Next-generation fraud bots, also called fourth-gen bots, are more prevalent and sophisticated than fraud teams have ever seen. They are capable of bypassing fraud prevention tools that were effective against earlier bot generations. And they’re poised to become even more sophisticated.

Fourth-Generation Bots: More Human Than Ever

Early generations of bots are now easily identified by behavioral analytics due to their inhuman speed and consistency. Second- and third-generation bots evolved with more sophisticated automation than their first-generation predecessors, including headless browsers and malware that bypassed device and browser characteristic checks. But still, they lacked the “humanity” to fool behavior based detection, which is trained to look for hundreds of layers of subtle “tells” to indicate if a user is human or bot; risky or trustworthy.

While earlier iterations lacked the subtle behavioral traits of human users, fourth-generation bots have been purpose-built to mimic human actions almost perfectly. These new bots rotate through thousands of IP addresses, alter user agent strings, and utilize mobile emulators, giving them new avenues for attack.

Next-generation bots can even hijack consumer behaviors by recording users’ swipe and mouse patterns, hover times, and other behavioral cues, integrating these elements into their operations.

These capabilities have made bots more dangerous than ever. For instance, a major bank in NeuroID’s study identified a fraud attack due to a spike in daily application volume. The institution received several thousand high-risk applications in a week, and the bank struggled to understand how cybercriminals made the applications appear so convincing.

Upon investigation, the attack was led by highly sophisticated next-generation bots that most tools would not have been able to identify. Further analysis uncovered an additional 20,000 fourth-generation bots that sent almost 25,000 fraudulent applications in four weeks.

Lower Barriers to Entry

Not only are new bot generations harder to detect, but generative AI has also lowered the barriers to entry for criminals, making it faster and easier to create and deploy bots.

Two years ago, cybercriminals would need an advanced education in JavaScript or Python to create a fraud bot. With AI, platforms like FraudGPT can create a bot in seconds, meaning anyone can efficiently conduct fraud at scale. Criminals have used AI-derived bots for everything from account opening and credential stuffing fraud to phishing and malware attacks.

The rapid evolution of bots has made many traditional fraud protections ineffective. Prevention tools must catch all generations at all times, which requires software that can continuously sift through massive amounts of data.

Historically, bot detection has relied on tools like IP blocklisting, user agent analysis, and simple behavioral heuristics. These methods were effective against the first generations of bots that utilized predictable patterns, but they are not anymore.

While bots are determined to beat behavioral analytics, it is still winning, for now: best-in-class behavioral analytics is built on nuanced user behavior patterns that bots can’t fully replicate yet.

For example, mouse movement is much more human-esque in fourth-generation bots, but there are still subtle behaviors which give bots away. NeuroID data scientists have scrutinized the details of thousands of bot interactions and compiled an extensive body of data. They have used that knowledge to compare bot behavior against genuine user data, and developed algorithms that identify the small distinctions in mouse trajectories.

From that research, they have also been able to extrapolate methods to address autofillers, transition times, and other behavioral secrets that bots have defeated. Fraud experts have iterated new prevention tools based on those past bot interactions, which they have used to craft tools that can detect and defeat bots.

Every Business Is a Target

Fintechs and payments processors, especially those that have simple onboarding processes, are often considered the most likely targets for cybercriminals. They typically are easier for fraudsters to penetrate due to their focus on smooth onboarding sometimes introducing new fraud vulnerabilities. However, bot activity has risen at banks, credit unions, lenders, and others—sending a clear message that every business is a target.

This is partly due to the fact that cybercriminals have a wider array of tools at their disposal as well. With genAI creating new bot capabilities, the investment from fraudsters is less for a potentially bigger payoff from a large target. If cybercriminals identify an organization that doesn’t have updated fraud prevention measures, they will concentrate all their efforts on it using any methods available to them.

First- and third-generation bots are still heavily used in fraud attacks, and the fourth generation won’t be displaced even though the fifth generation is on the way. Bot generations build upon each other, which means any effective solution will need to evolve likewise.

A Multidimensional Approach

Cybercriminals will never stop innovating, and advanced fraud bots will be a challenge for companies for years to come. Even as fraud prevention teams find ways to thwart fourth-generation bots, the fifth generation is on the horizon.

Bots aren’t just an issue for high-profile companies—they are increasingly being deployed against any organization that doesn’t have modernized fraud prevention measures. In addition, criminals constantly add layers of complexity to their attacks, as evidenced by the emerging trend of hybrid human/bot fraud attacks.

Because of the continual and formidable threat of bots, organizations must take a multidimensional approach that incorporates behavioral analytics and device and/or network intelligence to detect bots effectively.

For that reason, many organizations have turned to bot-detection specialists like NeuroID for help. Because bots pose an increasingly daunting threat to organizations, it’s essential to have a partner that can provide the tools to defeat both the bots of today and the iterations to come.

The post Next-Generation Bots Pose Formidable Fraud Challenge appeared first on PaymentsJournal.

When you think about a disputed card charge, most people’s minds go directly to identity theft and criminal scams. But most chargebacks don’t fit into that category. Rather, they are what has come to be known as first-party misuse, or “friendly fraud.”

Friendly fraud occurs when a cardholder inadvertently reports a legitimate transaction as fraud. This could be a long-forgotten recurring subscription or that a child abused their access to a parent’s card. The common denominator is that even though these charges are disputed by the customer, they are not unauthorized. But first-party misuse can make up as much as 75% of all chargebacks. When the pandemic made more people reliant on digital transactions, payment fraud expanded. And as more and more business is conducted digitally, friendly fraud is poised to increase—it is the second-most-common type of fraud impacting merchants, behind only phishing attacks. Friendly fraud costs businesses inventory and revenue and leaves them subject to chargeback fees. That’s on top of the cost and time spent responding to the false claim.

Taking On the Friendly Fraud Fight

What can merchants do to combat this type of fraud?  One approach was outlined by Visa, which has been refining its dispute program to make it easier for merchants to fight friendly fraud.

The key is to give merchants more ways to show that a disputed charge is valid and authorized. The new rules are designed to protect legitimate cardholder activity while helping business owners keep money that is rightfully theirs.

The program allows merchants to demonstrate that a purchase is legitimate by providing records of two previous undisputed transactions using the same payment credentials. Examples that can help establish that legitimacy include a customer using the same payment credential previously at the merchant, repeated use of a login or IP credentials, or proof of use of a product. Small businesses could avert more than $1 billion in losses globally over the next five years using the Visa plan.

Merchants used to be able to handle these disagreements on their own. Previously, when consumers wanted to return an item, they had to take it back to the merchant and make their case. Nowadays, with so many transactions conducted online, they can anonymously deal with their issuer instead.

“This liability shift relieves merchants to some degree and puts more onus on issuing banks, which means both have incentive to shore up authentication mechanisms to verify the authenticity of transactions and their accountholders,” said Tracy Kitten, Director of Fraud & Security at Javelin Strategy & Research. “We know that first-party fraud detection is a growing challenge for not just retailers but also banks, as scams linked to P2P payments make first-party fraud even more challenging to discern.”

A Team Effort

Visa developed the dispute program in partnership with two of its industry partners, the nonprofit Merchant Risk Council (MRC) and the payment-focused Merchant Advisory Group (MAG). “Reducing the impacts of first-party misuse on small businesses requires industry-wide support,” said Julie Fergerson, CEO of the MRC. “We stand with Visa in their commitment to ensuring the entire ecosystem is taking the right steps against inaccurate chargeback disputes and protecting merchants from bearing the weight of these costs.”

Over the past five years, Visa has spent more than $10 billion to improve its technology, including to reduce fraud and improve network security. The company also employs more than a thousand dedicated specialists monitoring payments activity around the clock. In a single year, Visa proactively blocked $40 billion in attempted fraudulent payments. 

Helping merchants to safeguard against these risks while ensuring seamless digital payments has never been more crucial. With its enhanced protocol for fighting first-party fraud, Visa is further positioned to help merchants retain what is theirs—by working together.

The post Fighting Friendly Fraud: New Approaches for Beleaguered Merchants appeared first on PaymentsJournal.

Consumers increasingly want to move money with their mobile phone and see their account balances adjust immediately. Unfortunately, many financial institutions don’t have the infrastructure to provide the always-on experience their customers expect.

That has left many banks and credit unions at a technological crossroads. They can retain their core systems and update them on a catch-as-catch-can basis, or they can rebuild from the ground up. A recent whitepaper from Javelin details a third option, the “digital twin” approach, which gives institutions a new way forward to a modernized payment experience.

A Difficult Dilemma

The dilemma financial institutions face is exacerbated by emerging payment methods. Instant payments have gained traction in markets like Brazil and India much faster than they have in the United States. Banks in those markets have felt the strain of using outdated systems to process high volumes of real-time payments.

Although the current methods have functioned reliably at scale for financial institutions for decades, they will not be sufficient to accommodate real-time payments and settlements. As payments platforms like FedNow and Zelle gain traction in the United States, American banks and credit unions will begin to feel the same strain their foreign counterparts have endured.

“The issue facing financial institutions dealing with major systems overhauls is the cost and complexity,” said James Wester, Co-Head of Payments at Javelin Strategy & Research. “They are quite expensive and can take years to accomplish. Plus, the systems they are replacing are often still serviceable, just not adequate for the direction payments and financial services are heading.”

One alternative to a costly rip-and-replace effort is a gradual shift to payments modernization. Unfortunately, a piecemeal approach often results in long timelines, multiple vendor interactions, and inefficient parallel core systems.

The Middle Ground

The digital twin approach is a middle ground between total core system replacement and incremental shifts. A digital twin can be established in a secure cloud environment. DDA balances are replicated to the digital twin, and when customers send or receive money, the twin authorizes the transactions in real time and updates account balances. The core system then credits or debits accounts in the system of record or, if the core is down, transactions are queued and executed when the core is back online.

Digital twin technology that leverages API and event-driven architecture can facilitate real-time functionality. The result is customers get a more efficient payment experience while banks take the initial steps toward modernizing their payment platforms.

“To this point, there hasn’t been an ‘in-between’ step that allows banks to do the necessary upgrades to core systems to meet the evolving requirements in payments but continue to use existing platforms while they do it,” Wester said. “The digital twin approach does just that; it offers banks the ability to use their existing platforms to connect to open, modern tools while they do the necessary upgrades to their core systems.” 

A Foundation and a Framework

The digital twin approach won’t solve every issue of an outdated core banking system because it’s not a replacement. It does, however, offer financial institutions significant immediate benefits. It takes the load off a bank’s core systems and makes them a stable, secure environment for maintaining balances.

The digital twin approach also gives institutions a foundation from which to build. Payments and financial services continue to evolve through new technologies like real-time payment rails and artificial intelligence tools. The digital twin can be a connection point for data across disparate systems, making it ideal as a framework for use cases like future AI integration into payment data applications.

“A big problem for financial institutions looking to upgrade their core systems is their marginal returns on investment are often far into the future,” Wester said. “That means they can’t realize any gain until they finish, and even then they will have to wait until they’ve launched new products after the upgrades are complete. With a digital twin approach, they can test and launch products almost immediately.”

A digital twin can also be a proxy to control account balances across siloed lines of business, which gives institutions and customers immediate visibility into balance changes. It can likewise reduce the customer friction that often results when banks implement new payment methods. A better user experience means customers are more likely to purchase additional services.

A Cloud Strategy

Because most core systems are housed in a data center that is onsite or managed by a third party, there are significant energy needs and maintenance requirements. Regardless of whether there is peak demand or a slowdown, the bank must constantly provide the same data center resources.

The digital twin can be the first step in implementing a cloud strategy. A cloud-based solution greatly increases an organization’s speed of deployment, its capacity to scale to meet changing demands, and its ability to vary costs according to volume.

In addition, the digital twin’s cloud environment means there will be reduced software and maintenance costs. Financial institutions will also be able to gradually migrate to a modern tech stack without disturbing the user experience.

Movement Toward Modernization

Many institutions are waiting to see where payments technology will go before making a significant investment to update their systems. However, the hastening emergence of financial technology means banks and credit unions can’t delay their digital transformations.

As financial institutions in Brazil and India have discovered, it’s better to institute flexible, modern core systems before instant payments volume takes off. Increasing consumer demand for real-time responses will likely accelerate U.S. instant payments adoption in the coming years.  

Due to emerging technology, some banks might feel pressure to replace their systems altogether. However, the digital twin’s cloud-based solution can be fully implemented before new payment methods gain traction. For many banks at a tech crossroads, the digital twin approach might be the most prudent way forward.

The post A New Way Forward: Taking a Digital Twin Approach to Payments Modernization appeared first on PaymentsJournal.

With the landscape of payments continually being redefined, revisited, and reimagined, one might speculate on the ingredients vital for achieving success in the future of payments. Forrester emphasizes that in the years ahead, “it’s the payment experience, not the payment, that matters,” while McKinsey argues that returns in the future payment landscape “will accrue to players that can seamlessly embed payments into customer lifestyles and behaviors.”

A glance at recent history reveals subtle indicators validating the foresight of Forrester and McKinsey. Notably, a discernible trend has emerged where payment cards endowed with distinctiveness and a unique allure have eclipsed conventional “plain vanilla” cards in metrics such as activation rates, usage frequency, and customer retention. This distinctiveness could stem from various facets—be it the material, design, or personalization features, such as incorporating a chosen photo of the cardholder.

Further reinforcing this perspective is the escalating competition within the banking sector, propelling traditional banks, FinTech, and BigTech entities to seek differentiation. Leveraging payment cards as a potent means to remain front of mind with their customers has become pivotal. Indeed, these cards represent one of the most visible components of a bank’s brand, encountering customer engagement multiple times daily. Every time a customer pulls out a card is a branding and marketing opportunity, fostering what academia terms as mental availability for the brand. And as rational beings of the 21st century, we might perceive ourselves as thinking individuals who feel. However, brain scientist and neuroanatomist Jill Bolte Taylor emphasizes the reverse—we’re feeling beings who think. Consequently, the tactile sensation of a card as it’s pulled out holds utmost importance.

A perhaps somewhat unexpected sector offering insights into the potential blueprint for future payment success lies within the luxury industry. Forecasts predict a robust 8 to 10 percent growth in the global luxury market for 2023, surging to a historic 1.5 trillion euros in sales. Bain & Co. anticipates sustained mid-single-digit growth until 2030, propelled by strong underlying fundamentals. Interestingly, this surge includes high-end watches. While smartphones have obviated the need for watches as mere timekeeping tools (the “functional” aspect), the continued embrace of luxury timepieces speaks volumes about their symbolic value in projecting identity and style (the “fashion” aspect).

Consequently, a discernible trajectory emerges for the future of payments, with successful businesses harnessing the full potential of payment cards, transforming them into personalized and fashionable experiences — transcending mere transactional functionality. This trajectory unequivocally leans toward metal cards: delivering aesthetics, tactility, weight, acoustics, and the perception of sturdiness akin to artisanal craftsmanship. Metal cards, reminiscent of accessories and fashion statements, communicate the cardholder’s lifestyle and values, potentially emerging as the quintessential element distinguishing successful payment strategies in the future. Only time will tell.

The post Unveiling the Future of Payments: The Role of Experience, Branding, and Luxury in Shaping Winning Strategies appeared first on PaymentsJournal.

In 2023, reports of elder fraud plagued financial advisers and the families of the victims who were targeted by cybercriminals. Scams that coerce older adults are increasingly pervasive and insidious, and often have consequences that go far beyond mere financial loss. In April, an 81-year-old Ohio man fatally shot a 61-year-old Uber driver after both were duped as part of a ransom scam, according to The Associated Press.

The challenge for law enforcement, families of elderly victims, and the financial industry as a whole is that scam victims are often reluctant to ask for help, or, in some cases, even acknowledge that they are being or have been victimized. Cybercriminals exploit generational differences, by playing to the unique vulnerabilities of older consumers—consumers who are more likely to take someone “on their word” (proverbial “handshake”), rather than feeling empowered to challenge someone’s authenticity or request additional identity verification.

Older consumers also tend to be less likely to hang-up on a spam caller or ignore a desperate email communication or text, which puts them at greater risk of future exploitation.

Romance Scams

Romance scams, which rely on so-called “pig-butchering” techniques, are often long-running and extremely damaging, from an emotional and financial perspective^[i].  Romance scams usually involve a cybercriminal who adopts a fake online persona that is used to gain a victim’s affection and trust. From there, the cybercriminal engages with the victim over time, building a relationship to manipulate the victim into sending money, providing access to financial accounts, or wittingly or unwittingly laundering funds for cybercrime.

“The scammer’s intention is to establish a relationship as quickly as possible, endear himself to the victim, and gain trust,” the Federal Bureau of Investigation notes. Scammers may propose marriage and make plans to meet in person, but that will never happen. Eventually, they will ask for money.”

Tech Support and Investment Scams

The FBI’s Internet Crime Complaint Center in December reported that complaints of fraud and cybercrime adversely affected U.S. adults over the age of 60 increased 11% in 2023 from the previous year. Among the most damaging types of crimes impacting that over-60 age group were tech support and investment scams.

Those findings jibe with Javelin Strategy & Research’s data, which shows that nearly half (48%) of wealth management advisers surveyed by Javelin had clients over the age of 60 targeted by tech support, telemarketing and sweepstakes scams.^[ii] What’s more Javelin finds that tech and romance scams are more likely to victimize men, highlighting significant risk to a very focused and vulnerable segment of the population^[iii].

Education and Awareness

Education around scams has fallen short, namely because it fails to target the demographic groups at greatest risk. While education surrounding scams has dramatically increased over the last year, most educational campaigns are generalized, not only in their messaging, but also in their approach.

Rather than targeting education, Javelin finds that most scam awareness campaigns are blanketed, and tend to be overwhelming for consumers. Older consumers, as an example, should be targeted with educational campaigns that stress their need to be skeptical of anyone who approaches them with a sense of urgency and refuses to let them hang up (as one example) on a caller who seems suspicious.

Additionally, financial advisors, who often are among the first to be alerted to suspicious activity, tell Javelin that they feel ill-prepared and informed about what they can and should do to assist victims and their families.

As global attention around elder financial abuse increases, Javelin is making a point to educate its financial services clients about how they can and should be addressing elder fraud and cybercrime. June 15 marks the United Nations’ World Elder Abuse Awareness Day, highlighting why fraud and cybercrime targeting older consumers must get more widespread attention.

Related Research of Interest:

Wealth Accounts at Increasing Risk of Scams and Cyber Takeovers

Customer Contact Centers: Heroes in Cybercrime Remediation, Fraud Prevention

Pig Butchering Scams: How Banks Can Stop the Slaughter

Shattering Gender Stereotypes in Scam Awareness and Education

2022 Cyber-Trust in Banking Scorecard

Resolving Identity Fraud: A Field Guide (sponsored by AARP)

^[i] Javelin Strategy & Research, “Pig Butchering Scams: How Banks Can Stop the Slaughter,” Published March 27, 2024; accessed June 12, 2024.

^[ii] Javelin Strategy & Research, “Wealth Accounts at Increasing Risk of Scams and Cyber Takeovers,” Published June 20, 2024; accessed June 12, 2024.

^[iii] Javelin Strategy & Research, “Shattering Gender Stereotypes in Scam Awareness and Education,” Published Dec. 12, 2023; accessed June 12, 2024.

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The prevailing sentiment among consumers, particularly in younger generations, is access is more important than ownership. The subscription-centric sales process turns the traditional sales model on its head, and merchants wishing to take advantage of the recurring payments paradigm must pivot to take advantage.

How Recurring Payments Through Subscriptions Drive Business Growth, a new report by Craig Lancaster, Payments Analyst/Content Specialist at Javelin Strategy & Research, examines the powerful benefits of the recurring payments model and details the strategies businesses can use to leverage it.

The Bowtie Model

The sales process has traditionally been viewed as a funnel. At the top, merchants make consumers aware of their product. Then, businesses engage customers, help them discover the product they need, and at the bottom of the funnel is the purchase and the hope for customer retention. Afterward, merchants keep in contact with customers and hope they come back when they need the product again.

The recurring payments model is shaped like a bowtie, with the left-hand side as the traditional sales funnel. Merchants must still attract customers, nurture the relationship, convert the sale, and maintain a relationship, but the process doesn’t end with a closed sale. In a successful implementation of this model, the customer commits to an ongoing relationship, so at the hub of the bowtie is the customer experience.

“One of the major differences in this model is the customer’s journey, which is described in the right side of the bowtie,” Lancaster said. “The longer customers remain in the recurring payments model, they slowly advance from product adoption to brand loyalty. Eventually, they increase their advocacy until they become brand ambassadors.”

Compelling Benefits

Merchants have compelling reasons to adopt the model, as well. Chief among them is revenue reliability, because consumers enter a long-term relationship. The recurring payments model also reduces barriers to entry for customers who leverage offerings like software-as-a-service models to ramp up their own endeavors.

Businesses, for example, don’t necessarily have to invest substantially in infrastructure before they get their products to market. In the case of software-as-a-service subscriptions, there also isn’t the need to build inventory before launch. Once launched, companies can easily upgrade their products behind the scenes.

Merchants still have responsibilities in a subscription model, however. Businesses must continue to upgrade their product, and they can never take customers for granted. If merchants aren’t serving customers’ needs, there are plenty of companies vying for customers’ subscription dollars.

“There are many entities ready to disintermediate the relationship,” Lancaster said. “Aside from competitors, companies like Experian can collate customers’ subscriptions into a list that allows them to track and manage their subscriptions. Merchants must actively maintain consumer relationships, so they’re not swept out to sea if their customers decide to cut back on costs.”

In the end, the benefits of adopting the model are considerable. The recurring payments model increases revenue reliability, supports consumer choice, and can be leveraged to reduce churn.

Finding the Balance

Subscription models, in and of themselves, aren’t a magic wand. In the traditional cable TV model, there were many tiers of subscriptions. Customers were forced to subscribe to all the channels in the tier chosen, even though they often didn’t need or want it.

In response, consumers moved away from cable to streaming services, where the subscription is presented more efficiently and users have much greater control over the programming they want.

If companies can find the right balance in their recurring payments programs, there can be a significant impact on merchants and consumers. Lancaster’s report cited an automatic car wash charging $12 for its basic, bottom-tier wash, but a basic monthly unlimited subscription for $30. At first glance, it might seem at cross-purposes to set the monthly rate so low compared with a single wash.

“First, it isn’t $30,” Lancaster said. “It’s really $360 because the subscribers are paying it every month. Even if a customer decides to get their $30 worth and send the car through every single day, the business is already staffed and running, so there are no added costs. Car washes recycle their water, so the nominal cost of an extra car wash isn’t very high.”

For the customer who values a consistently clean car and wants the convenience of a car wash, $30 a month is manageable. For the company, especially a car wash where business is often subject to the vagaries of weather, reliable revenue can have a major impact.

Creating Lifetime Value

One of the gold standards of the software-as-a-service subscription model is Adobe Creative Cloud. In the past, consumers would buy each piece of software, install it, and run it for as long as they possibly could before investing again.

Since Adobe transitioned to a subscription model, customers pay on a per-month or per-year basis and all the programs are updated, or even replaced with the newest versions, seamlessly in the background.

The model can dramatically boost the lifetime value of an individual customer. Adobe charges $54.99 monthly for full access to its creative suite, so long-term users are making a sizable investment. However, it’s an investment they’re largely willing to make.

“On a per-month basis, it’s not a budget-breaker for many customers,” Lancaster said. “Adobe’s products are excellent at what they do, and they’re consistently upgraded, like adding new font families to give creators greater capabilities. Customers see the value, so they maintain the relationship. Adobe has identified a need for consumers and catered to it, and that’s really the key.”

The post Access Over Ownership: How Merchants Can Leverage Recurring Payments appeared first on PaymentsJournal.

The United States has been slow to fully embrace the open-banking philosophy, but there are signs the shift is accelerating. As more Americans link their banking, credit, and financial accounts, they expect customizable payments solutions, faster access to funds, and increased control of their financial wellbeing.

Globally, the open-banking market is expected to top $130 billion by 2028, fueled by consumer demand and technological capability. A report from Ripple, Trends in Regional Payments: Inside the Evolving Global Payments Landscape, examines how payments are changing worldwide and the trends driving North American adoption.

Benefits to Open Banking

Third-party companies are at the center of the open-banking model. Banks give approved third-party platforms access to their clients’ accounts, and the platforms can then perform payments and share financial data.

Though Americans have been reluctant to grant access to third-party platforms, the benefits outweigh the risks. Open banking gives businesses and consumers the ability to accept more revenue streams and grant access to more financial products. The model also increases the number of customer touchpoints, which creates the opportunity for personalization.

In many cases, third-party providers can also process transaction data faster. Increased transparency into creditworthiness should make credit scores more accurate, aiding lenders and consumers.

Imminent in North America

Europe has spearheaded the open-banking movement. In the UK, account-to-account (A2A) payments increased by 280% year over year in 2023.  But the United States is trending upward, with 71% of consumers indicating they prefer to make purchases and pay bills from their bank account.

Open-banking solutions gained ground in North America in 2023, exemplified by the partnership between Coinbase and a Canadian A2A infrastructure provider designed to offer alternatives to the traditional banking experience.

The open-banking model keeps banks and fintechs competitive and drives margins down. In turn, that will push traditional banking institutions that dominate the U.S. market to look for alternative ways to boost revenue and cut costs. Open-banking innovations, especially distributed ledger technology, can solve those issues.

Though Americans’ hesitation to adopt open banking has centered on security concerns, third-party platforms are innovating to keep payments safe. Data from the Financial Data Exchange (FDX), a nonprofit organization driving U.S. open-banking adoption, indicated that in 2023 more than 30 million Americans converted from credential-based account access, using IDs and passwords, to tokenized API access.

The FDX believes open banking is imminent in North America because of consumer preferences but also because of a more established regulatory framework. Still, more consumer education is needed. Visa recently reported that 87% of Americans have linked their bank accounts to third-party companies, but only 34% are aware of how the process works.

The Arrival of FedNow

Instant payment rails should also serve to drive the open-banking movement. FedNow, the instant payments service launched by the United States Federal Reserve, gives U.S financial institutions of all sizes the ability to deliver fast, customizable payments services.

Launched in mid-2023, the rail should bolster the awareness and adoption of open banking. That growth should become exponential as more financial institutions understand the service’s benefits.

Accessibility is chief among the advantages. FedNow is available to small businesses, large corporations, and individuals. Real-time rails will make U.S. businesses more competitive because they can operate with the same speed and precision as their global competitors. FedNow also improves the efficiency of payments and settlements.

Because customer expectations will likely increase after they use the service, FedNow should push financial institutions to innovate. Financial flexibility for businesses and consumers will expand as more avenues for revenue are available.

On the downside, financial institutions are likely to feel more pressure to increase spending on tech stacks to meet the demands of solutions like FedNow.

The Universal Language

Because of the complexity involved with connecting global open-banking systems, there must be a universal language that can translate messaging between financial institutions. ISO 20022 is the messaging standard that allows companies to securely share financial information worldwide. It’s an essential tool to support payments modernization and plays a crucial role in facilitating instant payments.

The standard should reduce transaction errors, even in cross-border payments, while making transactions faster and safer. ISO 20022 provides an established, robust common language between businesses and banks that puts a halt to end-of-day batch file payments processing and fully integrates with real-time payments.

ISO 20022 also delivers better analytics, improving financial institutions’ decision-making. Operational efficiencies should improve as companies are able to exchange enhanced remittance information. The standard should also eliminate the need for manual processing, reducing inaccuracies.

The ISO 20022 messaging standard is the foundation for FedNow, but it also offers the payments service the capability to evolve as the payments landscape changes.

What’s In Store for Stablecoins

Stablecoins are digital currencies tied to the value of a fiat currency, such as the U.S. dollar. These types of digital assets allow for direct transactions between customers and merchants, thus reducing transaction fees.

The currency is also cryptographically secure, meaning it is fully predictable and unbiased. Users can settle transactions in near real time without double payments or other settlement issues. Established on distributed ledger technology, stablecoins can serve as a bridge from the traditional Web2 financial model to the innovative Web3 economy.

PayPal made a substantial move into the stablecoin market in 2023, launching its dollar-based stablecoin, PayPal USD (PYUSD), which can be redeemed on a one-for-one basis with U.S. dollars. The new stablecoin makes for speedy and accurate payments, but it also has intriguing applications as a cross-border payment option. The emergence of PYUSD is a milestone that further legitimizes alternative payments and boosts the profile of digital currency.

While there are still regulatory hurdles in store for stablecoins, the backing of fintechs, banks, and governments is speeding the adoption. In the United States, there has been bipartisan support for the Clarity of Payments Stablecoin Act. The legislation is designed to accelerate stablecoin adoption and foster innovation.

Learn more about the changing landscape of payments in North America and beyond.

The post Trends in Regional Payments: Spotlight on North America appeared first on PaymentsJournal.

The past decade has been earthshaking for the global payments industry, and the changes show no sign of stopping. The consumer side has seen the rise of payment apps like Venmo, Zelle and ApplePay, along with an increasing reliance on e-commerce and mobile payments driven by the pandemic. On the institutional side, the rise of open banking has been intertwined with a new regulatory landscape defined by evolving standards such as ISO 20022 and PSD2 and 3. 

But these innovations have had a marginal impact on correspondent banking systems. The primary focus of most of these improvements has been the user experience. On top of that, their biggest impact has been on regions that were already well-connected in terms of payments, such as the ACH structure in the United States. Even as the domestic rails have developed new technology and messaging systems, the correspondent banking system has failed to keep up with modern needs. 

Seeking Efficiency in Cross-Border Payments

One of the systems that has been lagging as a result of all this change has been cross-border money movement. Cross-border payments still largely rely on the correspondent banking system, which means that settlement speeds have seen little to no improvement in recent years. Thanks to fluctuations in foreign exchange (FX), higher interest rates, and intermediary fees, global payments have become increasingly more expensive.

All these changes make it even harder for modern institutions to access certain critical payments corridors. This is on top of historic factors that have already made these corridors difficult to reach because of lack of FX or liquidity challenges. 

Although many fintechs have attempted to solve the pain points of the B2B payments experience, not many have attempted to address the challenges that banks face at a fundamental, infrastructural level. But for those that do, there is a tremendous opportunity to use better, alternative solutions that can transform the management of correspondent banks from a cost center into a revenue driver. The latest technological offerings enable companies to offer innovative payment solutions for customers, expand business into new corridors, and gain a competitive edge as client expectations rise. 

Trends That Are Driving Adoption 

Money movement has increasingly become digital in nature, a trend that has only accelerated. McKinsey has estimated that U.S. account-to-account (A2A) payments could surpass $200 billion in volume by 2027.  Visa has reported that 87% of U.S. consumers are using open banking to link their financial accounts to third parties, even though only 34% are aware that they are using it. In the UK, A2A payments already represent 45% of all electronic payments and are growing by 280% annually.

In fact, several trends point to money becoming an increasingly digital commodity. Cash usage is at a historic low, with the number of Americans saying they did not make a purchase with cash in a typical week is now at 41%, up from 29% in 2018.  And more individuals and businesses are using alternative currencies. The cryptocurrency market tends to top $300 billion in trading volume per day, not far behind the average U.S. stock market, which averages about $460 billion per day.

Technologies That Can Fill the Gaps 

Although these trends mean more assets are moving electronically, several headwinds are hindering this system from being as efficient as it could be. A major problem with payments today lies in the difficulties banks encounter when they transfer data from one account to another or one jurisdiction to another.

Though the ISO 20022 standard aims to implement a “universal language” for payments messaging, it is a different story for cross-border payments, where the experience is still poor. Correspondent banking networks remain slow, expensive, and opaque, resulting in high intermediary costs and long settlement times for regional and community banks, largely due to the complexity of correspondent banking relationships.

Learning About Solutions

One solution for this data issue is distributed ledger technology. This allows banks to send and record transactions instantaneously, with no more need for payments reconciliation or manual data entry. Distributed ledger technology helps institutions reduce network complexity, provides alternative options to Swift or ACH, and helps companies and their customers make faster, more affordable payouts.  

As technology and regulations continue to develop rapidly, it is critical to not fall behind. Ripple, a leader in cross-border payments solutions, helps banks take advantage of these developments. The company will be delving further into this topic in an upcoming webinar, Evolution in Global Payments: Rethinking Correspondent Banking for Modern Finance, which you can register for here.

The webinar will cover:

• Industry wide progress in payments across North America
• Why the correspondent banking system is no longer fit for purpose
• How regional and community banks can prepare for the next evolution of global payments

Save your seat today!

The post Getting Up to Speed With the Next Generation of Payments appeared first on PaymentsJournal.

Accepting payments in a timely and efficient manner is crucial to the success of any business, yet organizations often struggle to define solutions to improve existing procedures. U.S. Bank’s recent survey of 300 U.S.-based finance professionals uncovers several problems with business-to-business payments while also illuminating ways businesses can cut costs in this area.

Nearly three-quarters of finance professionals polled said that keeping payment acceptance costs low is highly important to them. These same professionals say it’s hard to demonstrate they can save money with a better approach to payment acceptance. More than half of respondents said they struggle to demonstrate sufficient return on investment. Fortunately, there is a demonstrable way to make these processes more cost-efficient.

Frustration With the Costs of Card Acceptance

Accounts receivable teams must continually evaluate and prioritize new methods of payment, a situation that presents additional demands on their time and increases the costs associated with commercial card acceptance. U.S. Bank’s research shows that many are unhappy with the results. Just 7% of finance executives are highly satisfied with their strategies to mitigate commercial card acceptance costs, and 41% are unsatisfied.

The numbers are even worse among C-suite executives, 13% of whom say they aren’t at all satisfied, with 40% saying they’re somewhat unsatisfied. The effectiveness of their card acceptance programs is causing concern at the very top of organizations.

What’s stopping leaders from being satisfied with their strategies? Executives surveyed said that interchange rates and fees are the most challenging issues in accepting B2B commercial card payments, followed by the overhead required to manage, collect and transmit the additional commercial card transaction data.

In the survey, 73% of respondents said keeping payment acceptance costs low is highly important as they try to control their expenses, yet just 7% of finance executives are highly satisfied with their strategies to mitigate commercial card acceptance costs. That’s where Level 2 and Level 3 processing comes in.

Lower Interchange Rates With Level 2 and 3 Processing

There are ways to reduce costs in acceptance processes, centered on capturing the comprehensive level of transaction detail required by Visa and Mastercard. Collecting additional transaction details at the time of payment authorization can help better authenticate the commercial card transaction and provide useful information for the commercial card issuer and the card holder. That means the transaction carries less risk of dispute, which may qualify the eligible commercial card payment for lower acceptance rates established by each card brand and reduce interchange rates by as much as 125 basis points.

These available lower interchange rates for Visa and Mastercard branded commercial cards are known as Level 2 and Level 3 processing. Here’s how the various tiers are defined:

• Level 1 processing requires standard transaction details such as payment amount and date of the payment.
• Level 2 processing adds applicable sales tax and a customer identifier to the transaction.
• To qualify a commercial card payment for Level 3 interchange treatment, more than 20 fields of line-item detail required by the involved card brands, must be captured and sent with every commercial card transaction authorization, including information such as tax ID, shipping ZIP, freight amount, item description, quantity and product code.

To realize Level 2 and Level 3 processing and those corresponding acceptance rate programs established by Visa and Mastercard, businesses must accept either purchasing cards, corporate cards, business cards or government spending accounts (GSA) issued by Visa or Mastercard.  

Under the Visa and Mastercard Level 2 and Level 3 acceptance programs, businesses can achieve significant interchange savings by gathering and passing on Level 2 and 3 data with their commercial card payment acceptance. Typical card-not-present (CNP) interchange rates from Visa for corporate cards range from 2.7% for Level 1 data, 2.5% for corporate card payments including Level 2 data and 1.9% for corporate card payments including Level 3 data. In the case of higher-value transactions above specific thresholds established by the card brands  – considered ‘Level 3 large ticket’ – published commercial card interchange rates drop to 1.45%.U.S. Bank’s survey shows that many businesses are missing out on these available interchange rates through the commercial card acceptance programs established by Visa and Mastercard. While 70% of the professionals in the survey said they transmit Level 2 data to their payment processor, only 58% said they send Level 3 data.

Time Is a Deterrent

Although Level 3 processing creates the greatest cost savings for commercial card payments, many organizations are deterred by the detail required to qualify transactions for it. For every commercial card transaction, 25 established data fields must be correctly completed and arranged in the correct order for every commercial card transaction. In addition, the authorization and settlement must be completed within 24 hours to avoid costly transaction downgrades.

When U.S. Bank asked finance executives from the organizations that send Level 3 data about the time their team spends assembling and entering that data, only 15% described it as insignificant, while 9% described it as very significant. On the other hand, non-C-suite finance executives overstate the time spent on collecting these details as significant or very significant, with 45% saying this. This suggests that individuals who deal with day-to-day receivable processes are more aware of the true time commitment to collect and transmit Level 3 data with their commercial card payment activity.

There’s no denying that the time spent entering and completing the necessary transaction data is a cost of its own. But lost time is not these executives’ only concern. When U.S. Bank asked them what challenges they face in transforming their B2B payments approach, their top response was a lack of organizational skills. Can employees keep up with the constant changes in and rules applicable to B2B payment types? And can the organization keep its training programs up to date?

This concern about a lack of expertise and familiarity with the card brands’ Level 2 and Level 3 programs is well-founded. If mistakes are made entering Level 2 and Level 3 data, eligible transactions will not qualify for the available lower interchange rates, resulting in higher acceptance costs. Even worse, mistakes may often go unnoticed for months, with potentially significant savings lost.

Exploring the Potential of Payments

In addition to the data on Level 2 and Level 3 reporting, U.S. Bank’s report, Powering Potential with Payments: The Commercial Card Optimization Opportunity, also includes additional findings:

• 30% of the organizations that accept commercial credit cards now accept virtual cards for B2B payments, and 55% have seen increased payments made with them in the past three years.
• Organizations with annual revenue above $500 million were much more likely to say they saw a “significant” increase in commercial card payments in the past three years.
• 57% of finance executives say that improving their commercial card processing approach would increase staff productivity, and 54% say it would improve staff morale.

Read U.S. Bank’s latest research report to learn more about how some organizations are evolving their digital processes for better efficiency.

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Tracing the Origins of Card Payments

Card payments are on a path of tremendous growth: in 2022, global card networks processed a whopping 624 billion transactions, marking a growth of 7.5% compared to 2021. Today, payment cards reign supreme as the preferred method for in-store purchases worldwide, accounting for over 50% of all transactions, and cash is starting to disappear in certain parts of the world.

The backdrop for this transformation takes us back to the challenging days of the Great Depression in the 1930s. Faced with economic hardship, enterprising U.S. merchants devised a solution by extending credit to customers through store-cards and charge plates, where a single card operated exclusively within one department store or a specific gas station chain.

The Birth of Payment Schemes

Fast forward to 1950 in New York, where businessman Frank McNamara’s forgetfulness led to a pivotal moment. Left without his wallet during a restaurant dinner, McNamara’s wife drove into town and settled the bill. This incident sparked the idea of creating a way to pay with a card at eateries, giving birth to the Diners Club credit card. Unlike its predecessors, this card offered credit at multiple merchants. In 1958, American Express followed suit, launching its inaugural credit card.

These early credit cards were not backed by banks, but in response to this new trend, banks began to launch their own credit card programs in the 1960s. Bank of America in San Francisco took the pioneering step with the BankAmericard. Realizing the potential of a unified network, a group of California banks joined forces to create the Interbank Card Association in 1966, which later became Mastercard. Concurrently, other banks adopted BankAmericard, which eventually rebranded as Visa in 1976.

Material Transformations: from paper to plastic to metal

The initial Diners Club cards were crafted from cardboard with printed ink displaying the card details, and those details had to be manually written down by the merchants. American Express introduced plastic cards in 1959 and over time, card details were embossed onto the card’s surface, and flatbed imprinting machines were introduced, enabling the recording of embossed card information on carbon paper. These devices became known as ‘zip-zap machines’ due to the distinctive sound they generated.

The 1960s brought another innovation as IBM recognized the potential of encoding information onto cards using magnetic tape. Legend has it that the idea of melting the tape onto a badge using a flat iron came from IBM engineer Forrest Parry’s wife. This innovation led to the dominance of magnetic stripe (magstripe) cards in the market.

In the mid-1970s, Roland Moreno, a French engineer, introduced a revolutionary plastic card embedded with a microchip capable of performing complex calculations and enabling stronger security measures. The following year, he successfully demonstrated how this smart card could facilitate electronic financial transactions. By the early 1980s, French banks embarked on a pioneering journey to issue these chip cards. Banks worldwide followed suit, and today, a staggering 93% of all card-present transactions globally utilize EMV chip technology.

In 2003 the industry had another milestone as American Express launched its Centurion card in a metal form factor, made of titanium.

Tapping Towards the Future

As we continue our exploration of the card’s evolution, we arrive at the present, which has been notably shaped by the COVID-19 pandemic. This crisis has expedited the transition from traditional contact payments, which involve inserting or swiping the card, to contactless transactions that require simply tapping the card on the terminal. It is estimated that by 2026, 81% of all cards worldwide will be equipped with contactless technology.

As we contemplate the future, it’s fascinating to see how payment cards have continually adapted, reinventing themselves over nearly a century to accommodate technological and societal advances, and how in doing so, they have given birth to some of today’s most iconic and prominent brands.

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In the dynamic landscape of consumer engagement, the expectations placed upon companies are in a state of perpetual flux. Two discernible trends that have crystalized in recent years are consumers’ increasing desire for offerings that align with their beliefs and way of life, as well as their fervent demand for hyper-personalization, shifting decisively away from the outdated notion of a universal solution. This article delves deeper into these trends and examines their implications within the realm of payments. 

The Essence of Premiumization 

To distill it to its core, premiumization addresses consumers’ willingness to pay a premium for products and services for a perception of extra quality or status. While the notion of premiumization may conjure images of exorbitant spending on opulent items, it encompasses a spectrum of preferences. These preferences include: 

• Lifestyle Compatibility: Consumers, irrespective of their affluence, seek products harmonious with their beliefs and way of life. 
• Signaling and Image Projection: Products serve as status symbols, reflecting the identity, aspirations and affiliations of their users. 
• Emotional Gratification: Premium products fulfill emotional needs, with the goal of eliciting a profound sense of satisfaction. 

Hyper-Personalization Unveiled 

Hyper-personalization centers on delivering products and services tailored to individual preferences, a stark departure from the standardized offerings for mass consumer segments. This transformation stems partly from the influence of BigTechs like Amazon and Meta, which have raised the bar for user interaction standards. Today’s consumers, particularly Gen Z and Millennials, anticipate personalized interactions in all facets of their lives, driven by their desire for uniqueness and their inclination to share these unique experiences on social media. 

Helping Shape a Memorable Payment Experience

Matt Turner, Head of Digital at HSBC UK, sheds light on the manifestation of these trends in the banking sector, stating, “Getting to a one-to-one level of personalization is definitely a focus for us.” In the quest for hyper-personalization, banks stand apart from other industries, as they possess an unparalleled understanding of their customers’ (financial) preferences, which they can leverage to create unique (one-to-one) real-time offerings. 

Payment interactions are the most frequent touchpoints between banks and their customers, and consequently, banks around the world are harnessing credit and debit cards as a means to meet the burgeoning demand for premium and personalized experiences. The accelerating growth of banks issuing metal cards reflects this dynamic evolution. These cards exude distinctiveness, both in their tangible weight and their audible presence (the “clang” sound) when dropped on a surface. Some metal cards are further personalized by engraving the cardholder’s signature directly onto the metal. Payments have evolved to spark memorable experiences for the consumer; the payment card has indeed gone from being functional to becoming a fashion statement.

In an era of premiumization and hyper-personalization, the prevailing formula for success in banking appears to be succinctly captured by the adage: “Save your customers money, and they’ll remain loyal today. Make your customers feel unique, and they’ll remain devoted to you indefinitely.” 

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Real-time money movement (RTMM) is gaining traction worldwide. Although real-time payments only account for only a 1.2% share of the total payments volume in the US in 2022, transactions are expected to grow 364% by 2026¹. As more businesses and consumers expect faster, more efficient payments, this trend will only grow, with McKinsey predicting that by 2027, more than half of all payment transactions will occur in real-time (a threefold increase from today). For financial institutions (FIs), RTMM’s explosive growth is an opportunity to grow their revenue and capture new customers (86% of whom see value in RTMM²). The biggest roadblock to this growth has been outdated mindsets, roadblocks keeping FIs in the United States from getting on board and adopting this potentially lucrative payment system.

FIs have been reluctant to adopt RTMM solutions based on a few commonly held misconceptions. They include the beliefs that:

• RTMM leads to increased fraud risk
• There’s a lack of consumer interest in real-time payments
• There’s no risk in waiting to adopt, and high-risk in early adoption

These common beliefs cannot be further from the truth. Subscribing to these misunderstandings can lead to disastrous results. In today’s rapidly evolving payments landscape, standing on the sideline endangers FIs, which could lose their competitive edge as well as a significant portion of potential market share.

So what is the truth about RTMM systems and its incorporation into both the financial and fraud landscapes? NeuroID’s guidebook, Three Common Myths About Real-Time Money Movement & Fraud and How They’re Hurting Your Revenue, aims to dispel commonly held myths and discover the truth behind RTMM and fraud.

Does RTMM Adoption Lead to Increased Fraud Risk?

Fraud experts still hold on to the belief that faster payments can lead to faster fraud. And it’s an understandable fear: with no way of recovering money lost in real-time, RTMM systems seem especially scary. Fraud involving authorized push payments (APP) is on the rise as the immediacy and finality of these payments give consumers a much shorter timeframe in which to dispute or revoke them³.

But it’s not the speed that makes RTMM vulnerable, but the outdated fraud prevention systems that simply can’t adjust to new styles and speeds of bad actors. Reactionary responses and manual work can’t fight real-time, instantaneous threats.

As funds funneled through RTMM move faster, fraud solutions must keep up the pace. This means employing fraud prevention orchestration technology that reduces manual operations and can make more deterministic decisions higher in the fraud capture funnel. Switching to real-time fraud prevention automation makes the process simpler, repeatable, and more accurate—enabling FIs to capture both the fraud and opportunity that comes with RTMM systems.  

Do U.S Consumers Actually Care About Real-Time Payments?

Data highlighted in the NeuroID report reveals that only 18% of banks and 12% of credit unions actually provide RTMM services, paving the way for the argument that consumer demand is lacking. However, Generation Z is leading the way in the world of faster digital payments. In fact, 66% of that cohort use digital wallets in virtually all cases. Plus, 51% stated that digital transactions will soon displace physical transactions.

Furthermore, across various generations, close to 80% of consumers want to make payments to businesses directly and quickly. These stats clearly show that U.S. consumers, regardless of age, desire to make real-time payments as it enables them to send and receive money quickly as well as have more control over their finances.

The rise and popularity of peer-to-peer payments (P2P) are also indicative of this consumer desire to access real-time payments. Some of the most popular providers include Zelle, Venmo, Visa Direct, and Mastercard Send. The new launch of FedNow is going to continue to fuel this consumer demand.

But P2P platforms have not been without controversy. Zelle has been in the headlines for a lack of consumer protection against fraudulent transactions. Zelle’s parent company, Early Warning Services, reported that Zelle users have lost approximately $440 million to fraudsters.

Despite the lack of fraud protection, customers continue to use this platform for sending money instantly and irreversibly. Convenience is the deciding factor. For FIs, RTMM systems aren’t just about meeting an immediate consumer demand—they’re about securing a future customer base. With Gen Z exhibiting high loyalty towards FIs they trust, meeting their needs with RTMM adoption means establishing a long-term customer base.

RTMM Is a Must to Stay in the Game

RTMM is not just another strategy. It’s a competitive necessity. Traditional banking services such as ACH payments and wire transfers still have their place, but for some consumers, they are simply too slow for the rapidly evolving payments landscape. Such services can take hours or even days for funds to clear. This is no longer a viable option for those consumers who want faster payments and immediate access to their funds.

RTMM systems are still developing, and some financial institutions don’t want to take unnecessary risks when it comes to implementing them. But with 15% of consumers saying RTMM availability would be a top factor in changing banks, waiting is also risky. If you competitors have a more aggressive timeline than you do, you’ll lose real revenue: it’s as simple as that⁴.

Behavioral Analytic’s Place in Combatting Real-Time Fraud

Another issue driving hesitancy among FIs is updating fraud prevention legacy infrastructure and technologies. Revamping these systems to facilitate and support real-time payments could take considerable time and expense. But it doesn’t have to be an all-or-nothing approach: there are real-time fraud solutions able to keep up with RTMM-based fraud that don’t require a rip-and-replace, and can instead work as a new, unique signal within your fraud stack.

When it comes to tackling the potential for fraud head-on, financial institutions must partner with a solution provider that leverages behavioral analytics to detect incidents of fraud. Within it’s role as a behavioral analytics leader, NeuroID is breaking down barriers and enabling safe and secure RTMM adoption.

A pioneer in the realm of behavioral analytics, NeuroID detects the intention of users through their online behavioral patterns. NeuroID alerts to fraudulent activity by differentiating between legitimate users and potential bad actors based on form interactions (such as swipes, clicks, and name entries). All decisions are enacted in real time for the safer integration of instant payments.

NeuroID’s solution is lightning-fast, with the ability to approve, deny, and review transactions in less than a second.

Closing Thoughts

RTMM will soon be table stakes for FIs. Although adopting RTMM without inviting fraud does have challenges, they are not insurmountable.

With RTMM fraud, time is of the essence. It is critical to have a solution that can make real-time decisions on who is trustworthy, and who is treacherous. Behavioral analytics are a game-changer to ensuring proactive prevention in real-time.

Leveraging the power of behavioral analytics, FIs get the information they need to streamline decision-making and avoid fraud costs, while still reaping the benefits of RTMM adoption.

Interested in learning more? Register for NeuroID’s The Dark Side of Speed webinar series. 

¹ https://insiderealtime.aciworldwide.com/Fight-Real-Time-Payments-Fraud-in-Three-Simple-Steps
² https://insights.discoverglobalnetwork.com/fintech/5-payment-trends-in-fintech
³ https://www.pymnts.com/bank-regulation/2023/senators-warn-regulators-on-zelle-fraud-risks/
⁴ https://www.accenture.com/us-en/insights/banking/payments-gets-personal-strategies-stay-relevant

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As the U.S. banking industry moves toward embracing real-time payment systems, a recent survey underscores the importance of strategic planning, the challenges faced by legacy systems, and how collaborating with trusted partners can help organizations navigate this transformative journey.

This fourth annual survey from the U.S. Faster Payments Council, Glenbrook and Volante, a cloud payments modernization partner to financial businesses, asked the opinions of 427 market participants, 60% of whom work for a financial institution or a facilitator. This year’s survey recorded the highest level of satisfaction with the industry’s progress toward the adoption of faster payments. Across the industry, 51% of respondents—including 61% of financial institutions—say they are satisfied.

Implementing RTP^® and FedNow^®

The most significant development in real-time payments has been the introduction of FedNow in July 2023. That followed the launch of Nacha’s Same Day ACH in 2016 and The Clearing House RTP Network in 2017.

Among financial institutions, plans for these services are robust, with 88% of the survey respondents saying that they will implement FedNow and/or RTP within the next two years. RTP has been implemented more, with 61% of FIs saying that process is underway or complete. FedNow, less than a year old, has been or soon will be implemented by 44% of respondents. Only 12% of the FIs say they plan to wait more than three years to implement these payment services—or won’t implement them at all.

The survey also asked about future deployment strategies. For FedNow, 44% said they will support send and receive services initially, with 48% planning to add send services eventually. Only 8% said they will remain a receive-only organization. The figures are similar for RTP: 50% say they will support send and receive services initially, with another 34% adding send eventually. This leaves only 16% expecting to be a receive-only organization long term.

Reaching for Outside Help

For companies planning to use RTP and FedNow, 46% say they will connect to both via a third-party provider, compared with 32% who say they will connect to each system directly. The preference for working with third-party providers is understandable, as the integration and operations of these systems can be resource-intensive.

To help ease the barriers to adoption, many FIs have been turning to technology providers that focus on simplifying deployment and operations. Outsourcing the entire operation can also reduce overhead, allowing institutions to focus on innovation and opportunities to monetize faster payments. Other important considerations that respondents mentioned included software-as-a-service business models, providing scalability without extensive hardware upgrades and resilient disaster recovery services.

In addition to a faster time to market and lower operating costs, the survey respondents noted that they were interested in many of the value-added services that third-party providers can offer. Among them:

• Enabling proxy/alias (e.g., phone number) for payment initiation
• Confirmations sent to sender and receiver
• Enabling a QR code
• Recurring/automatic payments
• Appending additional remittance data

Changes Over Time

Over the four years the survey has been conducted, the top challenges with faster payments has changed little in the rankings. This year’s survey found that interoperability is considered to be “very important” by 71% and “somewhat important” by 21% of those surveyed. That total of 92% has been largely consistent over the four annual surveys.

On the other side of the coin, lack of ubiquity/interoperability continues to be the most common concern. Roughly 57% of financial institutions and business respondents mentioned it as an issue.

This is the only concern that earned such a strong consensus among these two groups. On other topics, the two groups had some severe disagreements. High upfront implementation costs were the second most common concern among bankers (59%), whereas only 33% of business respondents saw this as a top challenge. Similarly, 40% of financial institutions see “insufficient readiness to manage risks in a real-time environment” as a top concern, compared with only 10% of businesspeople.

Only 27% of respondents say they see an increase in fraud related to their faster-payments operations. Although that’s not a large number, it’s important to note that it has doubled from 13% in 2020.

There is overwhelming support for including dispute resolution as an inherent feature of faster payment systems (81%), similar to what’s done by credit card networks. This support has increased by 10 percentage points over the four years of the survey.

The survey also asked about cross-border payments. With regards to the RTP Network, 39% of the respondents say they are either using or plan to use its cross-border payment capabilities. Some 50% said they are unsure if they will use it, and only 11% said they will not use the feature. With FedNow, 77% said the system should offer cross-border faster payments.

Conclusions

The survey portrays an industry in the early stages of transitioning to a real-time operating environment, particularly for FedNow.

Real-time payments are quickly becoming a necessity for financial institutions to offer so they remain competitive.

The industry needs the freedom to evolve its existing systems and operations through innovation that can complete the transition to a new level of service and a new way of imagining the payments business. Along the way, trusted partners can provide the support and insights to clarify strategy and support complex transitions.

Download Volante’s U.S. Faster Payments: The state of the nation report to learn more about the evolving landscape of faster payments.

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The surge of faster payments systems has inadvertently paved the way for a surge in fraudulent attacks. With new technology and faster payments coming to the forefront, fraudsters are tapping into vulnerabilities found within these schemes.

A key contributor to the surge in attacks lies in the very nature of faster payments, which involve speed and irrevocability. When payments are processed and settled in real time, users have little chance to detect the attack and reverse the transaction once it is initiated.

Furthermore, the rise of faster payment adoption among businesses and consumers gives fraudsters a wider pool to fish from, which will mean more losses in the near future.

The Many Faces of Fraud

Financial institutions must familiarize themselves with the various types of fraud to formulate the most effective strategies to mitigate attacks. Some of the most common forms of fraud are ACH payment fraud, check fraud, account takeover, and fake-merchant fraud.

As technology revolutionizes the payment landscape, FIs must play defense against potentially significant losses as well as subsequent losses of customer trust and loyalty.

An Early Warning^(R) whitepaper, Spot & Stop Payments Fraud, reveals that losses due to ACH fraud soared by 63% in 2021. And in 2022, 30% of businesses reported fraudulent activity through ACH debits and credits. More troubling was the fact that less than half of the businesses that fell victim to these attacks were able to retrieve their funds¹.

ACH payments fraud occurs when a fraudster gains illegal access to a victim’s account or a fraudulent account to generate a payment for a monthly bill pay, pay off a loan, or simply send money to their personal account in another bank. In these fraudulent transactions, FIs are ultimately on the hook for any losses incurred by the customer. If the fraud isn’t addressed, FIs can be responsible for a considerable amount in losses.

Oddly enough, with all the new innovations in payments, checks remain popular fraud vehicles. In 2022, check fraud increased by 96% from the previous year. What’s more, the average check value has risen from $673 in 1990 ($1,602 in today’s value) to $2,652 last year².

Consumer checks are mostly swiped from the U.S. Postal Service system, after which they are frequently altered to make counterfeits. Particularly troubling is a check fraud scheme whereby thieves use universal keys to access mailboxes, steal checks, and later change the payee information as well as the dollar amounts.

Business checks are not faring well, either, especially since these carry considerably higher dollar amounts and are highly lucrative targets for fraudsters. Early Warning’s report cited findings from the Association for Financial Professionals indicating that 63% of organizations fell victim to check fraud in 2022.

Account takeover (ATO) is another nefarious tactic used by fraudsters. It’s a type of identity theft whereby a cybercriminal uses stolen credentials to gain access to a legitimate account. These credentials are typically stolen through skimming, phishing, and social engineering schemes.

Losses from ATO in 2021 were a staggering $11.4 billion, a 90% increase from the year before. This fraud is particularly tricky to mitigate as the transaction originates from a real customer in good standing with the FI³.

Fake-merchant fraud happens when a fraudster masquerades as a merchant, opens a merchant account, takes payments, and ultimately steals these funds. Although this is an easier type of fraud to identify, retrieving the lost funds is nearly impossible. Consumers will then resort to initiating a charge-back, leaving FIs, once again, on the hook for the lost funds.

FIs Must Detect and Mitigate Fraud

All the aforementioned types of fraud indicate a troubling pattern. Heftier financial liability is shifting from consumers to FIs. What’s more, FIs face serious repercussions if their customers no longer feel safe conducting transactions at those banks.

This can lead to a loss of reputation, which is followed by customers, stockholders, and partners losing trust in the FI. If FIs continue this trajectory of not mitigating fraud, regulatory action through fines will be taken by governing bodies, potentially crippling the FI financially. For these and other reasons, FIs must take strategic action.

Predictive Intelligence: A Game-Changer to Prevent Payments Fraud

Although the fraud landscape may appear daunting, there is a solution. FIs can protect themselves and their customers with predictive intelligence. Predictive intelligence is the technique of using data, algorithms, and machine learning to predict behaviors or events.

Verify Payment, Early Warning’s predictive intelligence tool, is trained with information from the National Shared Database, a “consortium of shared data” provided by 2,500 FIs. This tool uses account activity data from “participant FIs” and “non-participant FIs,” generating predictive scores to indicate the probability that a payment will return unpaid, enabling inquirers to evaluate payment risk more accurately.

By stopping fraud before it starts, FIs can sidestep the monumental losses that can occur with these payment fraud schemes, keeping their bottom line and their customers safe.

Sources

¹ Association for Financial Professionals, 2023 AFP® Payments Fraud and Control Survey, 2023

² U.S. Treasury Financial Crimes Enforcement Network, Suspicious Activity Report Statistics (SAR Stats), 2023

³ Datos Insights, What’s Top of Mind for Fraud Executives: Trends, Scams and Talent, August 2022

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Instant payments are poised to accelerate in the U.S. now that FedNow has launched. There’s an opportunity for banks and credit unions to take the lead again in payments. They can offer a cheap, convenient, fast and secure way to move money that U.S. consumers and businesses didn’t know was possible.

Like ACH, value can be created on instant payment rails that doesn’t necessarily require a catchy name that later becomes a verb. Consumers don’t know ACH, but they do know direct deposit – 94% of Americans get paid that way.

Unlocking instant payments in the U.S. will require innovation. When it comes to instant payments innovation and adoption, Brazil is one of the best markets to learn from. Pix is Brazil’s instant payments scheme and is arguably the most successful scheme worldwide in terms of adoption. In less than 3 years, the number of Pix transactions exceeds both credit and debit combined. Some 70% of Brazilian adults use Pix and there are over 3 billion Pix transactions per month (vs. ~30 million in the U.S.).

The innovations happening on top of the Pix rail are remarkable. Below are just a few examples that are enabling Pix to reach its full potential that may serve as inspiration for the U.S. market.

Pix Credit

Pix Credit is a product that allows a consumer to pay using Pix and re-pay their financial institution over time. Nubank, Digio, Banco BV and MercadoPago offer this today, and other very large Brazilian banks are gearing up to launch their version of Pix Credit soon.

With Pix Credit, cards don’t need to be issued, the payment networks and acquirers don’t need to be involved in transactions. And, Financial Institutions can charge interest much like with credit cards.

There are several reasons why consumers might use Pix Credit.

• If they have an urgent need to make a payment, but don’t have balance in their account (e.g. emergency medical or utility bill).
• When a store offers a discount on purchases for payment with Pix – consumers can take advantage of the discount, but pay back over time.
• Repaying for purchases over time may align better with their incoming cash flow.

Pix Credit is a way for financial institutions to offer a credit card-like product using the instant payment rails, but profit in a way that doesn’t hurt merchants by offering a more efficient payment system with fewer players.

QR Codes

QR codes are accelerating consumer-to-business instant payments in Brazil.

Currently, over 30% of the 3 billion Pix instant payments a month are person-to-business transactions (up from 13% two years ago).

This P2B Pix adoption was made possible by QR codes. When consumers go to a store to pay with Pix, they don’t share their bank account information with the cashier at checkout. Instead, the merchant presents a QR Code, the consumer scans it from their mobile phone, reviews the transaction details on their phone, hits pay, and the transaction is done.

This P2B instant payment is simple, fast and all that’s needed is a mobile phone. The exchange of bank accounts and related information is all handled behind the scenes via QR code.

Merchants and billers love Pix. It’s 1/10th of the cost of credit cards and they get their money instantly. As a result, they are offering material discounts to consumers if they pay with Pix, using QR codes. Amazon, for example, offered consumers an additional 10% off if they paid with Pix on Amazon Prime Day this year.

Amazon isn’t the only company that presents a QR code to a consumer at online checkout. QR codes are commonly used to initiate instant payments across many verticals and at many recognizable brands. Examples include large retailers, mobile operators, fast food (e.g. McDonald’s, Burger King, Pizza Hut), Gasoline (Shell), e-commerce and many others.

Instant payments to all of these verticals and companies wouldn’t be possible without QR code technology. Also the use of QR codes grew much faster than cards in the past because there were no hardware requirements. The QR code can be presented on the payment terminal, cashiering system or printed on the receipt. Any payment alternative requiring new hardware in every store is likely to fail.

Loyalty Point Redemption

One of the most creative applications of the Pix rail is its ability to process different currencies—such as loyalty points.

With over 400 partners around the world, ties to more than 40 Financial Institutions, and approximately 40 million consumers on their platform, one of the biggest rewards programs in Brazil recently began leveraging the Pix rail for points redemption. It’s a win-win for both consumers and merchants.

Consumers earn points when making purchases from select partners. When they redeem those points, they pay directly from their mobile app and the transaction flows over the Pix rail. The merchant receives cash instantly in its bank account, and the loyalty points are deducted instantly from the consumer’s loyalty account.

What Now?

RTP and FedNow enable U.S. financial institutions to meet modern digital demands with a 21st century payments solution. Adoption of instant payments requires pairing innovation with these rails. And, the blueprint of what’s possible is available in other countries who are 3-5 years ahead of the U.S.

“For FedNow to reach its full potential, we’ll need to harness the creative energies of all kinds of people including fintechs to think about how we enable this platform for innovation.” – Mark Gould, Chief Payments Executive, Federal Reserve on Fintech Takes Podcast Aug 23, 2023

No one in Brazil thought Pix would be a success when it launched. Financial institutions who weren’t prepared lost commercial business as a result. While it’s impossible to predict the inflection point of when instant payments will accelerate in the U.S., it is widely-agreed that instant payments are coming. What are you waiting for?

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The development of new payment systems for consumers has inspired merchants, software vendors, and financial institutions to become more creative in combating fraud. Artificial Intelligence has emerged as the go-to solution for reducing risk. Next generation AI promises to be even more of a game-changer in the world of fraud detection, not just uncovering but also anticipating fraudulent transactions.

With the increasing growth of payments data, acquirers and merchants are finding it harder to get a comprehensive view of consumers’ behavioral patterns. This leads to a fragmented approach to fraud prevention, making it difficult to determine what is a legitimate transaction and what is fraud. Models trained on global data allow for a comprehensive view of consumer transactional patterns, resulting in increased fraud detection and approval rates with fewer false positives.

“Artificial intelligence allows us to protect the 125 billion transactions we switch on our network every year at speed and scale,” said Rohit Chauhan, Mastercard’s Executive Vice President of Artificial Intelligence. “By applying thousands of data points, our sophisticated AI engine helps banks approve more genuine transactions and prevent fraud. In fact, our AI-powered solutions have saved $35 billion in fraud in the past three years alone.”

Mastercard has been using AI for more than a decade, most importantly in its cybersecurity work. As part of Mastercard, Brighterion has developed AI fraud models that monitor transactions from all sides to ensure accuracy in predicting fraud. Its AI technology checks against multiple transaction indicators and compares them with patterns identified in historical fraud.

Introducing  the Next Phase of AI

Mastercard has combined its AI and payment gateway capabilities to deliver a unified solution, Transaction Risk Management powered by Brighterion AI, that enables acquirers to proactively detect, prevent, and mitigate fraudulent activities. Transaction Risk Management leverages AI and machine learning technology to provide real-time analysis, enabling acquirers to use advanced technology to better protect their merchants. The result is an easy-to-use solution that can reduce fraud and approve legitimate transactions more effectively.

Through Transaction Risk Management, each transaction is evaluated in two paths—there’s an AI model and there are also the rules set by the customer. Firstly, The AI model checks against multiple transaction indicators and compares them with historical patterns as signals that are correlated with fraudulent use. AI keeps a continuous eye on the model to evaluate when adjustments might be necessary.

The solutions second path assesses the transaction with a rules management tool. Customers can use a variety of rules within the supported templates, as well as establish their own based on business specifics. After the assessment, each transaction is assigned a numerical score that indicates the level of risk associated with it. When the two models are integrated, they give a clear assessment of when a transaction might be fraudulent.

The Value of Experience

Mastercard has a long history of embracing AI to secure the digital ecosystem. A primary focus is providing fraud detection and enterprise Al applications for payment service providers, financial institutions, healthcare payers, and merchants.

“Mastercard and Brighterion have substantial experience applying AI technology to fraud detection,” said Christopher Miller, Lead Analyst of Emerging Payments at Javelin Strategy & Research. “They have been using AI in fraud detection before many of the more recent AI entrants were even around. As part of Mastercard, Brighterion can distribute this technology to a much wider audience than then they could ever have achieved alone.”

Customers can leverage the expertise of Mastercard across a diverse skill set, and the payment strategy works alongside an end-to-end service that focuses not just on the technology but also on customer service and experience. Brighterion AI’s full-stack machine learning toolkit creates off-the-shelf market models that are production-ready, and custom models are available within six to eight weeks.

Existing Applications

The processes have already been put to use around the globe. Earlier this year, Mastercard announced a partnership with Network International, the leading enabler of digital commerce in the Middle East and Africa, to address fraud, declines, and chargebacks while reducing costs and risks for acquirers. Leveraging Mastercard’s Brighterion AI technology, Network International expects to provide transaction fraud screening and merchant monitoring to its customers across the region.

“At Mastercard, we think of AI like electricity: powering our society, enlightening our communities, and driving progress,” Chauhan said. “That’s why we use it everywhere we can.”

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A financial institution’s onboarding process is a critical factor in a customer’s decision to go with a new financial provider. But many organizations introduce unneeded friction to that onboarding, in an attempt to verify applicants’ identities easily and securely. In the best cases, this increased friction is frustrating to customers and hurts conversions—in the worst cases, it hurts conversions and still doesn’t prevent fraud attacks.

To mitigate fraud attacks, FIs need a friction-free way to see how humans, fraudsters, or bots are engaging with their onboarding—and assess these interactions in real time, protecting good customers from the friction of long step-up processes and manual reviews. Behavioral analytics is a game-changer for both these goals—and NeuroID’s new research illuminates how.

Advanced Detection to Prevent Advanced Fraud

As the saying goes, an ounce of protection is worth a pound of cure. For FIs to remain competitive, legally compliant, and trusted by their customers, they must come to terms with the rapidly evolving fraudulent tactics that bad actors are employing. They must also find ways to strengthen their defenses that incorporates solutions that weren’t built for a point-in-time attack, but to scale across any fraud attack style targeting customer onboarding (without hurting conversions).

To gain a better understanding of these challenges facing the FI landscape, NeuroID monitored fraud patterns across 17 of its customers. Their research found that 74% of fraud attacks were especially fast, lasting no more than 33 hours. And customers experienced an average of nine attacks within a five-month period.

NeuroID’s research noted that the relative speed of these attacks could be attributed to a sophisticated group of fraudsters working in unison to carry out their schemes at an efficient speed. It’s also likely that these professional fraudsters have adopted automated processes to execute repetitive tasks such as creating accounts and stuffing credentials. As anyone in the industry knows, once fraudsters have uncovered a vulnerability, they will unleash their attack via multiple points, hoping to break through before the area of vulnerability can be fixed. If fraudsters aren’t stopped at this point, the damage is potentially exponential and irreversible.

NeuroID’s research looks in greater detail at the various tactics these fraudsters are using to commit distinct types of advanced attacks, including:

• Ambient fraud: This is an ongoing type of fraud by which bad actors are consistently looking for weak links to launch a full-on attack. Although FIs can easily detect this type of fraud, many shrug it off due to its seemingly small scale. However, when the fraudster discovers a vulnerability at scale, the losses can be substantial.
• Fraud ring attacks: These highly sophisticated attacks are carried out in a coordinated effort by professional fraudsters who leverage the latest in technology, communication, and payments to steal from their victims.
• High-velocity attacks: Especially nefarious, these employ a more brutal attack after a weak link has been detected. Upon discovery of the vulnerabilities, the fraudster publishes this information on the dark web, inciting an onslaught of risky applications that aim at firing at all of an organization’s fraud defenses.

According to NeuroID, even if 90% of risky applications were stopped, the remaining 10% can still be problematic because of their high volume. FIs must realize that advanced fraudsters have crucial insights that will help them refine their tactics and create new methodologies to get around security measures with any future attacks.

How Behavioral Analytics Works

Behavior is unique to individuals and nearly impossible to spoof. Behavioral analytics capture the way a user interacts with an online form or application, which leaves a footprint that can’t be replicated. Therefore, the intention of the user is revealed with every swipe, text, type, and similar nuances.

NeuroID’s behavioral analytics detect when a user is not who they claim to be based on their behavior, specifically if their actions are incompatible with someone who is accustomed to their own personally identifiable information (PII). With that information, FIs can make real-time decisions on where to apply friction (for risky users) or to lighten friction (for trustworthy users), thus solving the dual challenge of stopping fraud while streamlining conversions.

For example, a credit card issuer uses NeuroID to identify fraud on two fronts: the prequalification and customer account application phases. During a six-week period, NeuroID detected five spikes in risky activity on the issuer’s website, in addition to 500 risky user flags. With this information, the issuer included document verification for these suspicious applications, leading to many of the risky applications being abandoned. This solution was able to read the intentions of these bad actors with behavioral analytics insights in real time, thwarting any future fraudulent attacks.

Behavioral Analytics Essential for Fraud & Friction Mitigation

Behavioral analytics are essential to mitigating fraud at the application level for FIs. By identifying suspicious activity early, without harming legitimate customers, FIs stand to minimize considerable losses and increase conversions. Behavioral analytics help identify high-risk applications for further investigation and reduce needless disruptions for legitimate customers.

Although organizations, including banks, sometimes see fraud as just a cost of doing business, the reality is that they can mitigate some of the significant costs fraud costs with behavioral analytics in multiple ways. For example, NeuroID has helped FIs save costs by reducing the overhead associated with closing down fraudulent accounts, reducing API calls by providing decisioning higher in the onboarding funnel, and reducing friction by enabling unique tracks based on determinate decisioning. As fraudsters continue developing the newest methods and avenues for attack, organizations must remain vigilant and employ the newest, most sophisticated methods to identify and mitigate fraud without harming the conversion experience.

The post New Research Shows How Behavioral Analytics Predict Fraud Risk Against Advanced Attacks appeared first on PaymentsJournal.

Businesses are having difficulty safeguarding their payment transactions from fraudulent activities and getting to the root cause of their payment challenges. As digital transactions become more prevalent, merchants need to stay ahead in the fight against fraud by leveraging AI-powered tools that help them tackle the issue head-on.

Visa has been working with more than 8,000 financial institutions globally to help identify and prevent fraud. Through its Merchant Risk Intelligence Suite (VMRI), the company is leveraging advanced analytics and data to help merchants authorize secure transactions and make more informed decisions while handling disputes.

VMRI lets merchants analyze their transaction data against industry benchmarks and pinpoint where they excel and where they fall short. The service also provides helpful metrics, including authorization rates and fraud rates. With these valuable insights, businesses that route their transactions to Visa can improve their operations, resulting in increased approval rates, reduced fraud rates, and, ultimately, boost transaction activity and profits.

The Value of the Right Analytics

Through VMRI, merchants can see how they stack up against their peers, specifically in terms of authorization rates, fraud rates, and other indicators. Merchants who route their transactions through Visa reap the full benefits of VMRI by identifying areas where they are underperforming or overperforming, allowing them to take targeted actions to improve their operations.

A case study from one digital merchant in particular shows how impactful these tools can be. Prior to using VRMI, the business was experiencing high fraud and chargeback rates, which led to higher representment rates. Representment, in this context, refers to the process where merchants dispute chargebacks by providing evidence to card issuers to reclaim lost funds and counter unjustified chargebacks. According to Visa, this essentially made the merchant appear less trustworthy—riskier—in the eyes of issuing banks, which approved fewer of its transactions, rejecting most of them with “suspected fraud” and “do not honor” codes.

Because of the various moving parts, it was unclear to the merchant how big its problems were compared with those of other companies and how it should proceed. After deploying VMRI, the merchant identified that it had weak authentication practices and an ineffective representment approach that was not up to the industry standard. After working to fix the issues by intensifying authentication practices and refining its re-presentment strategy, the merchant saw remarkable results, including a 10% improvement in transaction approval rates, a 30% reduction in fraud rates, and decreased representment rates.

How Risk Intelligence Tools Drive Transaction Authorization

Although Visa’s Merchant Risk Intelligence Suite is helpful in taking stock of how a business is doing over a long period, it doesn’t detect individual fraudulent transactions in real time. To help with that particular challenge, Visa provides Visa Advanced Authorization (VAA), a comprehensive risk management tool that monitors and evaluates card-not-present transaction authorizations on its global payment network in real time.

VAA identifies instances where hackers might be trying to guess account numbers, expiration dates, or security codes—a process known as account enumeration. It then categorizes its findings into alerts and reports that identify the most sophisticated attacks and their victims, and it shares the information with its partners. All Visa issuers get the VAA score that helps them better identify fraud and decline those transactions, saving the merchant from potential losses.

In addition to VAA, Visa’s Cybersource Decision Manager and CardinalCommerce authentication solutions also help merchants mitigate fraud. Decision Manager’s machine learning capabilities combine automated strategy suggestions with a “what if” testing environment to help merchants optimize their fraud strategy. Meanwhile, CardinalCommerce works at the center of a vast exchange that includes both merchants and issuers, giving unique visibility into the full payment lifecycle to help create smart authentication solutions.

In an interview with The Edge, Dustin White, Chief Risk Data Officer at Visa, explained how these tools are already helping to combat fraud. According to White, fraudsters make more than two million daily attempts, but fraud rates currently impact only 7 cents per $100 in merchant transactions. White credited this to Visa’s hefty investments in advanced analytics and artificial intelligence. 

Avoiding E-Skimming

Skimming, and electronic skimming in particular, has become more common—and it is another growing challenge that many merchants face. To better help merchants deal with it, Visa rolled introduced its eCommerce Threat Disruption (eTD) service, a system that analyzes merchant websites for malware that skims payment data and is available to merchants who route their transactions to Visa. Once a potential compromise is identified, Visa provides guidance on how to remove the malware, limiting the amount of time a merchant is compromised.

In one instance, the Visa team that handles payment fraud got a tip about a possible security breach of a restaurant’s online ordering system. Hidden in a file that seemed legitimate, Visa discovered malicious software designed to steal payment data. The file was not on the restaurant’s website but on the website of the service provider that handled its online orders. Using eTD, Visa looked into other businesses using the same service provider and found that the problem was much bigger than just one restaurant; it affected one-third of all businesses using that specific service provider.

With information from Visa, the service provider found and removed the malicious software within a week, potentially saving businesses up to $141 million.

Conclusion

Visa’s advanced analytics solutions, including the Visa Merchant Risk Intelligence Suite, Visa Advanced Authorization, and eCommerce Threat Disruption, offer tangible benefits to merchants seeking to enhance their operations and profitability. Merchants who route their transactions to Visa get all the benefits of these tools, empowering businesses to not only identify areas of improvement but also proactively address challenges in real time.

Through VMRI, merchants gain valuable insights by benchmarking their performance against industry standards, enabling them to make targeted improvements. A case study showcased how this approach led to significant enhancements in approval rates and fraud reduction, transforming a struggling merchant into an industry-standard performer.

Visa’s VAA leverages AI to detect and prevent fraudulent transactions in real time, offering businesses a robust defense against sophisticated attacks. Additionally, Visa’s eTD system acts proactively to identify and eliminate malware that skims payment data, safeguarding businesses from potential compromises.

By routing their transactions through Visa and taking advantage of these solutions, businesses can help optimize their operations, increase transaction activity, and ultimately increase profits.

The post Visa Bets on Advanced Analytics, AI to Help Merchants Mitigate Fraud appeared first on PaymentsJournal.

I’ve said it before and I’ll say it again: cards aren’t fit for digital commerce. They’re costly, they’re clunky, and they provide an experience that’s stuck in the past. At a time when consumers want fast and frictionless online payment experiences, cards just can’t keep up.

This is why I believe we are at an important inflection point. Account-to-account (A2A) payments, powered by open banking rails, are gaining traction. At the same time, card payments are slowly losing payment share. 

So I still see a future without cards—or, at the very least—a world where cards are no longer the incumbent. In this future, which is far closer than you think, we’ll all be paying (and getting paid) by bank. 

What’s the Problem with Cards?

There’s a saying in business that we all need a nemesis. And it’s easy to pitch cards, owned and operated by behemoth companies, as that nemesis. It’s just as easy to see why I, the CEO of an open banking payments network, want to position TrueLayer as the David to the card Goliaths.

But let’s recognise the reason we all, myself included, still rely on cards. Cards enabled digital commerce. They paved the way for us to do exactly what TrueLayer is doing today, seizing the opportunity to rewire and reinvent the way we transact online. 

The simple reason that a world without cards is so important is that cards were never designed for online commerce. They’ve been retrofitted from a physical payment method into an imperfect online option. Whether it’s the sixteen-digit number you need to input before a transaction, the ongoing battle of card-not-present fraud (for which 3Ds2 has been built, yet hampers conversion), or the various fees that are so painful to SMEs, cards are no longer fit for purpose. 

That’s why the next generation of payments are being built from the ground up, with online commerce in mind.

What will Replace Cards?

So what does a perfect digital payment experience look like? Ideally, payments should flow directly from the payer’s bank to the recipient. No plastic you need to carry around, obviously, and very few intermediaries to keep the process simple and low cost. 

Most importantly, the process of paying should be easy. No long numbers or passwords to remember, while still knowing the method is secure by design. In short, a good UX.

Open banking payments can deliver this experience. You may have seen them called bank to bank payments, A2A payments, pay by bank or instant bank payments. But whatever we call them, the core of it is a native mobile experience, where payments are made directly from the bank to the merchant (and vice versa).

Collaboration is Key to the Future of Bank Payments 

When it comes to account to account payments, we are on a journey. Four or five years ago, open banking was basically just a concept. It’s now grown to an industry that handles 11 million payments every month in the UK, with over 7 million active users. 

That growth has been strong and consistent, but we shouldn’t pretend we can sit back and relax. There are still many things we need to improve and fix in the name of creating a payment experience that works for everyone.

Bank payments benefit everyone in the value chain—the banks, the merchants, the consumers, the third party providers. Understanding that will unlock the kind of long-term growth to challenge the card incumbents. For example, when we first started out, we realised we were lacking a payment feature entirely. Collectively, as an industry, we came together and made that happen. The fact that we’ve done it already—and there were naysayers back then—shows that we can do it again.

Earlier this year, I chatted to Megan Bramlette, Director of North America & EU Payment Acceptance at Amazon, as well as Mark Bryant, Chief Payments Officer at NatWest Group. The core of the conversation was collaboration. As Mark so succinctly explained. “We [banks, merchants, TPPs] need to work together to find the right way for bank payments to succeed, on behalf of the customer.”

I’m so energised because I see the likes of NatWest going beyond what was originally mandated by PSD2, and Amazon actively working towards embedding bank payments in their checkout flow. 

As Megan explained: “My job is to ensure [Amazon] customers have all payment options that meet their needs. We want to do that in the most low cost, frictionless and easy-to-use way possible. Bank payments are a part of that revolution.”

This proves everyone involved sees the future on the horizon, but we still have a way to go. One of those areas for improvement is the payment experience.

Payment Experience is Customer Experience

During the Money2020 panel, Megan said something that I think sums up the biggest step we need to take to really unseat card payments: “In order for bank payments to take flight, the customer experience (CX) will have to be better than cards.”

Mark, looking at it from the banks’ point of view, agreed: “With bank payments, and our suite of APIs, we’re enabled to take things to market quickly, and test and learn. But at the heart of it, we need a great CX for the user.”

I think CX goes double when we’re talking about ecommerce. We’ve seen bank payments gain traction in iGaming and financial services, but ecommerce is a much bigger step, where we need to improve the experience for every use case and fill in any missing gaps.

“Gone are the days when cards were a necessary part of online payments.

Take VRPs for example, which can enhance the shopping experience for merchants and consumers when it comes to recurring payments. In a YouGov survey, more than half of the respondents said they would sign up for more subscriptions if they had one easy way to cancel them. 

As I said before, we’re on a journey. That journey will take more than a decade, but card payments have had 50 years to get where they are now. When you think in those terms, the pace of change for bank payments is much more exciting.

A World Without Cards? Or a World with More Choice?

I know the title of this piece is bold. A world without cards entirely? A more reasonable prediction is that we will all have more choice. Merchants won’t need to default to cards because, despite their shortcomings, they’ve historically been the only way to give customers something approaching a good customer experience.

From the merchant’s point of view, Megan believes that payment choices at checkout will be more varied: “I think the online paying experience is going to get a lot more diverse… my job is to make sure we offer the full complement of payment methods to customers in the best way possible. Bank payments are part of that, and a huge area for growth.”

So no: cards aren’t going to vanish in the blink of an eye. But don’t let that lull you into complacency. Gone are the days when cards were a necessary part of online payments. More choice and a better experience are out there. And it’s only a matter of time before people realise there’s a better way forward.

The post Are We Approaching a World Without Cards? appeared first on PaymentsJournal.

Today’s labor market has become increasingly tight, with nearly half (44%) of business owners reporting they had job openings they couldn’t fill earlier this year – which means businesses need to be as competitive as possible to attract the best and brightest talent. This is also true of the tools that business owners use to manage their employees – since complicated, disparate, outdated solutions can lead to employee frustration.

In a move aimed at making HR tasks and team management more streamlined and hassle-free, Intuit QuickBooks is enhancing and expanding features inside QuickBooks Payroll that can transform how businesses manage and compensate their employees. These new updates were announced at this year’s QuickBooks Connect, Intuit’s premier event exclusively for accounting professionals, where a range of innovations designed to improve the lives of accountants and their small business clients were highlighted.

With QuickBooks Payroll, businesses are now equipped with a solution that will incorporate human capital management (HCM) features to help meet the needs of a growing workforce by streamlining time-consuming and complex administrative tasks.

A Hub to Manage Employee Data

From enhancing the onboarding experience, consolidating employee data, improving employee engagement, and reducing manual workflows, QuickBooks will be a hub that includes integrated HR Information System (HRIS) functionalities in one place.

Small businesses using QuickBooks Payroll will be able to upload and share documents with their employees through QuickBooks Workforce, a hub for employees to access their pay stubs, manage their time, and more. Document sharing allows employers to share a variety of documents with an employee, including critical HR-related documents. In addition, eligible QuickBooks Payroll employers and employees will soon be able to leverage a new I-9 feature that enables employees and employers to complete Form I-9 during employee onboarding and verify employment eligibility. Upcoming new employee profile, team directory and organizational chart functionalities will further enhance the ability for QuickBooks Payroll to act as a single source of truth for up-to-date, complete employee records.

QuickBooks + Allstate Health Solutions Partnership = Enhanced Benefits

Also during QuickBooks Connect, a new partnership was announced with Allstate Health Solutions, which enables QuickBooks Online Payroll customers to provide their employees with enhanced insurance options. This includes greater access to a wider range of health insurance options, making it easier to purchase and manage health benefits through a single platform.

“Choosing the right employee health care plan is an important decision,” said Laurent Sellier, senior vice president, Intuit QuickBooks Payroll Solutions. “With our Allstate Health Solutions partnership, we’re helping employers access tools and expertise to find the right plans and then set up and run those plans with little to no work on their part, fully integrated with their QuickBooks account and payroll service.”

Businesses will be able to search and pay for insurance plans that best fit their needs, regardless of whether they have hundreds of employees or just a few. They’ll be able to choose tailored high-deductible plans, including options for health savings accounts and health reimbursement accounts.

Beyond basic health, dental, and vision plans, Allstate Health Solutions will offer QuickBooks Online Payroll customers access to supplemental and optional benefits such as short-term and long-term disability, long-term care, accident, hospital, and critical illness. With this new partnership, QuickBooks Online Payroll customers can connect with an Allstate Health Solutions benefits advisor to assist in creating the right plan for their business and employees.

Customers can also contact an Allstate Health Solutions call center where a team of more than 300 agents will be ready to offer guidance, recommendations, or additional insights they’ll need to help them best navigate the complexities of the different health insurance coverage options to find the best fit.

Finding Success with Smart Tools

Businesses want to get the most tailored and personalized experience that will help them simplify their day-to-day operations. In an ever-evolving business landscape, the need for efficient payroll and team management solutions is paramount.

QuickBooks has recognized the challenges and has responded with a suite of features that cater to businesses with a growing workforce. These new enhancements empower businesses with the tools they need to better manage their teams, demonstrating QuickBooks’ commitment to simplifying the challenges small businesses face when managing employees.

The post Intuit QuickBooks Online Payroll Simplifies Human Capital Management with the Introduction of New Capabilities appeared first on PaymentsJournal.

Omnichannel banking is the newest strategy that is becoming imperative for financial institutions to adopt in an effort to remain competitive and increase their profit margin. In its simplest form, omnichannel banking involves enabling customers to engage with their bank using their preferred method, whether through mobile, online, or in-person channels.

Although integrating an omnichannel experience for consumers can set a bank on the fast track to increased customer satisfaction and profitability, it has also opened the door to bad actors who are ready to leverage these new points of entry for attack.  An Early Warning report, Fraudsters Love Your Omni-Channel Approach, gives an in-depth look at what fraudsters have identified as the weakest links to exploit consumers and financial institutions, as well as offering a solution to what is known as deposit fraud.

What is Deposit Fraud?

With deposit fraud, a criminal uses a deposit to scam banks or consumers and get unauthorized access to funds. Deposit fraud scams can take on two forms. An overpayment scam happens when a buyer erroneously sends a check that exceeds the expected payment. Then the scammer will ask the victim to return the overpayment. Later, the FI discovers that the check is fraudulent, and the bank customer is then expected to pay the full amount back. Placing a banking customer on the hook for a fraudulent check is certainly not the best tactic for FIs to draw and retain loyal customers.

With banking becoming increasingly digital, remote deposit capture (RDC) has also become a favorite tactic for fraudsters to use. Here, a fraudster would make a check deposit several times, at various banks, using RDC. Most FIs don’t have access to real-time data and therefore cannot communicate with each other in a timely manner to avoid this deposit from taking place multiple times. The nature of RDC is that the customer doesn’t have to be physically present, making identification impossible for tellers.

Businesses have become popular targets of deposit fraud as well. ACH fraud and deposit fraud are seeing steady climbs in crimes using large business checks. According to an AFP study¹ , two-thirds of businesses were affected by fraud in 2021. Furthermore, fraud activity involving ACH debits is climbing, having affected 33% of businesses in 2019, 34% in 2020, and 37% in 2021.

How FIs Can Mitigate Deposit Fraud

Fraudsters quickly adapt as banks continue to innovate their processes. Early Warning’s Verify Deposit solution offers the data insights a financial institution needs to make a decision about the possibility fraud is occurring in real time.

Verify Deposit utilizes data that has been contributed by thousands of FIs to the National Shared Database. This solution analyzes millions of daily transactions, delivering comprehensive insights and equipping FIs to determine transactional risk with the highest levels of accuracy.

Verify Deposit can also be used to speed up funds availability and stop deposit fraud across all channels. Also, when a demand deposit account or DDA is first opened, Account Owner Authentication confirms that the external account is owned by the customer seeking to make a deposit. Verify Deposit then confirms the status of the account and can indicate whether the item will be returned unpaid.  All of these processes can be performed in a matter of seconds.

Other ways that banks can mitigate fraud include:

• With the teller: Detecting deposit fraud attempts can be tricky with continual teller turnover, making it difficult for banks to efficiently train their tellers to detect this type of fraud. Therefore, by offering a real-time deposit screening tool, tellers would have the information they need instantly to detect fraudulent checks and deposits.
• At the ATM: More customers than ever are using ATMs to make their deposits. By using predictive intelligence, FIs can prevent duplicate or counterfeit check deposits in real time.
• Remote deposit capture: For FIs that offer a mobile banking app, RDC has become a weak link for deposit fraud. By using Verify Deposit, FIs can detect and stop deposit fraud directly on the app.

Banks Need to Tackle Deposit Fraud Head-On

Fraudsters have always been on the cutting edge of new technology, ready to exploit any vulnerabilities that an organization may have. Unfortunately, it is a never-ending marathon of vigilance and mitigation, one that FIs should never allow to go unresolved.

With Early Warning’s Verify Deposit solution, banks will now have access to real-time data intelligence that can help detect and stop fraudsters in their tracks, enabling transactions only from the customers they can trust.

¹ AFP^® Payments Fraud and Control Report, Association for Financial Professionals, 2022

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Effective financial management is a critical factor for small businesses seeking growth. Tailored and automated tools, data insights, and guidance from accounting firms have become keys to scaling operations as businesses expand their footprint.

Intuit QuickBooks is at the foundation of small business growth. From accounting to payroll and payments, access to capital and acquiring customers, the QuickBooks platform helps owners better manage their business finances while also enabling accounting firms to deliver actionable advice that spurs client growth. To that end, the QuickBooks Connect conference, held this month in Las Vegas, presented several advancements to the QuickBooks platform that help accounting firms manage their client roster more efficiently.

A New QuickBooks Online Solution for Accountants

One significant announcement was the introduction of QuickBooks Ledger, a new low-cost, subscription product designed exclusively for accounting professionals to help them serve all their clients on one standardized platform, including those with basic accounting needs, such as year-end tax filing. 

For clients who don’t need frequent, ongoing support from an accountant, QuickBooks Ledger offers automated bank feeds, bank reconciliation, financial statements, 1099 tracking, and a seamless transition to tax preparation.

The sweet spot for QuickBooks Ledger is small businesses looking for an accounting solution that will grow along with them. The product is fully integrated and accessible through QuickBooks Online Accountant, allowing accountants to manage end-to-end workflows for their clients from a single place.

The days of manual data entry and reconciliation are also long gone. QuickBooks Ledger allows for financial transactions to be seamlessly synced. With a connection to the client’s bank account, business bank transactions can be flowed into the solution automatically, saving time and greatly reducing the chance of entry errors. And because automation is leveraged, and the tedious act of manually inputting the data is no longer necessary, accountants can now work on higher-end value services.

QuickBooks is looking to ensure that businesses are equipped with the right tools, regardless of whether they’re just starting out or scaling up. In fact, if a business’s growth requires an upgrade in accounting software and services, an accounting firm can easily transition their QuickBooks Ledger client to a more robust QuickBooks Online solution to meet their more complex, ongoing needs. 

Scaling Up

QuickBooks also announced several additional enhancements that support accounting firms who serve larger, more complex businesses. 

As businesses scale their operations, they need features that address their more complex needs. QuickBooks is rolling out new advanced roles and permissions for small businesses and the accountants who serve them to provide more granular and customizable access to sensitive financial data. For accounting firms, they will be able to manage what their teams can see and do within their own firm’s books and on behalf of clients, choosing a role that limits access or views to banking, sales, or expense data.

As a business grows and hires more employees, they also need to have more control over who has permission to perform sensitive tasks and have access to confidential data and information. QuickBooks Online Advanced, designed to serve more complex, growing businesses, will include controls for who can view, create, edit, or delete transactions and access accounting features like reconciliation, registers, and journal entries. Soon access controls will also apply to reports, managing who can view or customize different financial reports, sales reports, receivable reports, payroll reports, helping to avoid unnecessary mistakes and exposure.

Accountants serve businesses at various stages of maturity, and the tools they leverage should meet the unique needs of each of their clients. Having a robust solution that addresses the evolving needs of day-to-day business tasks and operations helps save time and drive greater efficiency for accountants. QuickBooks works alongside accountants to ensure its ongoing innovations continue to provide a solution that scales with the needs of their clients.

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In this era of digital transformation, the fintech sector has emerged as a pivotal player, redefining the traditional financial services landscape and introducing innovative solutions that address the evolving needs of consumers and businesses alike. The payments segment, in particular, has experienced a surge in demand for digital payment solutions, driven by a combination of factors including technological advancements, changing consumer preferences, and a global shift towards a cashless society.

As a result, fintech companies operating in the payments space have witnessed unprecedented growth, attracting significant interest from investors seeking to capitalize on this upward trend. While the opportunities for investment are abundant, they are accompanied by a set of unique challenges and risks that necessitate a thorough understanding of the fintech ecosystem and a strategic approach to investment.

Payments Opportunities

Let’s dive into a comprehensive overview of the current landscape, highlighting the key opportunities and challenges that investors must consider when venturing into the fintech payments industry.

Growing Adoption of Digital Payments
The COVID-19 pandemic has served as a catalyst for the accelerated adoption of digital payments. With social distancing measures in place and a global shift towards online shopping, consumers and businesses have increasingly turned to digital payments as a safer, more convenient, and efficient alternative to cash. According to a report by McKinsey, the global digital payments market is expected to grow at a CAGR of 12.8% from 2020 to 2025. This surge in demand for digital payment solutions presents a significant opportunity for investors to tap into a market that is poised for substantial growth in the coming years.

Emerging Markets
Developing countries represent a vast and largely untapped opportunity for investment in the payments industry. A significant portion of the population in these regions remains unbanked or underbanked, lacking access to traditional banking services.

Fintech companies are bridging this gap by offering digital payment solutions that do not require a bank account, enabling financial inclusion for millions of people. Moreover, the rapid proliferation of smartphones and internet connectivity in these regions is facilitating the adoption of digital payment solutions, creating a ripe environment for investment.

Regulatory Support
Governments and regulatory bodies around the world are increasingly recognizing the importance of digital payments and are implementing policies to support their growth. For example, the European Union has introduced the Payment Services Directive 2 (PSD2) to foster innovation and competition in the payments industry. This regulatory support is crucial for the development and adoption of digital payment solutions, creating a favorable environment for investment in the sector.

Collaborations and Partnerships
There is a growing trend of collaborations and partnerships between fintech companies, traditional financial institutions, and technology firms. These partnerships enable fintechs to leverage the existing infrastructure and customer base of traditional financial institutions while providing them with innovative payment solutions. This symbiotic relationship creates a win-win situation for all parties involved and presents an opportunity for investors to invest in companies that are well-positioned to benefit from these partnerships.

The opportunities for investment in the fintech payments industry are vast and multifaceted. The growing adoption of digital payments, emerging markets, technological advancements, regulatory support, and collaborations and partnerships are all key drivers of growth in the sector. Investors who recognize these opportunities and strategically position themselves to capitalize on them stand to reap significant rewards.

Payments Challenges

With opportunities, there are challenges to consider as well:

Competition
There are several well-established businesses and recent newcomers competing for market share in the extremely competitive payments industry. In addition to traditional financial institutions and technology behemoths entering the payments market, fintechs are competing with each other in this market. Due to the fierce competition, it can be difficult for investors to choose the best businesses to invest in because doing so necessitates an in-depth knowledge of the market and the distinctive value propositions of each competitor.

Regulatory Risks
Regulatory assistance, while necessary for the expansion of the payments sector, carries a certain amount of risk. Regulations are subject to quick change and regional variation, and businesses may find it difficult to follow new laws. Additionally, there is always a chance that stricter restrictions will be enacted, which could have an effect on the profitability and business operations of organizations in the payments sector. Investors must therefore keep up with the regulatory landscape in the areas where they are investing and take into account the potential effects of regulatory changes on their investments.

Cybersecurity Risks
Due to the payments industry’s growing digitization, cybersecurity risks are increasing. Payments companies are frequent targets of cyberattacks, and any security lapse can have serious repercussions for the business and its shareholders. There is a danger of reputational harm and a loss of customer trust, and responding to cybersecurity breaches can be expensive. Because of this, it is essential for investors to evaluate the cybersecurity policies in place at the businesses they are investing in and to take into account the potential effects of cybersecurity risks on their investments.

Technological Risks
To remain competitive, businesses must constantly innovate due to the quick rate of technological innovation. There is a chance that a corporation will lose money if the technology it invests in becomes outdated. Furthermore, putting new technology into practice might be difficult and not necessarily produce the expected benefits. As a result, it’s critical for investors to evaluate the technological prowess of the businesses they invest in and take into account the potential effects of technology risks on their investments.

Market Adoption Risks
Despite the growing demand for digital payment solutions, there is always a risk that a new technology or product may not gain widespread adoption. Factors such as user-friendliness, security, and interoperability with existing systems play a crucial role in the adoption of new payment solutions. Therefore, it is important for investors to assess the market adoption potential of the payment solutions offered by the companies they are investing in.

Future Perspectives of the Payment Industry

The payment industry is on the cusp of a new era, driven by technological advancements, changing consumer preferences, and evolving regulatory landscapes. Here are some perspectives on the future of the payment industry:

• Cryptocurrency and Blockchain: Cryptocurrencies, led by Bitcoin and Ethereum, have already made a significant impact on the payment industry. Blockchain technology, which underpins cryptocurrencies, is expected to play a crucial role in the future of payments by enabling secure, transparent, and efficient transactions. Central Bank Digital Currencies (CBDCs) are also being explored by various countries as a digital form of their national currency, which could revolutionize the way payments are made.
• Artificial Intelligence and Machine Learning: These technologies are anticipated to revolutionize the payment sector by offering more secure and individualized payment experiences. AI, for instance, can be used to identify fraudulent transactions in real-time, and machine learning algorithms can evaluate client data to present tailored payment options and offers.
• Contactless Payments: Due to the COVID-19 epidemic, contactless payments have become increasingly popular. This pattern is anticipated to last in the next years. More people are anticipated to use mobile wallets, contactless cards, and wearables, enabling quicker and more practical payment methods.
• Cross-Border Payments: The globalization of commerce has led to an increased demand for efficient and cost-effective cross-border payment solutions. Blockchain technology and digital currencies are expected to play a key role in enabling seamless cross-border transactions.

In conclusion, the future of the payment industry is bright, with numerous opportunities for growth and innovation. Technological advancements such as cryptocurrency, blockchain, AI, and ML, coupled with changing consumer preferences and regulatory support, will drive the evolution of the payment industry. However, it is important for investors and stakeholders to stay abreast of these changes and adapt their strategies accordingly to capitalize on the opportunities and mitigate the associated risks.

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Failed card-not-present transactions should never be considered business as usual. When a transaction fails, customer satisfaction, trust, and revenue plummet. If there‘s one thing that most customers want to avoid, it’s friction during the checkout process.

Merchants must not only ensure that customers experience a seamless checkout process but also need to navigate issuer preferences, network changes, growing payment options, and multiple routing options. Keeping up with these various challenges—which are becoming more frequent and costly—can be a struggle for many merchants. To address this growing concern, Worldpay unveiled a turnkey solution called Revenue Boost, which helps merchants optimize payments approvals while keeping costs down.

Taking a Proactive Approach

Most customer churn can be traced to a faulty payment process. Instead of accepting this event as the cost of doing business, merchants should consider a more proactive approach—a payment strategy that can secure a higher number of conversions, especially for first-time customers. Merchants have several opportunities throughout the customer shopping journey to make a lasting impact that customers will remember, and one of these critical moments happens during the checkout process. Once customers make the initial decision to buy, merchants need to ensure the payments process goes off without a hitch. A frictionless experience can increase the likelihood that consumers will return.  

“Increasing the lifetime value of the customer that you have can be done within an effective approach to payments to ensure that those who are coming through the funnel have the best possible chance to convert,” Jason Harding, Product Director of Optimization at Worldpay, said during a recent PaymentsJournal podcast.

In a robust payments scheme, merchants need to have access to the right data that would best benefit their organization. According to Harding, using network payment tokens can help merchants make sure they have the most up-to-date information on a customer. Network payment tokens can also reduce friction at checkout without compromising security. Account updaters are also useful, as they automatically update subscription customer card information.

A New Turnkey Solution

Worldpay is looking to help merchants process more card-not-present transactions by reducing the cost and risk of taking payments. Its Revenue Boost turnkey solution is powered by machine learning to maximize its performance.

A single strategy doesn’t work for everyone—particularly because merchants may have different goals, needs, and approaches to driving up e-commerce sales.

Personalized and tailored experiences are what many merchants have been leaning into lately, and Worldpay is as well. The company believes that its solution’s new features can help merchants tailor the payments experience to their needs and, in turn, help them create new opportunities to drive growth.

During a Revenue Boost pilot that Worldpay conducted between May 2022 and April 2023, based on a minimum of 500,000 transactions, one customer reported seeing a $6 million approval lift during a six-month period. Another customer saw a 4% acceptance increase during Black Friday.

And as Harding pointed out, the use of network payment tokens can be effective for merchants. Indeed, one merchant who participated in the pilot said it saved $1.2 million in payment costs over 12 months.

“By lowering costs and lifting approval rates, we can unlock the true value of payments for our customers,” said Gabriel de Montessus, Head of Global Enterprise at Worldpay. “We’ve already seen success for some of the world’s biggest brands, and we look forward to working with more to fuel their commerce globally.”

The post Worldpay Aims to Optimize Revenue Potential for Online Merchants appeared first on PaymentsJournal.

Latin American countries are emerging economies marked by limited access to financial services and consumer goods and characterized by a significant number of unbanked and underbanked citizens. Paying for purchases in installments is much more common and desirable in these economies because it gives consumers access to products and services that would otherwise be beyond their reach.

Buy now, pay later (BNPL) services help finance the cost of expensive purchases through non-traditional channels, but they only made up 1% of total e-commerce in the region in 2021. Brazil and Mexico are the biggest markets in terms of people and sales volume—both countries where many people don’t own a credit card.

With Klarna’s expansion into Mexico, it’s worth looking at what it’ll take for foreign BNPLs to succeed in the space at large. No doubt, homegrown BNPLs have the home-field advantage—it’s their turf. They know the ins and outs of the financial infrastructure in place and are much more familiar with the on-the-ground realities ordinary people face.

Here’s what foreign players need to understand as they enter the market and why native providers have succeeded so far.

Latin America is Not a Monolith

BNPL providers such as Klarna, Affirm and Afterpay have built and expanded their financial services and products in the U.S. and Europe, where the economic infrastructures are near homogenous, broader consumer habits overlap, and most adults have access to traditional financial products. Similar socio-economic environments encourage a little one-size-fits-all approach.

In Latin America, things are not quite so clear. Each country is different, with different consumer habits and varied dynamics with financial infrastructures. In Colombia, for example, the most common form of e-commerce payment is bank transfers (40% of the total volume), much higher than Latin America’s average of 13%. Assuming that 300 million LatAm digital buyers have the same or similar consumer behavior across the region would be a catastrophic misunderstanding of the diverse socio-economic challenges plaguing these countries.

Native BNPLs understand these challenges and tend to have a much more flexible game plan to adapt country by country as they grow, and it’s something foreign players will have to accept and implement if they hope to gain any traction.

Cash is King

Roughly 178 million people in Latin America were considered unbanked in 2021, with the highest proportion of unbanked adults in Mexico. Lack of access to typical banking services and a booming informal labor economy means that cash is still the most common form of payment in Mexico and across the region. Even in Brazil, the region’s largest economy, cash still accounts for one-third of all payments.

Foreign providers still heavily rely on credit and debit card payments, which won’t work as the sole payment method in Latin America. Mexican BNPL Kueski found a workaround by establishing a network of locations that allows consumers to pay in cash for their purchases. International providers will similarly need to develop their own payment solutions that center cash payments as an alternative to card payments.

Lack of Data

Because many people in the region are unbanked, there is limited data on consumer cash flow histories, purchasing habits, loan payments, and other consumer financial behavior. Some native providers have been in the game long enough to have generated their own consumer data over time. But even they had to get creative when they first started, pulling data from non-traditional sources and designing risk models that incorporate cash flow predictability and build safeguards without totally writing off subprime customers. Local providers have developed sophisticated risk models and have efficient operations that enable them to offer microloans of $100 or less. Also, some providers offer a single line of credit, which means customers can’t make more purchases until the loan is paid off, reducing the provider’s risk and curtailing a cumulative debt effect for customers.

Mistrust of the Financial System

High fees, predatory banking practices, lack of transparency, poor financial literacy, and limited access to formal banking services have led to an inherent mistrust of the traditional financial system, especially for individuals with lower incomes or those who live in rural or marginalized communities.

The most successful native BNPL providers understand these challenges and respond with zero hidden fees and robust and active customer service to work with their customers and not against them. They also implement flexible service models with microloans and extended installment plans, instead of the standard pay-in-four biweekly payments that foreign players implement, which makes it easier for customers to pay back the loans.

Foreign players that look at local providers and grasp the underlying factors contributing to their successes are likely to experience smoother expansion into underserved markets.

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While debit card transactions have always been popular, new digital technology and the surge of fintechs are catapulting debit usage in previously unimaginable ways.

No longer used simply for pulling cash out of ATMs, debit transactions today span virtually every payment type that consumers could want. At the heart of this revolution, technology solutions that bring payment convenience, provide ease of use and help ensure security along the entire transaction journey are a critical focus.

Global consumers, especially led by younger demographics, are adopting new transaction methods almost as fast as fintechs can create them. Whether it’s instant peer-to-peer payments or smartphone-based digital wallets, the additional layer of biometric security or the interconnectedness of financial services, consumers are welcoming the many ways that debit makes these possible.

This growing use of debit is in large part thanks to new digital payment capabilities developed by fintechs, often in partnership with card networks like Discover^® Global Network. “In fact, 98% of Fintechs either currently partner (70%) or see an opportunity to partner (28%) with a payment network,” according to research.¹

Today, fintechs and debit issuers are capitalizing on these opportunities. They are increasingly offering digital payment options to consumers, often relying on the trust consumers have in their financial institutions to keep their payments safe.

The marketplace surge of consumer debit transactions

The expansion of debit as a payment method surged during the pandemic, as 55% of consumers in 2022 reported using debit significantly or somewhat more than the previous year, according to a study from Mercator Advisory Group.²

Overall, consumers are showing an appetite for smooth, convenient, flexible and secure transactions. As part of that journey, debit cards today are integral to the full gamut of payment alternatives. In particular, they have become a key payment method of choice in digital wallets, P2P payments, e-commerce, recurring payments and smaller in-store purchases.

Digital wallets, in particular, are powering much of the growth. In fact, a recent study from Mercator Advisory Group reveals solid use of debit in digital wallets. “Sixty-six percent of consumers said their debit card was the default payment card linked to their digital wallet,” according to Mercator.² And this type of transaction is likely to grow, as research shows that global total e-commerce digital wallet volume is expected to reach $4 trillion by 2025.³

The linkage between fintechs and payment apps has also boosted customer preferences. More consumers than ever before are making payments with at least one app on their smartphone. In fact, nearly nine out of 10 consumers (87%) have at least one fintech-provided financial service app on their smartphone, while 28% have three or more, according to a study of consumer trends in digital payments.⁴ Through collaboration, fintechs and banks are able to deliver the types of mobile financial experiences that resonate with consumers.

The security of personal information is also a primary concern of consumers. The security of personal information is also a primary concern of consumers. In fact, it was the top-ranked attribute that consumers look for when deciding to use a digital payment service, according to findings by a study by 451 Research.⁵

The expansion of digital payments shows no sign of waning

The rapid move by consumers to digital payments is here to stay. According to a recent survey commissioned by Discover^® Global Network, 74% of digital payment users first used this payment method less than three years ago.⁶ And the popularity is growing.

For instance, digital wallets are making steady gains post-pandemic, with more than half of consumers using a digital wallet in the past 90 days, according to a recent survey commissioned by Discover Global Network.⁶

Debit card usage for e-commerce purchases is also rising across all demographics, with younger consumers leading the way. A recent survey showed that nearly half of Gen Z and millennial consumers use debit in digital channels.⁷ As these younger consumers move increasingly into the workforce and their buying power increases, the adoption of additional digital payment options—and the amount of spend that moves through these channels—is expected to continue to grow.

As new technology and applications combine with these demographic shifts, the future of debit looks poised to expand. Consumers across all demographics show a growing interest in financial experiences that are faster, open and embedded, research shows.⁸ And technologies and strategies that prioritize security are a must to move adoption forward.

To achieve this, partnerships among fintechs, financial institutions and payment networks will play a vital role in delivering new products and services that will meet the expectations of today’s digital-first consumers. As a 451 Research study noted: “Financial institutions and payment networks will play an essential role in bringing trust and scale to new Fintech use cases.”⁸

For more information on how to grow debit acceptance, visit DiscoverGlobalNetwork.com.

¹ 451 Research, part of S&P Global Market Intelligence, 2022 Global Consumer Fintech Survey: Key Findings, July 2022.
² Mercator Advisory Group, January 2023. “Debit Trends Driving Commerce: 2022 Edition.”
³ 451 Research, part of S&P Global Market Intelligence, Key Findings: Global Fintech Vendor and Consumer Study commissioned by Discover Global Network, completed January 2021.
⁴ 451 Research, part of S&P Global Market Intelligence, July 2022. “Voice of the consumer: The global state of digital payments and Fintech.”
⁵ 451 Research, part of S&P Global Market Intelligence, 2022 Global Consumer Fintech Survey: Key Findings, July 2022.
⁶ 451 Research, part of S&P Global Market Intelligence. Custom survey commissioned by Discover, August 2022.
⁷ Mercator Advisory Group, Inc., 2022. Consumer Debit Industry Trends, Behaviors and Preferences.
⁸ 451 Research, part of S&P Global Market Intelligence, August 2022. “The state of Fintech: Key market observations.”

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Whether paying for a taxi ride from the airport, optimizing your company’s working capital position or making that impulse purchase at the retail checkout, payments innovation has accelerated in every industry imaginable and has reshaped how businesses and individuals make payments. With the increased adoption of real-time payments in recent years, other innovations have come to the fore to accommodate the demands for faster payments. Enter ISO 20022.

What is ISO 20022?

ISO 20022 facilitates the exchange of financial transaction data by using standard messaging formats that present a richer, more powerful data structure.

A changing regulatory environment, complexity of new payment flows, and the need for improved data quality to support automation have created a growing need for corporations and financial institutions to adopt a new standard of financial messaging. The benefits derived from additional and more structured information in financial messages include a reduction in investigations, automation of reconciliation processes and a faster cash application cycle.  

The aim of ISO 20022 is to replace proprietary messaging formats with a standardized industry format that is based on well-defined data elements. Using a common payments language between banks and corporates will reduce translation requirements, eliminate costs associated with exceptions and reduce errors. In addition, preventing data loss, which causes payment delays and increases inquiries, will improve the speed of payments along the payment chain and facilitate payment reconciliation within end-user ERP systems.

Moving from MT (FIN message types) to MX (FIN+ message types) will further lay the foundation for innovations like the automation of inquiry and service processes and flexible payment routing across different payment rails like instant payments, ACH (Automated Clearing House) or CBDC (Central Bank Digital Currency).

MT and MX messaging

FIN message types (MT)

The industry has been using MT messages for over 40 years and they have evolved from replacing telex communications between banks to supporting more complex payment use cases in the inter-bank space as well as between banks and corporate customers. Created at a time when storage cost was a major consideration, MT messages use a limited set of fields and support about 10 kilobytes of data. To accommodate local practices, these messages have been customized, leading to variability and straight-though processing challenges. In many cases, data needs to map into free format fields and be parsed by the receiver. A change in sequence of data or a misplaced ‘/’ can lead to manual processing.

FIN+ message types (MX)

In comparison, MX messages have a richer and more granular data structure that supports more parties in the payment chain and accommodates structured remittance data. Supporting up to 100 kilobytes, the message has the capacity to support more complex payment use cases and sufficient structured data to support the automation needs of banks and corporates.

For example, instead of a single reference number field, the Customer Credit Transfer message supports six, including an end-to-end reference number that originators can populate and that is transported unaltered through the payment chain. Structured remittance data supports the inclusion of multiple invoices, down to the line-item level, including applicable invoice numbers, as well as line-item codes such as the Universal Product Number or the International Standard Book Number (ISBN).

Adoption of these new data elements will be an opportunity for faster, straight-through payment processing. For example, the greater specificity in data elements describing a payment party supports the segregation of name, structured address data and, if needed, account name data. This granularity supports the opportunity for greater automation in compliance screening processes and a reduction in false positives.

On the road to ISO 20022

Leading the way to a wider adoption of ISO 20022 are interbank payments and messaging platforms such as the U.S. Federal Reserve’s Fedwire Funds systems, CHIPS^[1], SWIFT^[2], and TARGET2^[3]. Their adoption of the standard will follow a specific timeline to grant other organizations enough time to adopt ISO 20022.

Larger corporations and financial institutions are preparing more targeted adoptions that will be in sync with industry guidelines. Other companies are taking a more cautious approach and are awaiting guidance from their banks and technology vendors. Smaller financial institutions will depend fully on the bank platform vendors and the testing schedule set by the Federal Reserve.

Although the transition to ISO 20022 may be a challenge, there are plenty of tools, FI support, and third-party solutions that can ease the transition. An organization’s approach to adoption should be well-defined and in line with its needs and goals.

The particular challenges of ISO 20022 adoption

Although ISO 20022 promises to provide many benefits, highlighted above, the reality is that its implementation may prove to be a challenge for most organizations. Here’s what they are up against:

• Boosting skill levels will be a concern with banks and businesses, as there doesn’t seem to be enough skilled personnel in the ISO 20022 field to educate and train, impeding wider adoption.
• Significant investment is required for modernizing legacy platforms and updating current systems, providing ISO 20022 education, and meeting the cost of translation of MT and MX message types.
• Scaling technology and testing to meet ISO 20022 will be complex.

Although these challenges may pose a real threat to ISO 20022 transition, individually to any one organization and collectively to the industry, they are not insurmountable. Much can be done to facilitate the transition.

Effective strategies for adoption

Here’s a look at what organizations can begin implementing today to start to prepare for full adoption of ISO 20022:

• Position education as a key to a smooth transition. This includes educating employees to gain a comprehensive understanding of ISO 20022. Banks can engage with their customers through educational campaigns.
• Reach out to bank partners and vendors to understand their timelines and experiences. Benefit from the experience of others and optimize your organization’s transition schedule.
• Fully exploit the rich data available. With ISO 20022, the increased data granularity should be conducive to data mining; the resulting insights may assist in enabling further automation and addressing transaction processing pain points, such as compliance screening false positives and manual reconciliations.
• Make ISO 20022 part of your payments’ modernization strategy. Gradually phasing out legacy systems and embracing new technology will position your organization to better mitigate risk and facilitate the migration and support of a digitalized payment ecosystem.

Migration to ISO 20022 affords opportunities

Adopting ISO 20022 is replete with benefits such as the potential for improved reconciliation, enhanced straight-through processing, and reduction of manual exception payment processes. These improvements are not automatic but will require an ongoing dialogue between banks, customers and vendors supporting the payment ecosystem. Banks can specifically look forward to the opportunity to provide an enhanced customer experience, lower costs due to reduced exceptions and better risk management.

With modernization of the messaging standards and data structures, along with collaboration among participants in the payments ecosystem, the adoption of ISO20022 offers the opportunity for a faster, more frictionless payment experience for all.

For more Treasury Management topics, visit Treasury Insights.  

Joanne Strobel, Head of Corporate & Investment Banking (CIB) Segments Solutions and Advisory for Wells Fargo Global Treasury Management (GTM), and Michael Knorr, CIB Industry & Advisory Lead for Wells Fargo GTM, co-authored the article. 

^[1] Clearing House Interbank Payments Systems
^[2] Society for Worldwide Interbank Financial Telecommunications
^[3] Trans-European Automated Real-time Gross Settlement Express Transfer System

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Once considered a fringe asset, cryptocurrency is now at the forefront of global economic conversations. The digital medium of exchange—hinging on cryptographic technologies for security and anonymity—is no longer just an investment instrument. It’s becoming an integral part of the financial landscape, especially in the realm of international trade.

As we delve further into the digital age, the potential implications of widespread cryptocurrency adoption are coming into clearer focus. These digital currencies offer promising advantages such as reduced transaction costs and expedited payment processing. However, they also pose unique regulatory challenges that need to be addressed to ensure sustainable and inclusive growth.

As we explore the economic implications of cryptocurrency in the sphere of international trade and unravel how this digital innovation is shaping transaction dynamics, its also important to look at the influence on regulatory frameworks, as well as the broader implications for the global economy.

The Upsurge in Cryptocurrency Adoption

From obscure beginnings more than a decade ago, cryptocurrency has transformed into a global financial phenomenon. As of 2023, the global crypto market has exceeded $2 trillion, with thousands of digital currencies vying for a slice of this burgeoning market. This rapid expansion is not confined to individual investors or tech enthusiasts; businesses and even governments have started to acknowledge the potential of cryptocurrencies.

Leading this paradigm shift is Bitcoin, the pioneering digital currency, closely followed by Ethereum and other altcoins. These digital assets offer a decentralized, peer-to-peer payment system that can operate independently of traditional banking and governmental oversight. The promise of lower transaction costs, instant payments, and enhanced security offered by blockchain technology has piqued the interest of businesses globally.

Cryptocurrency adoption is not uniform, however, with certain regions demonstrating a higher propensity for embracing this technology. Asian economies like South Korea and Japan, and Western nations such as the United States and the UK, are leading the way in integrating cryptocurrency into their economies.

In the context of international trade, these advancements could prove transformative. Cross-border trades, often burdened with high costs due to currency exchange fees, handling charges, and the involvement of intermediaries, are ripe for disruption. As businesses around the globe start recognizing the potential of cryptocurrencies, we are witnessing a tectonic shift in international trade dynamics.

Lower Transaction Costs and Speedy Transactions

One of the most profound advantages of cryptocurrency in international trade is the potential to reduce transaction costs. Traditional cross-border transactions often involve hefty fees levied by banks and financial institutions. These can include wire transfer fees, currency exchange fees, and additional costs for third-party intermediaries.

Cryptocurrency transactions, on the other hand, bypass these intermediaries by using a decentralized network. This peer-to-peer system effectively eliminates the need for middlemen, thereby reducing associated costs. For businesses engaged in international trade, this could mean significant savings.

Cryptocurrencies also promise faster transactions. Traditional banking systems, especially for cross-border transactions, can be slow, taking from a few hours to several days to process. Conversely, cryptocurrency transactions can be almost instantaneous, irrespective of the geographical distance between the transacting parties. In an era where time is money, such speed can make a massive difference in international trade dynamics.

Despite the clear advantages, the volatility of cryptocurrencies poses a challenge. The value of cryptocurrencies like Bitcoin and Ethereum can fluctuate widely, causing potential losses. However, the advent of stablecoins—cryptocurrencies backed by a reserve of assets—can potentially mitigate these risks.

Regulatory Challenges and Solutions

While cryptocurrencies offer notable advantages, they also present unique regulatory challenges. Due to their decentralized nature and relative anonymity, digital currencies have been linked to illicit activities such as money laundering and terrorist financing. This creates a need for robust regulatory frameworks to monitor and control cryptocurrency transactions.

Regulation is a double-edged sword. While it’s necessary for security and investor protection, over-regulation could stifle innovation and impede the growth of the cryptocurrency market. Striking a balance is a challenging task that regulators worldwide grapple with.

Countries have adopted varying approaches to cryptocurrency regulation. Some nations like China have imposed strict regulations and even outright bans. Conversely, others like Singapore and Switzerland have fostered a more accommodating environment, providing legal clarity and support to cryptocurrency initiatives.

On the international stage, standardizing cryptocurrency regulations is an even more formidable challenge. This is due to the variation in regulatory norms across nations, making it difficult to devise a one-size-fits-all solution. Nevertheless, international bodies like the Financial Action Task Force (FATF) are working towards global regulatory standards to combat the illicit use of cryptocurrencies.

These challenges underscore the importance of regulatory agility in response to the evolving crypto landscape. Policymakers should aim to create a conducive environment for the growth of cryptocurrencies while mitigating the associated risks. In this regard, global collaboration is crucial. International bodies, governments, and the crypto industry must work together to shape a regulatory landscape that is adaptive, resilient, and inclusive.

The Future of Cryptocurrency in International Trade

As we venture further into the digital age, it’s becoming clear that the integration of cryptocurrencies into international trade could significantly shape the future economic landscape. The reduction in transaction costs and time, combined with enhanced security provided by blockchain technology, is enticing more businesses and governments to explore the potential of digital currencies.

The promise of cryptocurrencies extends beyond operational efficiencies. They could democratize financial systems by providing unbanked populations access to financial services. In many developing nations where banking infrastructure is limited, cryptocurrencies can provide a decentralized, cost-effective method of transferring funds, thereby fueling economic growth and financial inclusion.

However, the successful integration of cryptocurrency in international trade hinges upon several factors. Crucially, developing robust and harmonized regulatory frameworks will be critical to mitigating risks and fostering a secure environment for crypto transactions. Simultaneously, overcoming technical challenges, such as scalability and energy consumption, will be key to ensuring the sustainability of blockchain technology.

Moreover, the public and private sectors need to invest in education and training to build the necessary skills and knowledge to navigate the crypto landscape. This will aid in dispelling misconceptions, promote informed decision-making, and encourage responsible adoption of cryptocurrencies.

Despite the challenges, the potential of cryptocurrencies to redefine international trade is undeniable. As technology evolves, so too will our means of exchange. It is up to governments, businesses, and individuals to ensure that this evolution leads to a more efficient, inclusive, and sustainable global economy.

The economic implications of cryptocurrency in international trade are profound and far-reaching. They promise to not only reshape how we conduct business across borders but also how we perceive value and trust in the digital age.

Looking Ahead

The integration of cryptocurrency in international trade offers significant potential to reshape global economic dynamics. By reducing transaction costs, expediting processes, and offering enhanced security, cryptocurrencies, underpinned by blockchain technology, promise to revolutionize international trade practices. This transformative potential is increasingly being recognized, with more businesses and governments exploring the adoption of digital currencies.

However, this emerging landscape is not without challenges. Regulatory hurdles, brought on by concerns of illicit activities, the decentralized nature of cryptocurrencies, and their relative anonymity, pose significant issues. While some countries have responded with stringent regulations, others have fostered a more welcoming environment. To effectively leverage the potential of cryptocurrencies, a balance between fostering innovation and ensuring security must be struck.

The future of cryptocurrency in international trade extends beyond efficiencies. By offering financial access to unbanked populations, digital currencies could democratize financial systems and spur economic growth. However, the realization of this future hinges on the development of robust regulatory frameworks, overcoming technical challenges, and investing in education and skills development.

In a nutshell, the economic implications of cryptocurrency in international trade are profound. With the right approach, cryptocurrencies could lead us toward a more efficient, inclusive, and sustainable global economy.

The post How Cryptocurrency Is Reshaping the Global Trade Landscape appeared first on PaymentsJournal.

The evolution of consumer payment behaviors has increased the adoption of new payment technologies and solutions, including account-to-account transfers (A2A), digital wallets, and buy now, pay later (BNPL). In its “2023 Global Payments Report,” Worldpay from FIS examines how alternative payment methods are reshaping global payments and how merchants can be better equipped to meet consumers where they are.

Let’s dive into the six trends that are transforming the payments industry in North America, and the impact they will have on merchants on a broader scale.   

A2A Growing in Popularity in Real-Time Payment Rails

Real-time payments offer a convenient way to send and receive funds. Because funds can be instantly transferred between accounts, at a low cost, businesses can pay their suppliers and  their vendors quickly and more efficiently. According to Worldpay from FIS, global account-to-account (A2A) transaction value exceeded $525 billion in 2022 and is expected to increase at a compound annual growth rate (CAGR) of 13% through 2026.

FedNow, the Federal Reserve’s instant payment service, will launch in mid-2023 as the third real-time payments system. It will join current solutions Zelle and The Clearing House RTP.

Canada is at the forefront of A2A payments. Canada’s e-commerce transaction value, 8% in 2021, rose to 12% in 2022. This has been supported by Canada’s instant transfer system, Interac Online, which allows users to pay merchants from their bank account all year long.

Credit Cards Are Still Going Strong

While digital wallets and BNPL solutions have seen an increase in adoption, the use of credit cards has not declined. Indeed, credit card spending surpassed $13 trillion across all channels, per the 2023 Global Payments Report. Nearly a third of online transactions and roughly 40% point-of-sale transactions are conducted via a physical credit card.

Discounts and rewards are likely what’s driving continued usage among consumers. According to GlobalData research referenced in the report, consumers in the U.S. and Canada said they like the benefits that credit cards offer.

While credit card usage remains high, WorldPay by FIS expects that credit card’s share of transaction value will drop over the next four years due to economic uncertainty and its impact on consumer spending. And with the increasingly high cost of borrowing, consumers are looking to BNPL as an interest-free option.

Digital Wallet Use is Expanding

There’s no question why digital wallets have gained prominence. With demand for contactless payments on the rise—particularly since the onset of the pandemic—digital wallets have become a convenient way for consumers to store their credit, debit, gift card, and other payment information, in one secure place.

Over the past eight years, digital wallets have taken the reins as the leading online payment method in North America. Over this same time period, their share of e-commerce transaction value has more than doubled, from 14% in 2014 to 32% in 2022. Worldpay from FIS projects that between 2022 and 2026, the share of e-commerce transaction value will continue to increase, reaching 41%. And digital wallet’s share of POS transaction value will also increase from 12% in 2022 to 16% in 2026.

Although credit cards are the preferred form of payment by consumers in Canada, digital wallet usage in the region is expanding. In fact, the share of transaction value has grown from 16% in 2018 to 27% in 2022, making digital wallets the second most preferred form of payment. And by 2026, Worldpay from FIS expects digital wallets will overtake credit cards as the leading e-commerce payment method.

Conversely, digital wallets reign as the leading form of payment in the U.S. What’s driving adoption is the popularity of leading wallets such as Google Pay, Apple Pay, and PayPal. Digital wallets owned by Shopify and Amazon are also driving adoption.

A Cashless Society? Not Quite

Much has been said about the decline of cash use and how many countries are shifting to be more cashless. The pandemic revealed the need for contactless payments, because physical legal tender could have been a receptacle for the virus.

However, the report’s findings revealed that cash hasn’t disappeared, at least not yet. Once the reigning lead in POS commerce, it made up close to 16% of global POS transaction value in 2022, or the equivalent of $7.7 trillion.

That is not to say that cash is on the way up. On the contrary, it is expected to decline below 10% of global POS spending by 2026 or close to $6 trillion. This makes sense; the growth of contactless payments will continue to drive down the use of cash.

BNPL Enters Its Next Phase

 BNPL has become one of the most popular ways that consumers can purchase big ticket items without a stringent credit check and without breaking the bank. With the recent economic downturn and runaway inflation, it has become another tool for consumers to afford necessities.

While BNPL has grown in popularity over the past few years, it has also come under a lot of scrutiny, largely due to the lack of regulation in the space, as well as the minimal effort businesses are taking to protect consumers against incurring debilitating debt. With this increasing scrutiny, soaring interest rates, and stiffening competition, the BNPL space has had no choice but to evolve.

Last year, BNPL made up 5% of global e-commerce transaction value, and by 2026, it’s projected to increase to 6%. POS financing, including BNPL, bank financing, and retail financing, represented 2% of POS transaction value in 2022. Worldpay from FIS expects that figure to remain through 2026.

Crypto for P2B Payments

As more consumers become familiar with digital currency and cryptocurrency, adoption and use will continue to rise.

Although cryptocurrencies have been used for consumer purchases, crypto has not reached the level of mainstream payment method. That’s because many consumers are purchasing crypto as an investment. According to the report, 77% of respondents said that they buy cryptocurrency for investment purposes, while far fewer (18%) said they use crypto to purchase goods and services.

Cryptocurrencies as a P2B payment method are expected to increase from $11.6 billion in 2022 to close to $39 billion by 2026. Merchants are seeing the benefits of accepting cryptocurrency as payment because they would be able to tap into a new and growing customer base, with higher transaction values, lower transaction fees, and faster settlement times.

Key Takeaways

With the use of digital wallets expanding, A2A payments growing, and cryptocurrency and BNPL funding high-ticket products, there’s never been a time where consumers have had such a wealth of payment method options.

To remain competitive, merchants should keep their finger on the pulse of this rapidly evolving payments landscape. In particular, they should understand what consumers expect in their preferred payment methods.

Learn more about how alternative payment methods are reshaping global payments. Access the full “2023 Global Payments Report,” by Worldpay from FIS. 

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The future of mobility continues to evolve at an unprecedented pace, and integrated vehicle payments are likely to play a pivotal role in redefining the driver and passenger experience. By automating and integrating the purchase and payments of services using vehicle data and connectivity, drivers will benefit from convenient and simplified experiences. This trend will eventually help increase customer usage and engagement for service providers while enabling innovative, beneficial charging models, which may favor the adoption of in-vehicle payment services in the long run.

Another factor largely contributing to the growth of the global in-vehicle services market size is the rapidly evolving digital payment landscape that gained momentum due to the expansion of traditional financial services during the pandemic.

According to the Global Findex 2021 database published by the World Bank:

• An estimated 76% of the adult population globally had an account with a mobile money provider, a bank, or any other financial institution as of 2021.
• In 2021, two out of three adults worldwide could make or receive digital payment, with around 57% of these happening across developing economies. 

These estimates highlight the accelerating shift in consumer behavior and the growing need to introduce better digital payment solutions, which may carve a healthy growth trajectory for the in-vehicle payment services industry.

Autonomous EV Sales Are Driving Demand for In-Vehicle Payment Services

As consumer needs are evolving, so are the global automotive trends, resulting in the expansion of the existing fleets of electric vehicles. The new edition of the annual Global Electric Vehicle Outlook published by IEA shows that: 

• Global electric car sales reached 10 million units in 2022, and could reach 14 million in 2023, exhibiting a growth of 35%.
• Electric cars’ share in the overall car market recorded a 14% growth in 2022 and may expand by another 18% in 2023.

The ongoing vehicle electrification has prompted automobile manufacturers across the globe to innovate and introduce advanced infotainment systems to align with the changing customer requirements, thus capturing a larger share in the in-vehicle payment services industry. Hyundai, for instance, rolled out its plan to launch an in-car payment system in May 2023. The system is likely to debut in the automaker’s all-electric IONIQ 5 crossover SUV, enabling drivers to find and pay for food, parking, and EV charging. The move highlights how automakers are exploring new ways to generate revenue and provide customers with features typically associated with smartphones. Such innovations will aid the adoption of digital services across the automotive space, thus creating new growth prospects for the in-vehicle payment services business.

Innovative Efforts to Expand the Application Scope of In-Vehicle Payment Services

Connected technologies have profoundly transformed the way people transact, innovate new business models, and foster new opportunities for all stakeholders across the automotive space. Industry experts predict that the introduction of digital payment services, such as car wallets, can transform the payment sector, reshape commerce and drive new shopping experiences. As customers look forward to more convenient digital solutions to spending, car dealers, tech startups, and banks are becoming willing to institute new distribution models and shopping experiences to cater to consumers’ changing needs.

To that end, in May 2021, PayByCar, Inc., an innovative transactional vehicle payment solutions provider, announced plans to expand its services at 27 Alltown Mobil gas stations across Massachusetts. The move focused on offering PayByCar customers the additional security of paying for gas and other goods directly from their mobile device, without using cash, a mobile app, or a credit card.

In another instance, in December 2022, BMW chose Parkopedia to power its in-vehicle parking payments feature, Single Sign-On (SSO). The latest feature enables drivers of BMW cars with BMW Operating Systems 7 and 8 to seamlessly pay for parking in Austria and Germany through the vehicle’s in-built infotainment system. The company has plans to further expand to other European nations this year.

Adoption of growth strategies such as these will increase the penetration of in-vehicle payment services in varied applications ranging from fueling/EV charging, automated toll payments, smart parking, and e-commerce applications, which, in consequence, will boost market revenue.

Conclusion

While improving technological landscape and changing consumer preferences are helping the market progress through the ensuing years, several strategic moves undertaken by players across the automotive and tech space are expected to pave a strong growth pathway for the in-vehicle payment services industry in the long run.

An agreement between Ford and Stripe is an instance supporting this trend. Last year, both companies signed a five-year contract to revolutionize the automotive payments and e-commerce experience. Under the agreement, Stripe will operate as a leading payment service provider for Ford and its retailers across Europe and North America. This apart, a significant rise in investments across the automobile sector will further play a critical role in accelerating the shift toward advanced technologies, thus bolstering the demand for in-vehicle payment services.

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Money 20/20 Europe has become a showcase for the rapid proliferation of cutting-edge advancements in the payment industry. The event has provided a platform to witness the rise of revolutionary technologies, redefining the way we exchange value. A quick summary of this year’s show is below.

Machine-to-machine payments are going from vision to reality and exemplify the seamless integration of industrial machines with modern payment systems. For instance, an industrial machine can communicate with a 3D printer, instructing it to produce a replacement part and completing the payment for the part with minimal or no human intervention. This automated process streamlines transactions and enhances efficiency.

Biometric payments, on the other hand, continue to flourish and encompass various forms of payment authentication through unique biological characteristics. Whether it’s tapping a card with a built-in biometric sensor or waving the palm of a hand over a scanner, these methods initiate secure and convenient payments.

Further, we are witnessing the transition from a so-called crypto winter to a crypto spring. While much of the focus in the past has been on holding cryptocurrencies as investments, there is now a noticeable surge in crypto payments. These payments are gaining popularity, particularly for remittance and cross-border business-to-business transactions. Accompanying this trend is an increased emphasis on the security and storage of private keys, leading to the adoption of hardware wallets. Crypto owners are leveraging these wallets to take control over their keys by storing them in secure chips, adhering to the principle that “not your keys, not your coins.”

What’s more, Central Bank Digital Currencies (CBDCs) were a hot topic at Money 20/20. CBDCs refer to digital money issued by central banks. Recent announcements from Hong Kong, Nigeria, Japan, and the Bank of Korea highlight the growing interest and research in CBDCs. These digital currencies have the potential to transform the financial landscape, offering more efficient and secure payment solutions.

Looking ahead, Money 20/20 envisioned a future where payment methods extend beyond traditional money, drawing parallels with the historical practice of bartering. While the evolution of payments has led us to rely on money, the future may hold alternative formats. For instance, loyalty points from a major coffee chain could be issued as NFTs (non-fungible tokens), granting exclusive benefits such as early product access and discounts. This opens up possibilities for tokenized exchanges between individuals. For example, my friend Joe may offer something of value, like ownership of an in-game item, in exchange for my NFT, creating a future tokenized version of the prehistoric bartering system.

As with previous editions, this year’s Money 20/20 served as a catalyst for envisioning the future of payments, where innovation and creativity merge with the need for secure, efficient, and convenient transactions. As technology continues to evolve, the possibilities are limitless, and the payment industry is poised for transformative changes that will shape the way we exchange value in the years to come.

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The recent emergence of generative AI (artificial intelligence) tools such as ChatGPT has captured the world’s attention, including that of fraud actors who readily embrace new technologies. Cybercriminals already have an arsenal of tools and tactics at their fingertips via the deep and dark web, and developments in AI are sure to supercharge their efforts to steal from consumers and businesses. Faced with this intensifying and ever-shifting fraud landscape, business leaders must re-evaluate whether their fraud prevention tools are up to the task.

For fintech, payment, and retail industries, now is the time to reassess your third-party fraud prevention providers and call for a higher standard of transparency and control over your fraud operations. It’s important to ask: does your fraud prevention solution provide you with the transparency and flexibility required to adjust to quickly evolving fraud patterns? And does it effectively protect revenue and enable growth?

The Problem with Black Box Fraud Prevention

While the fraud prevention market is crowded with solutions that use machine learning, some operate essentially as a ‘black box,’ giving little to no insights into their decisioning and offering limited flexibility. Typically, these types of solutions rely simply on a ‘yes’ or ‘no’ method when determining transaction risk, resulting in a disproportionate amount of declines and false positives experienced by legitimate users.

When you entrust your fraud prevention system to a technology provider that doesn’t fully understand your business and the context of your fraud signals, you risk a third-party calling the wrong shots on your business. Leaving these types of systems to freely make transaction decisions can quickly lead to consumer insults and lost sales—and overall interfering with the quality of customer experiences and your business’s bottom line. By the time fraud prevention teams spot inaccurate decisions made by a black box fraud solution, it’s too late—the transaction has already been accepted or declined.

Strategically Applying Fraud Controls

While visibility into risk decisioning is one important element of a quality fraud solution, your risk team also needs the ability to control and adjust fraud operations as needed. Fraud patterns change quickly and novel attack types surface year-round, so having the capabilities that allow you to quickly identify and stop these evolving threats is key.

But applying these risk decisions doesn’t need to be done blindly. Fraud technology impacts the consumer-facing side of your business, so choosing a fraud prevention service that takes the user experience into account is essential. When evaluating fraud solutions, look for ones that enable your business with dynamic friction, which is a method by which additional fraud controls are only applied to risky transactions, while legitimate customers continue to enjoy a smooth user experience. 

How you apply dynamic friction should continually evolve based on the needs of your business, situational circumstances, and data insights from your fraud prevention solutions.

Regain Control Over Your Fraud Operations

While dynamic friction is one key feature that black box fraud solutions are missing, there are several other capabilities that these types of solutions lack—qualities that are indispensable if you want full control and transparency over your fraud operations. Below are just a few of the important features you should look for in a fraud solution:

Nuanced risk assessments: Fraud patterns and abuse tactics can change quickly, which means that your strategy and risk decisioning may need to adjust as well. A fraud solution that gives you both \visibility into these changing patterns and the ability to address them in real time enables your risk team to be both proactive and reactive at the same time.

Detailed analytics: Access to the underlying data allows fraud analysts to conduct deeper case forensics. Additionally, fraud performance visualization and reporting is an essential capability for ROI analysis and business insights.

Simulation tools: Equally important is having tools that allow you to test scenarios before applying new rules to your decision strategy. These allow risk teams to run historical data through a proposed rule change as if it were live, to see how it would perform.

Configurable policies: As a business operator, you should have the ability to refine risk rules and thresholds based on your unique needs and risk tolerance.

Moving away from black box fraud solutions requires a fundamental mindset shift on behalf of both technology providers and businesses. For businesses to succeed amid the torrent of digital risk they face today, fraud prevention can no longer be treated as a disconnected line item in the budget. Rather, fraud prevention must be reimagined as an integral part of a business’s health and growth strategy. The businesses that have both control over and visibility into their fraud prevention systems will be the ones that can not only protect their revenue, but also expand their growth potential.

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Those involved in commercial and enterprise payments have looked to the immediate future, and the view is not encouraging. Fraud, always a concern, is on the rise, and businesses expect it to keep increasing over the coming year.

Albert Bodine, the Director of the Javelin Strategy & Research Commercial and Enterprise Payments practice, just released a report titled Commercial and Enterprise Payments Fraud: 2023 Edition, which offers a comprehensive look at the fraud landscape in commercial payments and an assessment of the technological solutions that stand ready to help companies cope.

Bodine fielded a few questions about what’s happening now and how companies can get ahead of the fraudsters.

What’s behind the rise in fraud in commercial and enterprise payments and why are companies bracing for even more of it in the coming year?

Payments are becoming more digitized, the sophistication of fraudsters is becoming more advanced, and the ability of corporates to keep pace has been challenging. Keep in mind that corporate payments also creep into the world of cross-border, which extends the know-your-customer effort even further for already-stressed corporate security departments.

Fraud, whatever the type, seems almost like a chronic condition. Sometimes, it’s on a low ebb, and sometimes it flares. Why do you suppose this is?

Fraud is all based on opportunity. In the case of corporate payments, the fraudsters are seeing much of the security effort focused on consumers, and thus there’s an opening in the enterprise payments world. Fraudsters are very good at pivoting, so corporates need to be somewhat prescient in their strategies.

You prescribe technology and training for companies that want to proactively mitigate against fraud. What are the larger considerations as they implement a strategy?

Weave fraud prevention into the culture of the organization. Reward those that uncover fraud. Too often, fraud prevention encompasses no more than a compulsory yearly training video and a periodic fake email from the security staff. Hire outside organizations to stress-test your procedures and think like the cybercriminals when developing prevention approaches. Also, know your employees and understand the tendencies for occupational fraud.

What are the risks of standing still?

Cold hard losses. Criminals get fined, but stolen funds are rarely ever fully recovered.

Anything else you’d like to share?

There are many great third-party organizations that are hyper-focused on security strategies for the corporate payments sector. Look to partner with these organizations en route to bolstering your security infrastructure.

If you would like to talk further with Bodine about this topic or commercial and enterprise payments in general, or if you have interest in expertise across a wide range of practice areas, Javelin offers subscription advisory services, consulting and custom research, benchmarking, research reports, webinars, and more. Learn more and reach out here.

The post The Rising Problem of Fraud in Commercial and Enterprise Payments appeared first on PaymentsJournal.

The metaverse is booming thanks to demand from the entertainment, education, and defense industries, with a forecast growth rate of 41.6% CAGR through 2030. As more businesses enter the metaverse and find new ways to operate within it, the opportunities for transactions will proliferate. All of those transactions will require rails to move currency from payer to payee—whether the currency is in-game tokens, bitcoin, dollars, euros, or something that hasn’t been invented yet. Because banks and other financial institutions already have extensive experience with and expertise in payment rails, they are in the best position to benefit from the expansion of payment types in the metaverse by developing secure wallets and other payment solutions for the metaverse economy.

Developing payment railroads for the metaverse will be qualitatively different from the card payment and ACH transfer offerings that banks and payment startups developed to support ecommerce. Succeeding in this space requires a strong understanding of what makes metaverse transactions, security requirements, and compliance needs different from what already exists online and in the real world.

A Growing Need for Better Payment Experiences in the Metaverse

Any discussion of payments within the metaverse—the 3D virtual environments where people are already connecting for immersive gaming, shopping, and entertainment experiences—starts with the blockchain, the foundation of value storage and transfer in the metaverse. While the idea of a blockchain for secure database and ledger entries first emerged in the early 1990s, it was the launch of Bitcoin cryptocurrency in 2009 with a public blockchain ledger that moved this technology into the spotlight. One of the primary early uses for blockchain bitcoin transactions was international value transfers, because blockchain transactions had very low fees compared to traditional wire transfers. That comparatively low cost and security made the blockchain a driver of innovation in the metaverse payment space.

Today, we see cryptocurrency wallet payments as the primary method for metaverse transactions. Users can buy virtual goods, experiences, even virtual land and other property. In general, these blockchain payments are for small amounts of bitcoin. But making them is a high-friction process, compared to one-click e-commerce and tap-to-pay point of sale transactions. To make a payment in the metaverse, the user must first set up a crypto wallet, buy cryptocurrency and place it in the wallet, and then link the wallet to the metaverse entity where they want to transact. Because different entities use a variety of payment providers and accept a range of cryptocurrencies, the user may need to repeat this process whenever they visit a new metaverse space.

For one transaction in one environment, such as purchasing an NFT, this is a hassle. For multiple transactions across different spaces in the metaverse, it becomes a user experience problem and an obstacle to growth. Financial institutions can develop new payment methods for the metaverse, such as consumer-focused wallets similar to those used for e-commerce, but with blockchain security and payment options that include cryptocurrency as well as other forms of payment. This approach would make consumer transactions as well as peer-to-peer payments easier, while maintaining the security and lower transaction costs that drove blockchain’s initial popularity for bitcoin transactions.

An Expanding Range of Transaction Scenarios in the Metaverse

Beyond the opportunity to support new payment methods, the metaverse offers banks the prospect of supporting new transaction types. That’s possible because the metaverse expands the way value is created and allows even small-scale creators to benefit from their work. For example, the average person who shares content on social media doesn’t derive monetary value from their posts, but the platform does. In the metaverse, with blockchain transactions, the average creator can earn value for themselves through microtransactions.

Even users who don’t create content can earn value through actions they take within the metaverse. For example, users who attend a class in the metaverse, watch an ad, take a poll, attend a concert, or engage in a similar way can earn tokens from their school, favorite brands and entertainers, and advertisers. Users can accumulate these tokens to trade, cash in, or sell. This is a new business model that requires new ways to manage payments, and financial institutions are in the best position to develop these new methods because of their experience.

Banks are also ideally positioned to be the gateway between real-world payments and metaverse transactions. One obvious use case is converting cryptocurrency to dollars, euros, or another fiat currency so customers can spend the value they earn in the metaverse online or in physical stores. Another use case is helping customers acquire and manage “digital twin” products. For example, if a customer buys a coat in an online store, they might receive the item to wear and a token for virtual duplicate for their avatar in the metaverse. Banks are in the best position to verify these virtual purchases and ensure that customers can securely store and use their virtual goods.

Challenges for Payment Rail Creators in the Metaverse

As in the physical and online spaces, the biggest challenge for banks that want to build payment railways in the metaverse is regulatory compliance, due to the complexity of the environment and the cost. Spending on compliance has been rising for the past several years, and the ongoing transformation to AI-powered RegTech is driving changes in how banks spend their compliance budgets. Banks that seek to support payments in the metaverse must build solutions that meet the same compliance standards as the real world for security and transparency. In addition, they need to adapt those compliance standards to new use cases that only exist in the metaverse. The clearest path forward is to work directly with regulators when developing metaverse payment structures and value-transfer protocols.

Another major metaverse challenge for banks is the need to adapt transfer management processes to suit new transaction and currency types. Many back-office processes related to transfer management can be automated because the blockchain makes it comparatively easy to do so. For example, banks can program smart contracts to automatically execute blockchain transactions when specific conditions are met, to securely accelerate value transfers while meeting regulatory requirements. A series of smart contracts can automate workflows along the blockchain.

Planning Metaverse Payment Rails Offerings

The banks we see innovating in the metaverse payment rails space are primarily focusing for now on corporate services, such as clearing and settlement of cryptocurrency transactions. However, as mentioned above, there is a wide range of potential use cases for services relating to individuals’ engagements with brands and businesses in the metaverse. 

As with any new technology or service offering, it’s wise to start with a simple use case that’s relatively easy to build, test, implement, and learn from before pursuing more complicated use cases. For example, a bank might start by building a gateway between the metaverse and the physical world to convert customers’ cryptocurrency holdings into fiat currency to deposit in their bank accounts. This kind of use case builds on banks’ existing expertise and can appeal to early adopters who want an easier crypto conversion experience.

Any metaverse payment service will require the selection of the appropriate blockchain and the creation of a new technology layer based on the chosen blockchain’s open-source protocol. For these steps, banks need to select partners who can provide expertise and resources to save time and avoid security and compliance missteps along the way. Once the initial use case is up and running, good blockchain partners can provide guidance on enhancing and optimizing the initial use case, as well as identifying the next best use case to implement.

Starting small, building on areas of expertise, working with the right partners, and engaging early metaverse and crypto adopters can help banks lay the groundwork for new payment services that capitalize on the opportunities waiting in the metaverse.

The post Payment Rails in the Metaverse: New Opportunities for Financial Institutions appeared first on PaymentsJournal.

In an economy where convenience is king, it’s no surprise embedded finance has become a serious revenue driver.

By dropping a lending platform directly into a merchants’ existing workflows, and integrating it with their existing technologies, convenience becomes accessible to all parties in a transaction. Merchants can simplify their tech stack while closing the deal, lenders get their financing products in front of a ready-to-buy audience, and consumers get access to the funding they need quickly.

Of course, with a boom in embedded lending revenue comes a boom in embedded lending providers. Not all will be the right fit for every industry, and not all will come with the due diligence necessary to keep businesses’, and their customers’, sensitive information safe. If you plan to leverage an embedded lending platform, make sure you ask these questions first:

Will a Technical Implementation Give My Team a Headache?

Once an embedded lending platform is installed, customers will encounter a seriously streamlined checkout process. But as all developers know, convenience on the front-end often means complexity on the back-end. It’s important merchants understand what’s required of them before go-live, especially if their IT team is already wrapped up in other digital transformation initiatives.

There’s good news for those who feel that stress headache coming on: merchants can find embedded finance platforms that are essentially turn-key. During the selection process, merchants should ask how much of the integration process the provider will handle. They should manage all onboarding, consumer underwriting, fraud prevention and compliance, allowing merchants to access all their benefits simply by embedding through their APIs. The goal should be to make integration as low-friction as possible.

How Secure Is Your Embedded Finance Platform?

Embedded finance should function as a white label for a merchant, allowing the customer to stay on the business’ website as they submit their personal information. That step offers customers peace of mind, but behind the scenes, it’s important the business understands what steps their embedded lender has taken to keep sensitive data private. After all, a white label can damage brand trust if a breach occurs and the business’ name is on the checkout process.

To avoid that fate, merchants should run down a laundry list of security measures before adopting an embedded lending platform. Has the platform been through regulations? An audit? Are they SOC certified, and are they PCI compliant (PCI compliance regulations stretch beyond businesses that process credit cards)? The platform should be transparent about where data is stored, and how it is used.

How Do You Manage Funds?

For big ticket purchases that involve labor after the sale—say, for instance, installing windows on a house—distribution of funds often becomes a sticking point. After the lending platform receives the bank’s funds, they may release them to the merchant or the window manufacturer, essentially transforming the recipient into a middleman, or even hold on to the money. This could mean the manufacturer must take the extra step of invoicing the merchant, or the merchant must front the money for materials while they wait to get paid. It’s a needlessly complicated process.

Merchants should instead look for an embedded financing partner that pays all parties in line, in real time. This ensures that everyone has the money they need to provide materials and finish the job, without working in a deficit. It also solves concerns around cash flow velocity. The platform should work with customers to release the funds needed to complete the job, while holding on to the remainder until the customer is satisfied.

For Embedded Finance, Don’t Stop at Convenience

An embedded lending platform will make financing easier without upending a merchant’s tech stack. By exploring the embedded platform from all angles—how it integrates, how it protects, how it distributes funds—merchants can find something that fits their needs, while also delivering a simpler, more secure lending process for all parties involved. 

The post Three Questions to Ask Before Adopting an Embedded Finance Platform appeared first on PaymentsJournal.

More people are using debit cards, bank transfers, and cryptocurrency to pay for goods than ever before. In 2021 alone, there were $989 billion of non-cash transactions, while future estimates predict that $2 trillion of cashless payments will take place every year by 2026.

However, the future of cashless payments is still a little murky. A future without cash would impact individuals without bank accounts and many consumers are concerned about the ethics of shared e-commerce data.  

That said, the benefits of cashless payments still vastly outweigh the drawbacks. Consumers who embrace cashless payments can manage their money and businesses can use social commerce to bolster their revenue and reduce their operational costs.

Cashless Payments Trends

Cash is still king, but non-cash payments like contactless cards and peer-to-peer payments (P2P) are steadily gaining popularity. This trend is likely driven by young consumers, who feel more comfortable navigating a cashless world. A recent Pew Research Center survey even found that only 45% of Americans aged 18 – 45 “try to have cash on hand”, compared to 71% of those aged 50+.

Pew Research Center surveys also found that less affluent Americans are far more likely to be reliant on cash than their wealthier peers. 30% of households with an income below $30,000 say they use cash for “all or almost all” purchases, while only 6% of households with income about $50,000 use cash today.

A widespread increase in digital and social commerce will drive the future of non-cash payments, too. Social commerce is a subsector of e-commerce that has been on the rise in recent years due to the increased popularity of social media channels like TikTok and Instagram. Online consumer-to-business (C2B) transactions can help consumers use their connected bank account and innately enhance the consumer journey.

The Benefits of Cashless Payments

Going cashless is good news for those of us who struggle with mental arithmetic. Financial tech (fintech) like contactless card payments is extremely convenient, too. Removing the need to visit the bank for cash withdrawals frees up time and may encourage greater consumer spending.

Small to medium businesses (SMBs) can also reap the rewards of cashless payments. The benefits of going cashless as an SMB include:

• Increased Revenue: Cashless transactions will dominate the payment industry in the future. SMBs that embrace cashless can enjoy increased customer retention which, in turn, bolsters revenue.
• Speed: Consumers don’t want to wait in line to make their purchases. Queue times can be slashed by installing cashless devices that complete the transaction process in moments rather than minutes.
• Lower Operating Costs: Storing and transporting cash is costly. Cashless SMBs can save the money they would spend on armored couriers and reinvest profits to support growth.
• Account Accuracy: Non-cash payments remove the risk of human error. SMBs that utilize cashless payment can usually find accounting software that integrates with their payment portals, too.

Going cashless is great for businesses. Quicker transactions improve the customer experience and may translate into increased sales volumes.

Carrying around less cash can improve security, too. Coins and notes can be lost, stolen, or counterfeited. Cashless payment systems, however, are usually encrypted and can be easily tracked to improve security.

Challenges and Solutions 

Businesses and financial institutions are gearing up for a cashless future. However, before we turn our back on nickels and dimes, it’s worth considering the drawbacks of a cashless society.

Going cashless puts vulnerable people at risk. That’s why cities some cities and states have introduced legislation to prohibit cashless businesses.  The argument behind proposals like these is that folks who do not have access to a bank account are still able to buy goods and procure services just like everyone else. This is particularly important for folks with lower incomes, who may struggle to keep up with credit card payments and feel disenfranchised by the move towards a cashless future.

Going cashless may exacerbate some financial cybersecurity concerns, too. In an entirely cashless enterprise, malicious actors may be able to gain access to private data and expose personal financial information This is a real concern for people who bank online, as “open finance” features give authorized users a 360-degree view of their banking details. If a person’s banking details are stolen, their entire life savings may be at risk.

Fortunately, the future of cashless payments is evolving in response to these challenges. Today, many financial institutions have embraced a “zero trust” approach to their cybersecurity ecosystem. This minimizes the risk of malicious actors gaining access to accounts and firms up data protection efforts.

Conclusion

Cashless payments are on the rise. Going cashless is convenient, secure, and time-efficient for businesses and consumers alike. However, companies and government agencies need to respond to the rise of social commerce and contactless transactions. Advancements in cybersecurity are needed to keep personal data safe, and more pro-cash legislation may be necessary to ensure everyone can still pay for basic goods and services.

The post Exploring The Future of Cashless Payments appeared first on PaymentsJournal.

As debit card usage continues to grow among all consumers, the industry is taking note especially of Gen Z consumers—among the top demographics with a preference for debit. In fact, roughly half of Gen Z consumers, who now comprise one-fourth of the U.S. population, rely on debit for grocery store purchases, while more than 40% use debit for everyday transactions at gas stations and small businesses.¹ This segment of the population is gaining particular attention as those in the demographic slide increasingly into the workforce and become a dominant customer base.

Debit’s status among top-of-wallet choices, together with credit, doesn’t stop there. Debit cards have increasingly become a preferred method of payment for many U.S. consumers, both for purchases made at brick-and-mortar stores and for online transactions. Indeed, 55% of consumers used debit significantly or somewhat more than they did a year earlier, according to a recent study conducted by Mercator Advisory Group for Discover^® Global Network.¹

“The trend makes sense that consumers self-direct their spending methods,” the Mercator study noted. “Debit cards fill the need for everyday spending.”¹

Digital payments are driving much of the growth  

Among the several reasons for the rise of debit is its prevalence in digital payment adoption in various ways. A vast majority (91% of millennials and 90% of Gen Z) are using some type of digital payment, the survey showed, with a decided preference for debit in digital channels.²

Forty-six percent of shoppers between the age of 20 and 24, and 44% of those 18-19 years old, said they are more likely to use debit in digital channels compared with other payment types. That compared with 35% or less for older age groups.¹

The use of digital wallets is also giving rise to the popularity of debit. Overall, according to Mercator Advisory Group, 66% of consumers have debit cards as the default payment type in their preferred digital wallet.¹

This preference comes at the same time that the use of digital wallets generally is growing. “Because one in five customers prefer to use their debit card and credit card by storing it in a digital wallet like Apple Pay, Google Pay, or Samsung Pay, merchants should be sure that their customer-facing PIN pad or payments terminal is enabled with contactless, near field communication (NFC) technology, also known as tap and pay,” the study noted.³

Merchants are responding with acceptance and new technology

Ninety-five percent of merchants surveyed said they accept debit cards today and that they are aware of the need to provide support for consumers that prefer to pay with debit.3 In fact, 54% of merchants surveyed acknowledged that debit is a highly important payment option offered to their customers, while 46% noted that it is the most popular payment method chosen.¹

Meanwhile, merchants looking to meet the expectations of younger consumers need to make sure they enable debit acceptance for e-commerce transactions, as Gen Z consumers expect to be able to make almost any purchase with a debit card. Merchants that accept a broad range of debit options, including cards and digital wallets, will be well-positioned to earn Gen Z loyalty.

Accepting more forms of debit also benefits merchants as it lowers some of the business costs associated with handling cash and check payments. Debit transactions also create less friction for merchants than handling cash or checks.

Further, debit cards also carry the added benefit of strong fraud protection, a top concern of merchants, the study noted. In fact, the Mercator study noted that fraud prevention is a key factor merchants consider for offering a new payment type.³

Consumers enjoy the convenience of debit card transactions

This rise in preference for debit, clearly accelerated by the pandemic, is part of the trend that saw more people making purchases with a payment card rather than cash as consumers chose debit for purchases under $100, including for everyday items such as groceries and fuel. A full 49% of consumers attributed their increased use of their debit card to the COVID-19 pandemic.¹

Especially at businesses where the average transaction falls between $25 and $100, consumers expect to be able to pay with a debit card and will go elsewhere if debit is not an option, the survey showed. Debit cards are also often preferred in the rapidly growing market for subscription services.¹

This comes as consumers are also looking for more efficiency and convenience when getting cash. As a result, rather than searching for a bank or an ATM when they need cash, 57% of consumers choose to get cash back either sometimes or often with their debit card at stores where they regularly shop.

The growth of debit is here and is expected to continue

Overall, the recent Mercator study concluded that debit cards are the payment of choice for a growing number of consumers and that this habit will persist. Debit is the preferred choice in nearly every consumer demographic. Going forward, 43% of consumers expect to use debit for everyday purchases—more than any other single payment type.¹

With 66% of merchants selling both online and in-store, it’s increasingly clear that those accepting debit in all its forms, including in digital wallets and for e-commerce transactions, are well-positioned to capture repeat business from Gen Z and millennials, especially as their purchasing power grows.¹

¹ Mercator Advisory Group, Debit Consumer Trends Study, February 2022.
² 451 Research, part of S&P Global Market Intelligence, Key Findings: Global Fintech Vendor and Consumer Study commissioned by Discover Global Network, completed January 2021.
³ Mercator Advisory Group, January 2023. “Debit Trends Driving Commerce: 2022 Edition.”

The post Debit Builds Consumer Loyalty Among Gen Z and Other Top Demographics appeared first on PaymentsJournal.

Traditional payout and disbursement methods have successfully served large swathes of the economy for decades. The four traditional payout methods—checks, ACH payments, wire transfers, and Push-to-Card payments—are all viable options when businesses are looking to send payouts to consumers, primarily when payments are reasonably large and conducted on a fixed basis.

However, these traditional options are frequently insufficient when it comes to an emerging— and expanding—category of high-velocity, low-volume payouts. Especially payouts which need to be sent internationally.

Why aren’t these traditional methods applicable in every situation? Some methods are expensive: paying $50 to perform a wire transfer hardly provides value for money for a low-volume payout amounting to a lower sum. Checks and ACH payments cannot always be used internationally. Push-to-Card payments are sent to an individual’s bank account, whereas the recipient may want to receive their payout elsewhere.

A significant chunk of the economy relies on regular, low-volume transactions, and these require a payouts mechanism that is more flexible than the default.

Digital value is becoming a more mainstream way for businesses to issue high-velocity, low-volume payouts to consumers and employees. It can be transferred without the complex infrastructure, integration protocols, and compliance requirements that characterize traditional payouts. In many cases, transferring digital value requires only an email address—no interaction with banks, and no disproportionate costs.

For digital value and the transfer of it to complete its transition into everyday usage, businesses must adopt a new payments infrastructure capable of storing and utilizing digital value instantly, affordably, and across borders.

How and Why Digital Value Is Becoming the Norm

The concept of digital value has evolved to include any currency, electronic store of value, or medium of exchange that is managed, stored, or transacted on digital computer systems. Different types include cryptocurrencies, central bank digital currencies, and virtual and branded currencies. Digital value has risen in popularity over the past decade with the growth of cryptocurrencies, which have complemented older forms of prepaid assets whose popularity also continues to increase.

Due to the growing adoption of various categories of digital value, more people are seeking to receive payouts in digital forms. This is especially applicable for the likely recipients of high-velocity, low-volume payouts, including gig workers (Uber, DoorDash, and countless others), content creators, and a wide variety of consumers.

To make this a reality, businesses must deploy a suitable payment rail comparable to that of the fiat currency system. The absence of such an alternative is a significant pain point.

Gig workers are not the only example of a category underserved by current payouts methods, but they are a highly pertinent one. Many now expect same-day payouts, but attempted solutions such as Visa Direct were never widely used because businesses faced excessive infrastructure costs and gig workers themselves had to foot the bill for transaction costs, which many simply refused to do.

The challenge facing these underserved individuals opens the door to a truly game-changing shift in the future of digital payment networks—specifically, a payment rail that enables users to transfer and extract the digital value of their purchases freely and instantly.

In such a case, a gig driver could receive and store a digital payout in an online digital wallet and redeem it in the form of their choosing—say, as instant credit for groceries, household items, or fuel. Such a flexible payment system would eliminate the need to withdraw funds from a bank account or pay prohibitive transaction fees, saving both time and money.

Creating a modernized payouts infrastructure is essential if digital value is to realize its full potential as both a means of storing value and a medium of exchange.

Trailblazing Toward New Payouts Infrastructures

Legacy payout systems will remain standard within the industry—it should not be forgotten that they serve the needs of their users in most cases, most of the time. Managing payroll or conducting large B2B payments do not require a fundamentally revamped infrastructure.

However, the traditional systems must be complemented by new and improved digital payment models that serve the needs of particular sectors of the economy, or specific categories of recipient, whose requirements are largely unmet by the major traditional payout solutions.

And with the exchange of digitally earned value gaining more traction throughout the economy, the need for businesses and independent merchants to handle their payouts in the manner most convenient to recipients is only set to increase.

A versatile digital value infrastructure can provide this sizable industry with a win-win solution for individuals and companies alike to store and spend digital value from B2B, B2C, C2B, and C2C payouts and micro-payments, anytime, anywhere. If properly leveraged, the digital value network could very well pioneer an entirely new way of handling transactions.

The post How Embracing Digital Value Can Help Solve the B2C Payments Conundrum appeared first on PaymentsJournal.

With the introduction of the RTP® network by The Clearing House in 2017 and the upcoming launch of the FedNow℠ instant payments service, real-time and faster payments are becoming more common in everyday money movement.  

A recent report sponsored by Volante Technologies, titled “U.S. Real-Time Payments: A Catalyst for Payments Modernization,” explores the current state of real-time payments and the multiple use cases being met, such as accounts payable, bill payments, and transfers of high-value funds.  

This article will highlight the main takeaways from the report, including the options available to banks when selecting which instant payments networks to leverage and why instant payments products for bill pay are likely to be more profitable than those involving peer-to-peer (P2P) transactions.  

The State of Instant Payments

Real-time payment systems are transforming the way businesses and consumers transfer money, and the United States is at the forefront of this payments revolution.  

The Clearing House (TCH) developed and operates RTP, the first entirely new U.S. core payments infrastructure developed in over 40 years. RTP uses the ISO 20022 messaging standard, which enables extended data exchange and accommodates business use cases. More than 300 institutions, including community banks and credit unions, are connected to the RTP network, with direct connections to 62% of U.S. bank accounts. 

The Federal Reserve’s instant payment system, FedNow, is set to launch in July 2023, and its initial transaction limit is $500,000. FedNow will also use the ISO 20022 messaging standard and has a pricing model that offers discounts to encourage early adoption.  

The Zelle instant payments network, owned by seven large U.S. banks, has more than 2,400 banks and credit unions contracted on the network. Zelle started as a P2P service but has expanded into other use cases, including paying invoices and gig economy workers. 

Real-time cross-border payments are the next expected breakthrough, and EBA Clearing, SWIFT, and TCH have launched a collaboration called Immediate Cross-Border (IXB). The project is expected to launch in the coming months, starting with the United States and Europe and using the RTP system and IXB as the switching mechanism.  

From a business perspective, real-time payments improve payment processing efficiency, reduce costs, and provide opportunities to add new business. Real-time payments have many potential benefits for customers, including faster settlement times, improved cash flow management, and an enhanced customer experience.  

Instant Payments as Revenue-Booster

Skepticism about whether real-time payments can be effectively monetized is not completely off-target, but it holds true more for consumers than for billers.  

In 2022, Javelin Strategy & Research surveyed more than 3,000 U.S. and 1,000 Canadian consumers and concluded that few consumers are willing to pay for faster payments. Only 36% would be willing to pay for bill pay, partly because P2P apps such as Venmo have reinforced the idea that faster payments should be free. And that is important, because the survey found that P2P transactions are the most common use case of faster payments, with 47.2% of Americans having made such transactions in the past year. 

Although consumers are not necessarily willing to pay for real-time payments, billers are.  

Banks such as BNY Mellon and Citi have worked with companies like Verizon to send request-for-pay (RfP) messages to consumers, who can accept the message and respond by originating a transaction to make the bill payment. Other banks such as Chase Bank and U.S. Bank have also rolled out RfP to their corporate clients, allowing them to request payment from their customers. 

The implementation of RfP by these four banks may prompt other banks to identify more business use cases, which can be monetized. Some of the use cases associated with B2B include invoiced payables, payroll, corporate loan funding, and real estate closings. Furthermore, B2B data can also be processed with artificial intelligence to improve fraud management systems and promote better customer behavior (all the better to market new products). 

A recent Javelin survey shows that 56% of U.S. companies are expected to use real-time payments by next year, so the market for these products is clear.  

What Banks Should Do Now

Financial institutions need to modernize their payments infrastructure to remain competitive with traditional providers and new entrants in corporate banking. Modernization in the United States should include a migration from existing messaging formats to ISO 20022, the growing global standard. Both FedWire and CHIPS are migrating to ISO 20022—FedWire in 2025 and CHIPS in 2024—so banks must prepare for this shift, as it’s inevitable. Banks should also devote resources to helping their clients understand these changes and how to navigate the migration efforts. 

Institutions have a choice between two real-time payments networks—the RTP network and the FedNow service—and must decide whether to use one or both. Because the two networks are currently not interoperable, a payment initiated on the FedNow service cannot be completed if the recipient’s bank supports only RTP, and vice versa. It is recommended that institutions, at the very least, have the ability to receive payments from both networks. 

With the squeeze on income from deposits, banks are naturally looking for other sources of income. The payments-as-a-service (PaaS) model involving real-time payments can be a big part of that. Institutions should analyze the use cases that are most important to their clients and determine what capabilities are needed to support them.  

In addition, speed, visibility, and ease of navigation are key factors preferred by Millennials and members of Gen Z. Adopting real-time payments is an opportunity to shift operations to focus on the preferences of the younger generations (who soon will be dominant in the economy) while also developing products that will monetize instant payments in various use cases.  

The post Banks Developing Instant Payments Products in the U.S. Should Focus on Billers to Generate New Revenue Streams   appeared first on PaymentsJournal.

While the financial services industry has long been a preferred target of cybercriminals, the threat of cyberattacks against financial institutions has never been higher. As technology brings enhancements, it also provides threat actors with larger attack surfaces through which to exploit organizations. Whether motivated by extortion, theft, political, or ideological reasons, hackers are finding multiple new entry points to infiltrate.

The consequences of a cyberattack can be severe, often resulting in financial losses for both the institution and customers, damage to the institution’s reputation, and even legal repercussions. To stay viable in the financial services landscape, leaders must innovate and adopt new technologies that enable them to become more agile and responsive to changing customer needs while prioritizing cybersecurity measures that protect their organization and customers’ data.

New Technology … and New Vulnerabilities

Digital innovation has vastly improved the products and services that financial institutions can offer their customers. Artificial intelligence, data analytics, and cloud technology make it possible to provide exceptional client experiences, but with those exciting possibilities come new vulnerabilities.

This same technology gives cybercriminals a larger attack surface to exploit. That surface isn’t just due to data centers—it also includes endpoint devices. These are often the initial points of infection, commonly carried out through sophisticated phishing efforts involving social engineering. Unfortunately, many financial institutions lack visibility into these individual processes and services, leaving the entire organization at risk.

Cybersecurity risk for financial institutions is also amplified by the recent trend in which workplaces have rapidly become borderless. More than ever, the use of home networks, potentially unsecured public Wi-Fi networks, and personal devices presents a bounty of opportunities for threat actors. Therefore, privacy and data security for financial institutions are more difficult to maintain.

The most cutting-edge technologies can introduce novel vulnerabilities and attack vectors for cybercriminals. Cloud computing, AI, and mobile applications are classic points of entry, but more recently, Internet of Things (IoT) devices, which are increasingly common in financial services, provide additional points of entry. These include wearable payment devices, smart sensors, and cameras.

Finally, financial institutions often rely on third-party vendors to provide services, such as payment processing and customer support. But these vendors might have weaker security measures in place than the financial institutions themselves, and that’s yet another vulnerability attackers can exploit.

Ways to Secure Your Attack Surface from Cybercriminals

All the above avenues of exploitation, taken as a whole, present a large and tempting attack surface to those who would harm your financial institution for their own gain. For that reason, leaders at financial institutions, particularly CIOs and CISOs, need to know how to identify potential risks and quickly secure their data before it is compromised. So, let’s look at several ways you can harden these points of exploitation:

1. Maintain active membership with FS-ISAC.

Being a part of the Financial Services Information Sharing and Analysis Center (known as FS-ISAC) is a must. FS-ISAC can help financial institutions reduce the risk of cybercrimes by providing access to timely and relevant information about cyberthreats and vulnerabilities. FS-ISAC is a global nonprofit organization that facilitates the sharing of threat intelligence among financial institutions, government agencies, and other stakeholders in the financial sector.

Membership is critical because it allows you to benefit from the collective knowledge across the industry. For example, FS-ISAC facilitates the sharing of real-time threat intelligence among its members. This can help you stay informed about emerging cyberthreats and vulnerabilities, allowing you to take proactive measures to mitigate the risk of cyberattacks.

FS-ISAC also offers training and education programs for members, including webinars, workshops, exercises, training sessions, and conferences. For example, they might facilitate an educational workshop on ransomware attacks against financial institutions. These programs can help your financial institution stay informed regarding the latest cybersecurity trends and best practices, as well as develop the skills and knowledge needed to respond effectively to threats.

2. Keep runbooks up to date and run tabletop exercises.

Runbooks and tabletop exercises are both part of a comprehensive incident response plan, which outlines steps to implement in the event of a security incident. Runbooks contain documented procedures with actions to be taken in response to a specific circumstance. These should be regularly reviewed and updated to stay current with known threats and vulnerabilities. An effective runbook can minimize downtime, and it also keeps all stakeholders informed during the deployment process.

Tabletop exercises are simulations of real-world security events designed to test the effectiveness of an organization’s incident response plan. Your team—including IT staff, security personnel, and business leaders—should run these tabletop exercises to identify potential gaps in the incident response plan, and develop strategies for addressing them.

3. Ensure bot and account fraud protections are enabled.

Bot and account fraud protections are important steps in allowing financial institutions to reduce the risk of cyberattacks, and both should be enabled at all times. Bot protection works by detecting and blocking bot traffic attempting to access financial institutions’ services, such as online banking or mobile apps. It employs techniques such as behavioral analysis, machine learning, and device fingerprinting to distinguish between human and bot traffic. Once detected, the bot can be blocked or challenged with CAPTCHAs to prevent fraudulent activities.

Account fraud protection helps prevent attacks in which customers’ account credentials are stolen. Account fraud protection detects anomalies in user behavior, such as login attempts from new or unrecognized devices, unusual transaction patterns, or changes to account details. These anomalies can trigger additional authentication measures, such as two-factor authentication, to ensure the user’s identity and prevent unauthorized access.

4. Implement always-on Directed-Denial-of-Service protection.

Avoiding a DDoS attack is critical in maintaining a robust and welcoming web presence for all users. Without it, you leave yourself vulnerable to an attack that can incapacitate your website, preventing all user actions. So, be sure to defang this threat with the proper protection.

Always-on DDoS protection works by continuously monitoring network traffic and identifying any anomalies that might indicate a DDoS attack. Once detected, the DDoS protection system will divert the traffic to scrubbing centers, where the traffic is analyzed and filtered, allowing only legitimate traffic to reach your financial institution’s network.

5. Implement zero trust.

Be sure to enthusiastically adopt the zero-trust model of security, one in which no person is assumed to be an authorized party until verified. Zero trust helps by providing greater visibility into network traffic and user behavior, allowing you to monitor and detect potential threats more quickly and accurately. It also provides enhanced agility so that your organization can adopt new technologies and processes more quickly and flexibly—without sacrificing security.

Start Locking Down Your Cyberattack Surface Now

Cybersecurity in financial institutions is not just optional; it’s a key component of robust viability in today’s marketplace. Don’t hesitate to proactively implement these five steps (and others) in your efforts to reduce the probability of cyberattacks and mitigate the damage if they happen. You’ll be glad you did. Financial institutions that start now will rest assured that they’ve done their part to keep their businesses as safe as possible from these dangerous threats.

The post 5 Ways to Protect Your Financial Institution from a Cyberattack appeared first on PaymentsJournal.

At the onset of the pandemic, when companies rapidly moved their IT systems to the cloud, many took shortcuts that made these efforts less secure. In response, IT providers have designed new security systems to complement the distributed IT model.

Secure Access Service Edge (SASE) is a new IT framework that enables cloud-hosted networking and security-as-a-service for any IT connectivity. A recent Lumen white paper discusses the details of SASE and explores how the IT framework makes it easier to access resources, improve security, and increase network speed.

Distributed Systems Are Easier to Hack

The recent shift to a more distributed IT model has been driven by many factors, including the increasing availability and affordability of cloud computing services, the rise of remote work, the potential cost savings, and the scalability of distributed systems.

But the distributed IT model comes with a cost: heightened security concerns.

Since the start of the pandemic, ransomware attacks have increased by nearly 500%.

“The average payment to unlock corporate resources climbed an astounding 78% to $541,010,” the white paper states. “With a prosecution rate of just 0.05%, cybercriminals have little incentive to rein in their activity as the risk-reward is overwhelmingly in their favor.”

A large part of this is due to the rapid movement toward distributed IT models. When the pandemic hit, many banks had to quickly figure out how to let their employees work from home. In many cases, they made this happen without any major problems. However, some companies took shortcuts and used simple solutions such as VPNs, or let their employees use their own devices. This left the network even less secure and made it easier for hackers to attack bank branches.

Securing bank branches is an urgent challenge. The average enterprise has more than 400 applications deployed, all of which need to be monitored. According to Lumen, organizations leverage an average of 45 cybersecurity-related tools on their networks today. More than half of IT experts say they’re not quite sure how well these tools work.

Bank branches deploy new technologies all the time yet often don’t have the IT necessary to manage the security on all of them. As a result, many institutions are turning to third parties to manage their general IT and security needs via the SASE paradigm.

Secure Access Service Edge (SASE)—A Better Framework

SASE is a new way of setting up computer networks that makes them secure and easier to manage, especially when more people are working remotely and using different devices. SASE combines various tools and services into one cloud-based system. This makes it easier for bank IT teams to keep everything secure while also making it easier for workers to connect to the network and use the needed resources.

SASE combines several security and network functions into one, with three main features:

1. It’s built for the cloud, which makes it faster and more flexible. SASE uses a software-defined perimeter that supports all types of devices and optimizes the quality of service so every application gets the right amount of bandwidth.
2. It enforces security policies based on the identity of the user, the device used, and the sensitivity of the resource accessed. Even if users are connecting from different locations or devices, they get the same level of security.
3. It has centralized management, which makes it easier for IT teams to set policies and monitor network traffic. It also reduces complexity and cost because IT teams have to deal with fewer vendors and less hardware. Additionally, SASE provides advanced capabilities, including behavior analytics and continuous risk assessments to spot threats that would otherwise be missed.

The Lumen Platform is one example of a system that is designed to work with SASE. It provides a high-performance network that can be adapted to fit the needs of different businesses, making it easier to improve security and manage the network.

Lumen has a large, well-connected network that serves customers in more than 60 countries, with a focus on providing fast and reliable hybrid cloud connectivity and edge computing. What’s more, the Lumen Platform—a cloud-based network and security experience—is designed to simplify network management and enable secure any-to-any connectivity. The platform features integrated, cloud-native architecture, expansive threat intelligence, and flexible management options. By leveraging SASE attributes, the Lumen Platform helps financial institutions achieve their desired business outcomes by providing a high-performance, deeply managed service experience.

Key Takeaways

IT organizations today are engrossed in keeping their applications and data safe from cyber threats. With new threats appearing all the time and a more complex IT environment, it’s increasingly difficult to manage security effectively. Many companies have hundreds of applications running on different platforms, unmanaged devices, and other vulnerabilities that can be exploited by attackers. To make matters worse, most companies use many different security tools but are not sure how well they actually work. This is especially challenging for financial institutions, which have a distributed business model and need to secure new technologies deployed in branches without adding an unreasonable burden on their IT staff.

To combat this, banks can turn to third-party cloud services and security providers that use the SASE architecture. This will help them keep abreast of the more challenging security environment that comes with decentralized IT and provide security for new applications as they are deployed.

The post Security-as-a-Service Secures <br>Distributed IT Models appeared first on PaymentsJournal.

Money mules are a big challenge for global fraud leaders. Many financial institutions are at a loss as to how to effectively combat money mule activity. A newly released report by NICE Actimize, “Mule Defense—Product Review: Know More. Risk Less,” details just how much of a challenge money mule activity has become and the best practices FIs can implement to detect and stop it.

The Current Challenges

According to the NICE Actimize report, the challenges posing the greatest fraud threats to FIs today are money mules (53%), followed by unauthorized payments fraud (36%), customer first-party fraud (29%), and authorized push payment (APP) scams (20%).

With the rise of real-time payments, bad actors are attempting to benefit from the advantages of rapid payments. The global adoption of real-time payments, particularly within the P2P sector, is expected to push payment volumes from $1.8 trillion in 2021 to $5.2 trillion in 2028.

NICE Actimize sees a 146% increase in attempted fraud amounts year over year—in addition to a 92% increase in attempted fraud transactions year over year.

What’s more, nearly 60% of new-account fraud is mule-related. Money mule activity can be particularly catastrophic for financial institutions. Besides the losses that come from money being stolen, a considerable amount of operational overhead must be used to address the fraud.

Aside from the financial loss at stake, the non-monetary losses can be damaging to an FI. This can include reputational damage, a permanent blemish on the brand, and even a loss of stock value.

Some FIs have begun to take note of the seriousness of this illicit activity, but there is more to be done. What makes matters worse is that detecting mule activity has been historically difficult. Luckily, technological innovations are equipping FIs with more tools to make better detection possible.

How Typology-Centric Fraud Detection Can Help

With peer-to-peer (P2P) scams rising, causing consumers to lose a considerable amount of money via fraud, banks will soon be on the hook to refund the financial losses. It’s high time that banks consider a new way to approach fraud detection.

NICE Actimize is leading the way with a disruptive approach to fraud detection. Instead of legacy, transaction-centric monitoring, the use of specialized data enrichment, multiple, parallel typology-based AI models, and typology-specific risk scores can help improve detection and reduce false positives.

Also, the legacy way of addressing and investigating alerts, taking one transaction at a time by an operations and investigations team, is inefficient. New strategies and workflows can be created by fraud type to improve operational execution. Fraud departments can be divided into specialized teams, including those that assess money mules, authorized fraud (scams), account takeover, and account origination risk.  

Why Real-Time Money Mule Detection Works

Real-time money mule detection is crucial to mitigating the losses associated with authorized and unauthorized fraud. As fraud teams grow in sophistication and financial clout, more money is being thrown at amplifying the type of fraud schemes and technology used to exploit vulnerabilities. FIs must act equally fast to protect their customers’ money and personal information. By not mitigating the mule activity in real time, FIs also risk regulatory scrutiny and a shift of liability.

NICE Actimize’s fraud solution IFM-X – Mule Defense will detect, investigate, and prevent mule account activity from occurring throughout the entire customer lifecycle for existing and new accounts.

When it comes to halting mule activity at the front door, (i.e., application and account opening), AI-enabled identity profiling models are used to detect any stolen identities and synthetic identity fraud.

In early and mature accounts, AI-powered behavioral analytics are used for account monitoring. Advanced network analytics and packaged network narratives are used to uncover related mule accounts.

FIs Need a Solution

Money mule activity continues to be difficult and complex for FIs to effectively detect and mitigate. Early and rapid detection is the key to reducing far-reaching damage to consumers and FIs alike.

NICE Actimize’s solution leverages AI and industry-wide collective intelligence to combat fraud. It’s the only real-time money mule detection solution on the market, a reason for FIs to give it a try.

The post Early Detection of Mule Activity Requires Real-Time Solutions appeared first on PaymentsJournal.

The markers of the digital consumer revolution are evident: shifting expectations for quick and convenient access to services, the rise of online shopping, and the need for experience-driven interactions, to name a few. Moreover, shoppers desire innovative and seamless digital payment experiences with their favorite brands, an emerging trend poised to redefine how people perceive traditional banks.

Already, brands including Ikea, Starbucks and Lyft offer customers financial services via loyalty and mobile payments, interest-free credit, as well as and debit and savings accounts. The key enabler for these businesses is embedded finance, a software distribution model that allows nonfinancial companies to lend, accept payments, and even offer insurance without requiring a financial institution. Embedded finance will touch many industries, but none more so than retail.

What is Embedded Finance, and What are its Benefits?

Embedded finance describes non-banking businesses or brands integrating financial services into the everyday customer journey. Soon, businesses may no longer interact directly with a conventional bank. Instead, they would leverage e-commerce platforms and software companies that partner with financial institutions to embed financial products into the customer experience. Currently, payments are the primary use case of embedded finance, as they sit at the center of commerce, banking and business services.

This phenomenon presents many benefits to businesses—especially retailers actively searching for alternative sources of revenue and product growth. Today’s shoppers value the customer experience as much as or more than the product or service itself. In particular, modern shoppers value personalization, immediacy, greater trust, and simple offerings.

By implementing embedded finance processes, retailers can provide shoppers with a more streamlined, fast-tracked, and convenient customer experience. Additionally, because the nonfinancial company implementing these embedded finance models has greater control over the customer experience, they can reduce barriers to purchase and minimize friction to encourage shopper loyalty and boost revenue. Furthermore, embedded finance eliminates the headaches of dealing with multiple financial partners.

The Four Steps to Realizing Embedded Finance 

Embedded finance’s market cap will reach $7.2 trillion globally by 2030, and retail use cases will account for almost half of this growth. As such, retailers need to capitalize on this lucrative market opportunity. However, before retailers can start embedding innovative and disruptive financial offerings into the shopper journey, they will need to achieve a clear vision of the future of customer service in their industry. Such a vision will necessitate a robust grasp of current and imminent possibilities, including available financial technologies and services.

Four steps can help retailers translate these objectives into tangible initiatives:

1. A Value Proposition Design
2. Commercial Outcomes
3. Go-To-Market Strategy
4. Operating Model Designs

First, retailers must determine who they are creating value for and how. As part of the value proposition design step, retailers can identify and categorize their various stakeholder groups, pinpoint their challenges, and outline which relevant financial service use cases will address those pain points.

The next step focuses on commercial outcomes or business strategies and objectives that support the embedded finance approach. Common business goals might include customer loyalty and acquisition, growth or the creation of new revenue streams. Retailers can establish a commercially viable proposition and secure buy-in within the enterprise by having these clear strategies, goals and outcomes in place.  

Then, retail brands must create a go-to-market strategy to ensure the products reach the ideal audience through appropriate channels. In this stage, retailers must find the best partners to help distribute and market while building a progressive and controlled product release plan. Likewise, they should ascertain the key metrics to measure success.

The final step is to build an operating model to convert the specific business strategies outlined in previous steps into operational capabilities and enablers. In addition to implementing a flexible technology stack to facilitate the rollout of new products, retailers should identify their risk appetite. Retailers should also determine if they require new talent or teams and if they possess the ability to build embedded solutions in-house or if the help of a trusted third party is necessary.

The Digital Consumer Revolution Waits for No Retailer  

The rapid evolution of shopper expectations and preferences is going toward personalized and seamless digital experiences, and it isn’t slowing down. To adapt accordingly, retailers must invest in embedded finance models, lest they arrive late to the next era of the digital consumer revolution and miss out on this emerging revenue opportunity.   

The post How Retailers Can Enter the World of Embedded Finance Confidently  appeared first on PaymentsJournal.

Consumers love debit—and merchants are paying attention. In fact, for day-in and day-out transactions and routine purchases such as groceries and gasoline, debit remains one of the top payment methods, presenting a vital opportunity for merchants everywhere.

In a recent study sponsored by Discover^® Global Network, 54% of merchants agreed that debit cards are a highly important payment option for their customers.¹ While different demographics prefer debit transactions to varying degrees, the study showed that consumers prefer the convenience, ease of use and financial control that debit provides.

For merchants, debit usage often replaces cash and check payments, providing greater merchant security and eliminating the costs involved with handling and safeguarding cash in-store. Not only does that directly benefit the merchant, but the acceptance of debit is also critical in ensuring a positive customer experience.

Consumers typically choose debit at more-traditional point-of-sale (POS) systems in grocery stores, at gas stations, at small businesses, for subscription services and for any transaction between $25 and $100, the survey showed. No longer just a convenient bank card to be used at ATMs, most consumers today also enjoy the convenience of getting cash back from the merchant directly when transacting at the POS.

While the physical POS is key to many transactions, digital payment adoption is also on the rise in global markets, as interest in different online payment types, including digital wallet, has grown. Consumers are showing a preference for using debit in this expanding world of digital wallets. In fact, 66% of consumers have debit cards as the default payment type in their preferred digital wallet.¹

Transaction security and fraud protection are firmly top-of-mind for both merchants and consumers, particularly in recent years as fraudsters have become more prevalent. When using debit in-store, most consumers prefer to use a PIN to authenticate themselves at POS.

Whether it’s the preferred payment method in digital wallets or for a variety of in-store purchases, here are five key reasons why debit remains a leader in payments:

1. Convenience

Consumer preferences in spending and shopping habits have evolved considerably in the past few years. Increasingly, consumers want payment options that are convenient and easy to use. As a result, they’ve turned to debit, particularly for everyday purchases between $25 and $100.¹ This trend, which is widespread across multiple demographics, is expected to continue. Not surprisingly, debit is the preferred payment method for grocery store purchases (where the average in-store transaction is $42.07).² Debit also dominates in several other merchant categories, including gas stations, small businesses and local stores.

2. Security

Merchants and consumers alike are concerned with security and fraud protection. According to a recent study, 88% of consumers surveyed believe strong fraud protection is important or very important.³ Meanwhile, another study reveals that 64% of merchants strongly agree that fraud is becoming a growing problem in their industry.⁴ With modern advances in digital security, debit transactions carry among the highest fraud protections available anywhere. And for consumers, payment security is top-of-mind. For digital purchases, security of their personal information is the top concern for consumers. When using debit cards, a full 73% of consumers prefer to authenticate with a PIN at the POS, providing that extra level of assurance that their transaction is secure.¹ As a result, merchants should recognize the importance of the technology, including PIN pads, that’s needed to ensure that consumers are comfortable using debit cards in-store.

3. Cash back

Consumers want the ability to get cash back quickly and easily, whether or not they’re near their bank’s ATM. Providing greater convenience to consumers, merchant POS is the preferred method for customers to receive cash back, with a majority of consumers preferring to get cash at an in-store merchant location. Offering the option of cash back at the POS is a means for merchants to generate customer loyalty. In fact, almost one-third of consumers say the ability to get cash will significantly increase their loyalty to that merchant.¹

4. Cashless

A shift away from using cash is another trend that is gaining momentum across multiple age groups of consumers. As consumers have moved from paying with cash to touch-free and digital transactions, debit has seen an increase in usage compared with cash. According to one recent survey, 79% of consumers prefer to use cards for in-store purchases, with 51% preferring contactless payment methods.⁵ For online transactions, debit usage is high across all adult age groups.

5. Financial control

Consumer demand for real-time payments has strongly increased in recent years. From paying bills to receiving funds from a business, consumers are showing great interest in a number of practical applications for real-time payments. Not only do real-time payments appeal to consumers for their speed and efficiency, the immediacy of payments to and from a consumer’s bank account provides an important element of control over personal finances. This is why consumers choose debit for not only everyday transactions, but also for their growing subscription services and in their digital wallets.

¹ Mercator Advisory Group, Debit Consumer Trends Study, February 2022.
² Food Industry Association. “Supermarket Facts.” Viewed 14 March 2023.
³ Q3 2021 Aite-Novarica Group survey of 2,046 U.S. users of prepaid cards or buy now, pay later options.
⁴ 451 Research, part of S&P Global Market Intelligence, Key Findings: Global Merchant & Consumer Payments Survey: Commissioned by Discover Global Network, completed November 2021.
⁵ 451 Research, part of S&P Global Market Intelligence, Global Consumer Fintech Survey: Key Findings, August 2022.

The post 5 Reasons Merchants See Debit As <br>Top-of-Mind for In-Store Sales appeared first on PaymentsJournal.

Silicon Valley remains an innovation hub, changing business landscapes with new and exciting technology. Tech giants including Apple, Meta, Visa, and Cisco still operate out of the San Francisco area and an array of start-ups are paving the way for cryptocurrency computer processing, and Distributed Ledger Technology (DLT). The Valley’s newest innovation is generative AI, namely OpenAI’s ChatGPT, which has gone from unknown to world-famous in a matter of months. 

ChatGPT adoption reached 100 million users in Jan. 2023 after two months of going live, becoming the fastest software adoption ever. Its rapid rise means businesses and governments are hurriedly looking into the technology to determine its impact on the technological landscape. The payments sector is no different. 

The Payments Sector and Innovation

The meteoric rise of e-commerce over the last decade has accelerated the necessity of payment gateways, which must investigate and integrate emerging technologies to ensure worldwide payments are made more accessible, faster, and safer. So, incorporating payment functionalities into the latest technology, or vice versa, is well understood. Although, unique aspects of generative AI represent new challenges. 

The payments industry has historically adapted well to new technologies. Exploration into embedded finance, cryptocurrency, peer-to-peer wallets, the metaverse and DLT systems has been successful. To this point, technology adoption in the payments industry has helped achieve increased payment speed and versatility. For example, enabling cryptocurrency payments, as well as increased security, lower risk, and accessing new and emerging markets for merchants.  

Naturally, integrating these technologies has not been without its challenges, but each has—in one way or another—worked toward the betterment of our sector. It is time to investigate if integration can be replicated with payments and AI. 

What Is ChatGPT and What Does it Have to Do with Payments?

AI-powered chatbots are built off large language models and fine-tuned using machine learning algorithms. ChatGPT’s platform, for example, sources publicly accessible information deemed correct and relevant up until 2021. 

One of the main advantages of the software is its ability to present clear and concise information at an impressive pace. This has led to faster dissemination of information that has been praised for its accuracy, particularly considering how new the technology is.

Where payments are concerned, integration into ChatGPT tools may accelerate the pace at which users can source, compare, and buy products. AI can do the heavy lifting when it comes to shopping, expediting the search process based on user prompts. 

Integration can save time for users, particularly when shopping for less common or niche items from global merchants. The instantaneous nature of these platforms can potentially improve user experience (UX). Customer journeys, from the initial prompt to selection and then payment, can be reduced to a matter of clicks. Similarly, providing a multitude of brand and competitor options can help find the best price, availability, and choice.

Other Web3-based purchasing methods could also be incorporated into a payments-enabled AI platform. Digital e-wallets, or cryptocurrency trading, can be similarly implemented into the platform’s interface, providing users with an even greater choice when it comes to buying online. For merchants, this once more increases the flexibility they can offer customers. The crucial element is enabling the transaction which is only possible through gateway integration.

Is Payment Integration into Generative AI Ready Now?

Generative AI chat platforms, although powerful, have several areas of improvement that can accelerate their potential for a new payment future.

Safety concerns for user information on these platforms are increasing. Users have managed to change request wordings to trick the AI into providing answers to requests it previously refused. A movement named Do Anything Now (DAN) has sought to identify the vulnerabilities in the way AI contemplates information requests, claiming to have jailbroken the AI, ChatGPT under DAN programming has been described as ‘AI unchained.’ Although some users have praised the version for its more genuine answers, others have voiced concern about the risk posed to users once the AI is untethered from ethical frameworks. 

Safety aside, security represents another issue. To ensure payments are made safely through AI platforms, protecting sensitive customer information is of the utmost importance. Cybersecurity experts have indicated that the security of ChatGPT and its rising number of competitors may not yet be up to scratch for enterprise or e-commerce applications. If firewalls cannot guarantee user protection, it will slow efforts and the demand to integrate payment solutions. Users’ trust in AI can be utilized by hackers with malicious intent, who can pose as the chatbot to launch credible phishing content and obtain sensitive user information. 

Further examples suggest the software itself not being as robust as it would need to be. In March 2023, users reported being able to see other users’ chat window conversations. 

The Intersection Between Generative AI and Payments

The new wave of generative AI is still in its infancy, so teething problems around user safety, information accuracy, and infrastructure security are expected. As these platforms mature focus on security will increase. The payments industry will keep a watchful eye on these developments. 

Once satisfactory levels of user protection are guaranteed (including clear KYC), payment companies will likely explore the intersection between AI and payments in greater depth. There’s no doubt the technology can realize a way of transacting online that increases market reach for merchants whilst boosting customer UX and speed to purchase.

The post How Generative AI Could Transform Payments appeared first on PaymentsJournal.

Banks and credit unions aren’t the only organizations fighting against money laundering. In fact, some businesses like insurance brokers and jewelry dealers, among others, are considered financial institutions, and are required to comply with the Bank Secrecy Act (BSA)—a law that requires financial institutions in the United States to help government agencies detect and prevent money laundering—a complex task.

Many businesses don’t realize that they’re required to comply with anti-money-laundering (AML) policies and end up suffering significant fines as a result. Proactive compliance with AML regulations is crucial, especially during a time of increased regulatory scrutiny. CSI’s whitepaper, The Constant Battle to Prevent Money Laundering, provides guidance about what BSA/AML regulations require, which businesses are on the hook and how technology solutions can aid compliance.

There are More Financial Institutions Than Commonly Thought

The U.S. Treasury Department estimates that more than $300 billion in illicit profits are generated annually by criminals attempting to move money through the U.S. financial system. As such, money laundering is a significant operation, affecting traditional financial institutions as well as companies that interact with those institutions.

The BSA is designed to combat this problem by requiring financial institutions to take measures to prevent money laundering. The USA PATRIOT Act of 2001 updated the BSA, broadening the definition of what counts as a financial institution and laying out key actions financial institution need to take.

Further, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) in 2018 released the Consumer Due Diligence Final Rule. This rule specified which institutions are included in AML regulations and prescribed that companies adopt risk-based customer due-diligence procedures.

According to FinCEN, casinos, gaming establishments, mortgage companies, and security brokers are just a few industries classified as financial institutions. And they’re required to employ an anti-money-laundering compliance plan, including a designated compliance officer, an independent audit system, internal policies to detect and prevent money laundering and employee training.

Furthermore, the Consumer Due Diligence Final Rule mandates developing risk-based customer due diligence procedures that include developing and maintaining customer risk profiles and identifying and reporting suspicious activity.

Compliance with regulation has been lax, partly because many financial-adjacent businesses chose to avoid the issue until it became abundantly clear that they had no choice.

This wait-and-see policy has been a costly one, according to CSI’s report. Annual fine totals have increased from $800,000 in 2002 to $169.9 million in 2022.

AML Systems can be Challenging to Implement

Although part of the lack of compliance may be due to negligence, the fact that anti-money-laundering systems are hard to implement also plays a key role.

The ongoing customer monitoring required to identify and report suspicious activity can be tedious if it’s done manually. It’s expensive to hire the staff necessary to do it, and standard AML software solutions that automate this process can create their own problems and be easily bypassed by money launderers.  

According to CSI, AML software typically has a limited number of rules, which when implemented yield too many or too few red flags. If rules are too general, there may be too many red flags for a limited staff to review.

The CSI whitepaper notes: “A 2021 FinCEN enforcement action highlights this exact scenario. The organization’s AML monitoring system was generating too many suspicious activity alerts for the three-person BSA analyst team. As a result, they ‘often did not review supporting documents (cash deposit slips, wire transcripts, check images, etc.), although all of this information was readily available. In turn, FinCEN levied an $8 million fine.’”

Overall, the rules can cause a few headaches. For example, if the rules are too loose, the system is too lax on enforcement. But if they’re standardized—and they often are—money launderers can figure out consistent ways to get around them.

Moreover, if companies do find red flags and don’t file suspicious activity reports (SARs), they often don’t explain the reasoning for that decision. This is illegal and can open them up to further fines.

At one company, FinCEN examiners “noted that 22% of SAR filing decisions did not have sufficient information as to the customer’s source or purpose of funds to justify not to file a SAR.” In other words, the company couldn’t explain its reasoning.

And that company is not an outlier. CSI analysis found that 40% of the AML software market doesn’t have systems that effectively produce such explanations.

Part of the reason more SAR reports are not filed, or are filed late, is they must be filed outside the AML system. All of this makes it difficult, expensive, and time-consuming for small companies to comply with anti-money-laundering regulations, especially when they didn’t have to think about it much before 2018, when the definition of what’s considered a financial institution was broadened.

Tech Solutions for Money Laundering

During a time of increasingly bold regulations, AI-infused tech solutions are helping many companies meet AML obligations.

For example, CSI’s AI-infused AML software analyzes customer transactions to detect patterns and create better models for detecting money laundering. AI can better distinguish between actual suspicious activity and false positives, and it can close out the positives that seem least likely to be actual money laundering. The software can complement limited human staffers by sending them only the cases most likely to be real money laundering.

CSI’s software also comprises more than 30 customizable rules. It generates a risk score—and an explanation—for every activity it reviews and generates dynamic risk scores for each customer based on customer information that is updated daily. Furthermore, the software streamlines the SAR filing process, so SARs can be filed from within the software’s case management dashboard.

For the increasing number of businesses that must comply with anti-money-laundering regulations, AI-infused AML software can solve compliance problems and reduce headaches.

The post Using the Right Tech Tools to Protect Against Money Laundering appeared first on PaymentsJournal.

Technology, its benefits and illicit use, will always be in an arms race with regulations that protect us and prevent bad actors. And the metaverse will be the latest in a long line of historical innovation versus regulation battles.

The global economy is worth roughly $100 trillion, with about $2 trillion connected to illicit funds. Using this same ratio, the metaverse market size is estimated to be worth roughly $1.5 trillion by 2029, which means that there may be $300 billion in crime-related transactions. This is a conservative projection of the value of metaverse crime as the anonymous nature of transactions and the opaque nature of asset prices make the metaverse—by design—far more crime-friendly.

Metaverse Opportunities

The opportunity for trade-based money laundering on illiquid virtual goods—anonymously transacted—is terrifying. Who can say what the price of a virtual piece of Malibu is worth? The top 10 land deals average over $2 million each, and I would suggest there has been very little oversight as to the fair market value of these transactions.

It is exceptionally easy to purchase an in-game or in-metaverse item for a hugely inflated price as a means of transferring funds. But, it’s important to note that it isn’t all doom and gloom. There’s time to get this right and implement supervision before the volumes become immense. However, we likely said this about crypto and the value of that market has ballooned before regulations were close to being implemented.

3 Challenges to Overcome

There are a few hurdles the metaverse will need to overcome to impact financial crime. This includes the true value of metaverse assets, preserving transaction anonymity while understanding source of funds, and comparing transactions to a user’s on and offline patterns to establish whether they suggest illicit activity.

Let’s dig a little deeper.

The first challenge is likely the hardest because the metaverse is in its nascency and there aren’t a lot of comparables for assets. For instance, what do you think a monkey NFT is worth? Now, ask the person next to you. 

The second challenge is easier. I can have a metaverse handle of my choosing to protect my anonymity as long as my metaverse service partners know who I am. In the real world, the holder of this risk is my financial institution. It’s up to them to know who I am when I open an account, and to regularly confirm that through the lifecycle of my relationship.

But who owns this risk and obligation in the metaverse? Is it the digital wallet provider, is it the owner of the particular metaverse I’m in, or perhaps it’s the third-party gaming or retail firms. Whoever owns the risk must take the necessary first steps, including a diligent KYC (Know Your Customer) program for all metaverse participants. 

We know how to do this in the real world—it’s standard practice for all financial institutions. And we need to take those same lessons to the metaverse. What’s clear is that a fragmented online series of metaverses, potentially each with different policies, is a nightmare for transparent financial governance.

The final challenge, for me, feels like starting from zero. To understand an individual’s income, expenditure, and relationship profile is already incredibly difficult in the offline world—even with the variety of data sources and the majority of transactions settled in dollars. To do this effectively in the metaverse, you would need to do it for each user’s handles/avatars, across all metaverses and combine that with their real-world profile.

As with many challenges facing us the answer is surely collaboration. Governments, universe creators, and participants—both individual and corporate—must work together and produce guidelines.

There are a very small number of people who could or would spend $2 million on a slice of meta-Malibu. Starting with such edge cases seems like the perfect place. If we don’t, then the volume and diversity of metaverse participants, vendors, and transactions will make it impossible to actively supervise.

The post The Metaverse Will Be the New Financial Crime Battleground appeared first on PaymentsJournal.

It’s an undeniable fact: Consumers of all ages love their debit cards and are increasingly reaching for them at checkout.  Recently, Discover® Global Network engaged Mercator Advisory Group to explore this payments trend by interviewing a cross section of U.S. consumers. Here are four key takeaways from that online survey spotlighting the popularity of debit cards—and why full acceptance by merchants is a simple yet effective way to satisfy today’s shoppers.

The post 4 Insights into the Growing Power of Debit appeared first on PaymentsJournal.

Using embedded finance is a “win-win” for traditional banks and non-financial companies. The former can access new markets while the latter get to offer a seamless payment experience. This collaboration is underpinned by Banking as a service and Card as a Service models.

Understanding the value of embedded finance

Embedded finance may be one of the top 3 buzzwords currently doing the rounds of the financial ecosystem. In simple terms, embedded finance is the placing of a financial product by a non-financial company in order to sell financial services to its end users, seamlessly weaving these services into its digital end-to-end customer journey.

Non-financial companies providing financial services as part of their customer journey is not really a new thing—think about a retailer offering to finance appliances such as a fridge or a television, or an airline offering credit cards. Such private-label cards have been and still are an important part of card issuing. The novelty that embedded finance offers is a seamless, digital, fully-integrated experience in phase with what today’s customer expects. Consequently, the embedded finance market is forecast to be worth over $7 trillion by 2030, i.e., twice the combined value of the world’s 30 biggest banks¹!

Banking as a Service

Banks possess bank charters which allow them to do business in the financial services industry—i.e. “the keys to the banking kingdom”. They also possess a wealth of expertise in navigating the regulatory and compliance complexities of the financial services industry. Both are tricky for emerging financial services providers to acquire—let alone having to build this type of infrastructure from scratch from an IT perspective, or having to buy a bank. Non-financial companies can access and offer financial services through Banking as a Service (BaaS) models where banks provide these non-traditional financial service providers with access to their regulated infrastructure.

In an embedded finance model, the non-traditional financial service provider acts as the “customer front” and financial product/service distributor. Banks are the financial engine. They use this additional channel to provide financial services at scale and at the lowest possible cost. This arrangement leverages their existing back end without the need to market products through their own distribution networks “from their front end”. Hence, the potential for a win-win situation

Payment cards as part of embedded finance offers

The traditional private-label credit card model has been and remains an important part of card issuing, and the question is how this new wave of embedded finance will impact the future of cards. There are many reasons to believe that it has the potential to unleash huge untapped potential for card issuance.

Cards can benefit embedded finance providers in many ways. Use cases include instant payouts, loyalty points redemption or scaling merchant acceptance. A perfect example is the Uber Pro Card which gives Uber drivers cash back on gas or electric vehicle charging (when drivers use the card to pay) and provides drivers with free automatic cash outs.

Card as a Service: bright days ahead for cards

However, issuing a card is not as easy as it appears, especially from a compliance and regulatory perspective, and this is where Card as a Service (CaaS) comes in. In the same way that Banking as a service takes a lot of the complexity out of banking, Card as a Service takes the complexity out of card issuance, making it easier for non-financial players – particularly for startups – to issue cards and thereby bringing a significant untapped card market into play.

During the past couple of years, some of the world’s most iconic digital companies have launched groundbreaking physical payment cards, pushing back the frontiers of card design possibilities. For example, customers can design their own doodle that will then appear on their card. As they are now set to be joined by scores of innovative startups, banks offering Card as a Service can leverage this hyper-personalization trend to climb up the value chain. These issuers may also tap into new revenue streams with the adoption of multi-application cards and move to a position of even greater value.

Last but not least, as cards are now poised to become even more omnipresent by adding value in emerging, embedded user journeys, the next big step for BaaS and CaaS players might very well be to seamlessly weave adjacent services such as card activation and digital PIN management into the overall card issuance experience—hence creating and monetizing value-added services for embedded finance providers.

The post How Embedded Finance Benefits Both Banks and Sellers appeared first on PaymentsJournal.

Consumers are used to tapping their card to make payments. The problem is, not all merchants can afford the onboarding and maintenance fees of legacy point of sale (POS) systems. This is a notable obstacle, especially because the pandemic accelerated digitalization, leading to a surge in contactless payments. The volume of these transactions is expected to expand rapidly from 195 billion in 2022 to 408 billion by 2027. Merchants across a host of verticals, including traditional retailers, public transport operators, the hospitality industry and more, must find a reliable, secure, yet affordable solution.

SoftPOS (Software Point of Sale) solutions transform a regular smartphone—also referred to as Commercial Off-The-Shelf (COTS) device—into a contactless payment terminal. This makes it easy and affordable for merchants to accept digital payments, opening up new markets and new customers. As a result, the number of merchants deploying SoftPOS solutions is predicted to grow by nearly 500% between 2022 and 2027. As merchants prepare to embrace the technology, let’s explore what the future of SoftPOS looks like.

Embracing the Opportunity

There are already 5.3 billion mobile phone users worldwide. These devices are now an essential part of daily life. Merchants can easily obtain a COTS device—or expand the use of the one they already own—and transform it into one that is able to accept digital payments. This allows them to bypass some of the costs that come with traditional POS systems.

It isn’t just small and medium-sized merchants that can use SoftPOS to enhance their digital payment networks. SoftPOS can also be used as an accompanying solution. For example, if a standard POS terminal fails, the SoftPOS solution can be used while waiting for a replacement.

Additionally, the flexibility of SoftPOS can greatly enhance the checkout experience. As COTS devices are relatively inexpensive, they can be issued to more staff, giving customers more options for where to pay. In retail, assistants can carry SoftPOS devices with them, allowing customers to pay for products on the shop floor. In hospitality, restaurant staff can use the devices already issued to digitally send orders to the central POS system to take payments. Likewise, within the transport industry, ticket collectors can collect fares on-board, eliminating the need for consumers to queue at ticket machines. By giving more options for where customers can pay, merchants can significantly reduce congestion around traditional checkouts by removing the need for all customers to pass through them.

In the future, SoftPOS could potentially also simplify the online and in-app payment experience. In this use case, it’s planned that the consumer would be able to simply tap their card on the back of their smartphone when they reach the checkout in their online payment journey. This could mean no more entering card details or storing them with retailers.

However, as more use cases for SoftPOS emerge, stakeholders must be mindful of some of the risks that still must be addressed.

Implications of Certification for SoftPOS

SoftPOS environments can make it difficult to secure payments as they frequently lack the hardware security features found in conventional POS devices. And with a new PCI SSC certification released in Nov. 2022, compliance is more important than ever.

Mobile payments on COTS (MPoC) is a new mobile standard relying on existing PCI standards to support the future evolution of mobile payments. This update means that COTS terminals will be able to support both PIN and PINless transactions, offline transactions, and manual card data entry. It also helps SoftPOS devices accept both contactless NFC transactions and transactions that utilize an external chip or magnetic stripe card reader.

This will also allow the components of SoftPOS solutions to be tested individually, before being tested together as the full solution. By standardizing approaches to security evaluation, this is making the certification process clearer and easier to manage, helping solution providers reduce both development costs and time to market while prioritizing security.

Looking Ahead

The number of merchants deploying SoftPOS solutions is expected to skyrocket, and use cases are expected to continue to develop as more major global tech companies prepare to enter the SoftPOS industry. To meet demand, compliance and certification should continue to be at the center of the conversation around this innovative approach to digital payments. Compliance with functional and security certification requirements is mandated by both international and domestic payment schemes. Meeting these needs is key to success, however, if these are accounted for in the initial design and development phase, manufacturers can ensure that they are not impacting time to market.

Meanwhile, cloud-based kernels are being developed specifically to meet the needs of the SoftPOS ecosystem. These can simplify payment device management, as the ability to make automatic updates removes the need to push new kernels to each device individually after every scheme update.

The post Future Gazing: The Evolution of SoftPOS appeared first on PaymentsJournal.

As digitalization continues to permeate everyday life, data archiving has become increasingly vital for a variety of reasons. With the emergence of ChatGPT, an artificial intelligence-powered chatbot, the landscape has again shifted dramatically. But what are the implications of this breakthrough, and how will it impact digital archiving?

What is ChatGPT?

ChatGPT is a large language model that gives detailed responses to questions and statements, to a hitherto unseen level of sophistication. Early adopters have marveled at the program’s capabilities, from drafting detailed essays in a matter of moments, to conjuring poetry with unfaltering rhyme schemes, and even writing functional code.

ChatGPT is owned and developed by AI research and deployment company, OpenAI. The organization is based in San Francisco and was founded in 2015 by a who’s who of tech titans including Elon Musk and LinkedIn co-founder Reid Hoffman. The company’s mission statement was to ensure that Artificial General Intelligence (AGI) would benefit all of humanity, and to advance it safely.

Back in 2015, OpenAI President Greg Brockman met with Yoshua Bengio, one of the “founding fathers” of deep learning. They drew up a list of whom they considered the ten best researchers in the field. Brockman ultimately hired nine of them as the first employees in Dec. 2015. Fast forward to 2023, OpenAI employs 375 employees—at the last count.

Is it Convincing?

It’s likely that you’ve tried it out; debating controversial topics, querying the intangibles, ‘testing’ whether or not it can complete a work task for you. One thing becomes clear pretty quickly; infinity is daunting. What should you ask when you can ask anything?

Whatever you do ask, it’s likely that the response will be well informed, logically argued, and promptly delivered. Unreasonable requests for personal advice may be met with a disclaimer, “As an AI language model, I cannot make decisions for you, but I can provide some general reasons why…” Even when you set it up to fail, it provides a calm, clear-headed retort that leaves you feeling decidedly less smug, and in fact rather silly.

What Are the ChatGPT Limitations?

Despite its convincing rhetoric, ChatGPT is, at times, deeply flawed.

Quite simply, its statements can’t always be trusted. This is a reasonably devastating indictment for a tool which invites such vehement scrutiny, and has been acknowledged by OpenAI, who admit that “ChatGPT sometimes writes plausible-sounding but incorrect or nonsensical answers.”

ChatGPT has a vast wealth of knowledge because it was trained on all manner of web content, from books and academic articles to blog posts and Wikipedia entries. Alas, the internet is not a domain renowned for its factual integrity.

Furthermore, ChatGPT doesn’t actually connect to the internet to track down the information it needs to respond. Instead, it simply repeats patterns it has seen in its training data. In other words, ChatGPT arrives at an answer by making a series of guesses, which is part of the reason it can argue wrong answers as if they were completely true, and give different (incorrect) answers to the same questions. Another major challenge is the potential for the model to generate biased or harmful responses, having learned these biases from its training data. ChatGPT can only ever be as well-balanced as its source material, and with a diverse cocktail of prejudices feeding into the web content that has shaped it, a neutral ‘personality’ seems unlikely.

Is ChatGPT Compliant?

As with many less regulated industries, ChatGPT could help streamline many processes in financial services, from customer service to fraud detection, and even the compliance function itself. However, when large sums of money are involved, there are major implications to its propensity for misinformation.

Following its well-documented issues with another third-party application, WhatsApp, it’s unsurprising that JPMorgan Chase has moved quickly to ban its employees from using ChatGPT amidst privacy concerns. JPMorgan staff were asked not to enter sensitive information into the chatbot, opting instead to “tread carefully” around the technology. After all, ChatGPT makes it clear when you use the program (and in its FAQ) that the information being digested helps to train the bot. Regulating bodies like the SEC will be monitoring the situation closely, and will have a position on the use of ChatGPT within a firm, to stipulate those parameters for the early adopters. With recordkeeping requirements under the microscope, regulated firms are understandably risk-averse and looking to the regulator for direction.

As Matt Levine explains in his Bloomberg Money Stuff column, “If you want to get advice from a robot about how to invest—or if you want the robot to help you write a presentation for clients—then you had better communicate with the robot using official channels! Typing in the ChatGPT box isn’t an official channel, so it’s not allowed.”

Moment of Truth

As ChatGPT’s limitations are now well established, it would be reasonable to wonder whether it can effectively serve any purpose at all. After all, when conducting research, the only thing less useful than a blatant lie is perhaps a convincing one.

While ChatGPT isn’t a credible source, that doesn’t render it worthless. Take marketing; an industry centered around the regular creation of informative, assertive content. When deadlines are tight and brainpower is low, asking the chatbot’s thoughts on a particular topic could provide the elusive spark that kickstarts the creative process. The chatbot is better suited to provide inspiration rather than education, and while some fact-checking may be needed, that’s certainly more efficient and less daunting for many than the ominous blank page.

When you break down the ways in which marketers can leverage ChatGPT, it becomes clear how indispensable the tool is likely to become. Not only can it draft emails, social media posts and blogs, it can also optimize them based on whichever criteria is most relevant to that medium—SEO-optimized blogs, email subject line optimization, social posts centered around trending keywords. This saves marketers an incredible amount of work, especially as it cuts out a lot of the AB testing requirements and there is enough data in the ChatGPT system for its recommendations to be taken seriously.

Picking a Side

The topic of brand positioning on this issue is interesting, and rather delicate. To the more conservative audience, adoptees could be charged with ushering in a sci-fi dystopia. However, it can also be positioned as innovation, adaptability, and a refusal to be left behind.

As far as partners go, the most valuable food & beverage brand in the world is a great start. Coca-Cola has signed a deal partnering with OpenAI, with CEO James Quincy stating that the company is “excited to unleash the next generation of creativity offered by this rapidly emerging technology.”

“We see opportunities to enhance our marketing through cutting-edge AI, along with exploring ways to improve our business operations and capabilities,” Quincy said. Through all evolutions of communication: TV, radio, outdoor, all the way to coupons over 100 years ago, we’ve always tried to stay on the front edge of what’s new and engaging with consumers.”

“We must embrace the risks. We need to embrace those risks intelligently, experiment, build on those experiments, drive scale—but not taking risks is a hopeless point of view to start from,” he added.

Isn’t Chat the Main Thing?

ChatGPT’s ability to immediately provide detailed responses to numerous users makes it a useful tool for managing customer queries and enhancing overall satisfaction. The chatbot can communicate in multiple languages and provide 24/7 support, covering customers in different time zones, or those requiring assistance outside office hours.

Remember, ChatGPT’s language model is not designed to necessarily provide an accurate response to customer queries, and it operates based on a dataset which hasn’t been updated since Sept. 2021. This is a major issue in a customer service role, where accurate, up-to-date information is essential. As in marketing, the tool can be best leveraged to complement human representatives, answering common questions and quickly providing information on products and services, freeing employees to handle more complex inquiries.

What this does mean is that inaccuracies will occur from time to time. It remains to be seen whether this will be deemed acceptable collateral damage for the efficiency it creates. If it is, chatbot conversations are likely to require strict capture moving forward, so that accountability can be taken when mistakes occur.

Preserving Your Voice

If the CEO of Coca Cola has identified chatbots as a means to scale marketing content, there’s a good chance he may be onto something. If a brand is already well-established and reputable, it’s worth considering that the program may in fact do their marketing for them. There’s certainly scope for a reduction in paid ad spend if ChatGPT is inclined to drop their name in a recommendation to prospects.

Brands have a clear incentive to keep a long-term record of their customer-facing activity, to inform brand direction (through performance monitoring) and inspire future campaigns. However, with the help of tools like ChatGPT, they’ll be continuously creating and publishing large volumes of digital content at a speed which is hard to keep track of.

In a digital age where we are always hunting for and digesting new information, the need to create unique content is in greater demand. Thus, our digital history is expanding exponentially. The preservation of this should be taken as seriously as we take the safeguarding of tangible artifacts filling museums around the world.

Like the proverbial runes on a cave wall, this is our contemporary realm of communication. Our digital footprint gives future generations insight into our evolution, and in a world where we disregard old content in pursuit of new, there is not just an option, but an obligation, to archive and store this cache of insight.

The post Understanding ChatGPT and How it May Impact the Financial Industry appeared first on PaymentsJournal.

With the fragile macroeconomic environment, growing cost-of-living crisis and rising inflation rates pressuring the top and bottom line, businesses face challenging times. In response, business leaders must double down on margin, real revenue, and financial performance to guide their businesses forward. To achieve these ambitions, leaders must prioritize areas within their control. Fraud prevention is one of these areas and one that drives better revenue outcomes and delivers a better customer experience.

Fraud is already a pervasive issue for many businesses, and studies have shown that fraudsters are more likely to strike during slower economic periods. Checkout.com research has shown that a quarter of merchants have reported a significant uptick in fraud over the past year. In real terms, e-commerce fraud is projected to cost merchants more than $48 billion globally this year. Furthermore, fraud can be costly from a reputational and legal standpoint, impacting short- and long-term financial performance.

The Changing Face of Fraud

Compounding the challenge is the increasingly sophisticated and evolving nature of fraud. In recent years, the barrier to entry for fraudsters has decreased, making it easier for them to target businesses with a range of malicious attacks. This trend will likely accelerate in the coming years.

One type that has seen dramatic growth is synthetic fraud, which is now one of the fastest-growing forms of financial crime. Unlike traditional identity theft, where the victim’s financial identity is taken over to deplete existing accounts of funds or establish new accounts, synthetic identities are created by combining real and fake information.

Social engineering is another threat that many businesses have already encountered. With technological developments, the bar has been lowered dramatically for criminals, allowing them to carry out sophisticated social engineering attacks with little to no technical skills or capabilities.

Other attacks, such as credential stuffing, account takeovers, fake accounts, false advertising, order cancellations and fake buyer/seller closed-loops are also currently prominent, impacting all industry verticals from ecommerce and airline ticketing to money transfer and banking services.

The lesson here is that no business can choose to ignore the changing face of fraud. The threats are too acute, and their impact on the bottom line is too significant.

Dynamically Fighting with AI and Machine Learning

In managing such dynamic threats, businesses can no longer rely on a rigid, one-size-fits-all approach to fraud prevention. Nor can they rely on a solution that doesn’t utilize the latest technology to identify and stop fraud.

For these reasons, the most sophisticated and inventive merchants continuously focus on their fraud prevention strategies. Central to their plans is unlocking data that gives them unique and real-time insights into customer behavior, purchase history, or browsing patterns to provide warning signs and prevent fraud.

These businesses are also adopting solutions that utilize the latest AI and machine learning technology. This allows them to take the data they’re collecting and build robust fraud prevention strategies tailored to their risk appetite and customer experience. And, as important, they’re providing advanced capabilities and flexibility, allowing merchants to quickly identify new threats and tailor their strategies accordingly.

Here’s how these businesses are benefiting:

• Detect patterns and anomalies that humans might miss. Traditional detection methods, such as manual audits and rule-based systems, may not be sufficient to detect new forms of fraud. AI is trained on billions of global transactions and benefits from a global network effect that allows it to analyze vast amounts of data to detect patterns, anomalies, and emerging fraud. A fraud solution with AI and ML capabilities is constantly adapting and training itself to draw inferences from patterns in the data and detect fraud early.
• Automate and scale fraud prevention. Manual fraud detection and prevention can be time-consuming and expensive. AI can automate many of these processes, reducing the time and resources required to detect and prevent fraud. ML is also infinitely scalable, paving a frictionless path to more transactions without compromising customer experience.
• Improve accuracy and reduce false positives. Traditional fraud detection methods can generate many false positives, which can be time-consuming to investigate and ultimately result in lost revenue. AI can improve accuracy and reduce false positives by analyzing data more accurately and identifying potential fraud more precisely.
• Get real-time alerts. AI can provide real-time alerts when potential fraud is detected. This can enable companies to respond quickly and prevent fraud from causing significant financial losses. ML can also identify fraudulent trends in real-time compared to rules-based systems. Real-time alerts help companies identify potential fraudsters and take action to prevent them from causing further harm. With AI and ML, businesses can respond to an attack as it happens, not after the fact.
• Unlock valuable insights. As AI constantly runs—and learns—on a growing set of data points, it can provide unique insights into fraud trends and patterns. This can help companies identify potential vulnerabilities in their systems/processes and take steps to address them. Businesses can also use these valuable insights to develop more effective fraud prevention strategies and improve overall business operations.

Now is a critical time for businesses to identify areas in their fraud-fighting solutions that are weak and susceptible to attacks from ever-evolving fraudsters. By identifying these areas and building a more robust, bespoke anti-fraud solution that relies on technology like AI and machine learning, businesses can not only ensure that they’re capturing the revenue on the table, but they can also ensure they’re doing so without exposing themselves to undue risk. In short, investing in advanced fraud prevention technologies is not just a smart business decision but an essential one in today’s increasingly risky business environment.

The post The High Cost of Fraud: Why Companies Should Use AI to Protect their Bottom Line appeared first on PaymentsJournal.

Payments have become increasingly complex. As a result, technology providers have been prompted to revamp their delivery models. And with open banking relying heavily on flawless connectivity between tech systems, interoperability is no longer just a good idea but a requirement. The race to meet consumer needs while satisfying regulatory requirements is on.

Complexities of Reaching Interoperability

In a recent report, Open Banking Pushes Interoperability to the Payments Forefront, Marco Salazar, Director of Tech & Infrastructure at Javelin Strategy & Research, delves into the complexities of reaching interoperability and the importance of forming partnerships between tech providers and merchants to make that happen. Consumers continue to desire a seamless and more personalized digital experience, making those bonds essential.

“Vendors, technology vendors, or providers have had to change their delivery models, which is now focused on interoperability,” Salazar said. “What that means is the ability to work in tandem with other partners. It’s no longer a closed system. It’s more about how we can work with other vendors or other third parties in the ecosystem to deliver the end desired experience.”

Salazar noted that consumers’ choices in how to pay are paramount, with Javelin’s research tracking 18 methods of payment.

“Because of that, financial institutions or even merchants have to decide which ones they are going to allow consumers to pay with,” he said. “And as you can imagine, there is a lot of overlap in some of the delivery models. There are a lot of nuances, and this gets even more complex as you scale across regions and geographies.”

These complexities, according to Salazar, are exacerbated by the variety of regulations and compliance standards among different countries.

One-Stop-Shop Vendors No Longer a Reality

As banks have grappled with competitive pressure from fintech innovators that threatens their legacy systems, they have turned to investing heavily in the latest technological tools to stay ahead. However, the original idea of a one-stop shop for all banks’ needs is simply not possible. The environment must be more collective and collaborative.

“Technology has disrupted the entire financial services industry,” Salazar said. “And because of that, we’ve gone through this period of most FIs or technology providers investing in their infrastructure and technology. That created a single vendor or that mindset of the one-stop-shop mentality. That gave way to where we are today. It would be nice to be a one-stop shop, but that’s not the reality anymore. Now we have to be able to work with everyone. We’re shifting to this place where it’s an ecosystem of solutions, whether you’re a provider or a merchant. The more you can offer, the better.

“That doesn’t mean that if you’re a merchant, you have everything in-house. It can be white-labeled through other partners. So one-stop shop is still an aspiration, but I think vendors and merchants have come to realize that it will probably never happen, and it’s probably a good thing.”

The road to interoperability, like the payments ecosystem, is certainly complex, but navigating it will be necessary to flourish in the digital world.

“Standardization and interoperability are not sexy because they’re more so on the back end and they take years to essentially formulate standards,” Salazar said. “Whether it’s a data element or just the way a payment has to the payment flows, etc., they’re vastly important and many times don’t get the attention that they deserve.”

Learn more about how interoperability can fuel growth in alternative payments and how fintechs, FIs, and third-party providers can work cohesively to ease regulators’ concerns. Our research also delves into how a pro-competitive environment can be established among providers of services and products.  

The post Interoperability Will Challenge Banks to Navigate the New Digital World appeared first on PaymentsJournal.

Having been built and sustained on legacy models for a long time, finance systems now need to gear up for the next generation of customers. To cater to a generation of digital-natives who demand fast, easy, and secure payments—underlined by flexibility and convenience—merchants and B2B marketplaces need to be prepared to offer this level of versatility and flexibility within the payment ecosystem.  

The Modern Payment Ecosystem Is a Vital Cog in the Way Digital-Natives Handle Their Finances

According to a study by Billtrust, 79% of Gen Z individuals are using person-to-person (P2P) payment platforms such as PayPal, Apple Pay or Google Pay at least once a month. Digital wallets and mobile payments are used one to five times a month. Despite their age, Gen Z is already using P2P payments more than Millenials (75%) and Gen Xers (69%).

By embracing frictionless shopping experiences such as Amazon Go, younger consumers are getting more used spending less time at checkout. And they crave this kind of convenience for all their day-to-day interactions. It’s more than transactional now—it’s become a way of life that’s defined by speed and self-realization, which is reflected significantly in the way they handle their finances.

Consider the wholehearted adoption of buy now, pay later (BNPL) by young shoppers. BNPL is no longer perceived as a solution for just large-ticket purchases, as 70% of Gen Z shoppers’ BNPL purchases are for less than $100. This alternative form of payment offers them a solution that does not make them feel indebted, but rather, empowered to make purchase decisions while conveniently managing their expenses and enhancing their purchasing power. Splitting up payments over several months without interest opens a whole new level of affordability without having to worry about making immediate payments. Apart from improved targeting opportunities, for merchants, this also translates into a boost in incremental sales especially in the case of impulse-purchase products.

The Undeniable Predominance of Digital Wallets

It’s interesting to note that Gen Z is increasingly ditching credit cards for digital wallets, especially with the growing popularity and verbification of services like Venmo. In fact, a recent survey by Accenture found that 68% of Gen Z customers are interested in P2P payments, and that’s more than any other age group. For them, P2P and B2C digital payments have become the most obvious mode for paying individuals or doing business with companies.

Proactively Catering to the Next Generation in B2B

The next wave of workers entering the job market will also invariably influence a shift in the way companies think about payments. Entering the workforce in accounts payable and receivable roles, Gen Z is sure to play a considerable role in shaping the way businesses make payments to each other and to their employees. According to a study by the Center for Generational Kinetics, 87% of Gen Z would be more interested in applying for a job that pays them the same day they work. Craving more control over their personal finances, young professionals are constantly on the lookout for solutions that allow them to truly enjoy their everyday experiences, while also making sure that they are financially secure.

While digital-first and embedded payments offer sophisticated solutions for today’s customers, many operations are still conducted in the old school style. For instance, many B2B payments are still made by paper check, particularly in geographies like North America and as much as 33% of all business transactions there. Now place this in parallel with the consumer world where paper checks are slowly but surely fading. Many consumers having already made the ultimate move to entirely digital systems. There’s still room for modernization in the B2B space to accommodate and move at the same pace as the digital-first customer.

On the bright side, there has been increased traction for digital payment networks on the B2B landscape that serve as translation engines and money movement tools. With the potential to serve as a single aggregation engine for payments and remittance data, digital payments networks can make it easier for businesses to apply cash into an enterprise resource planning (ERP) system. It’s indeed promising to see how B2B payment innovation has emerged as a priority for most organizations today.

Considering that B2B payment networks are relatively new and still evolving, handling B2B transactions which are high in complexity might also require an equally high level of sophistication. Nevertheless, as professionals, Gen Z are sure to demand and incorporate modern tools to bring the same level of sophistication and frictionless experiences to B2B operations just as in their personal lives.

Transformations Are Being Led By the Cloud, Big Data and API

What all disruptors have in common in this industry, as in any other, is that they advance by identifying and addressing white spaces and pain points that are being ignored by legacy institutions and incumbents. This also means that organizations have to keep an eye out for any technological improvements they can incorporate into their systems so that outdated arrangements do not hold them back from making potential breakthroughs. For instance, according to a study by Accenture, 95% of all participating payment providers agreed that it’s hard to get the economics of payments right without some type of cloud investment.

The future holds a lot of monetization opportunities for the PayTech industry that can potentially deliver unique customer offerings through securely storing, managing and leveraging consumer and merchant data generated via payment transactions. In rapidly changing consumer and commercial landscapes, sensibly utilizing data can make a world of difference in an entity’s ability to identify and cater to new verticals that can maximize the value from payment services.

APIs are no longer seen as a means to an end. Its potential to enable and support entirely new businesses through third parties and collaborations cannot be overstated. APIs are increasingly playing a prominent role in enabling the integration of payment rails directly with customer platforms such as ERP systems or merchant point of sale systems. This makes it easier for merchants to automate processes such as generating refunds when customers return products.

The Past, Present, and Future for the Payment Ecosystem

The payments sector has come a long way, making commendable leaps and making it possible for individuals and organizations to pay and get paid anywhere and at any time, conveniently. Even transactions which were once complex, such as cross-border payments, are simpler today than we could have imagined a few years ago. Customer journeys are getting refined, smoothened and redefined by propositions such as A2A, BNPL and Request to Pay, among other financial services that add substantial value to customer experiences.

As existing studies rightly extrapolate, the next revolution in the industry most likely will propel the unification of disjointed systems and channels into an integrated commerce experience, which will in turn make way for seamless payments and acceptance, agnostic of the payment instrument in any given transaction. That would be a remarkable paradigm shift from the fragmented payments infrastructure built for payments that depend on in-person transactions such as card payments and real-time bank payments.

It’s also interesting that some challenges, however ubiquitous they may be, are often not as perceptible as a few others. We talk about technological upgrades, but to make it practical and sustainable, we should also make sure that more intricate factors like the culture of businesses are adjusted to phenomenal market shifts such as open banking. That would require the people behind these businesses, employees and employers alike, to think about the world in a new light.

The post Prepping Payment Ecosystems for The Savvy Next-Gen appeared first on PaymentsJournal.

In corporate banking, adapting to change is crucial. The rapidly evolving demands from corporate clients mean banks must be on the leading edge of change and identify potential success factors to move in the right direction or risk being left behind. While the technology, such as cloud-enabled platform banking or software-as-a-service (SaaS) solutions enable banks to meet their objectives, it’s imperative—above all else—that they’re meeting customer demand.

In a report titled “Cloud Payments and Payments as a Service are Taking Hold,” Steve Murphy, Director of Commercial Payments at Javelin Strategy & Research, discusses some of the key benefits of cloud-based payment solutions and payments as a service models. Adopting these solutions allows banks to put out new services more easily, and adapt to changing demands more quickly. Also, major players such as Amazon and Microsoft have cybersecurity that is top-notch, satisfying key regulators and making banks more comfortable in partnering with them. Although private cloud servers have historically been the norm, more companies are moving to hybrid operations or pivoting to public models altogether. All of this is making banking as a service (BaaS) and payments as a service (PaaS) more common.

The Cloud: An Old Newfangled Technology

The adoption of cloud-based payment systems by enterprises justifies the use of the phrase “everything old becomes new again.”

Cloud computing represents a return to a computing architecture that predates personal computers. In the early days of computing, most users accessed computing resources through terminals that were connected to large mainframe computers, which handled all of the processing and storage. Similarly, cloud computing allows users to access computing resources through the internet, with the resources hosted remotely.

But there is a key difference: With cloud computing, the resources are distributed across multiple data centers and can be scaled up or down as needed to accommodate fluctuations in demand. This makes cloud computing more flexible and scalable than the old mainframe architecture and makes it helpful for driving innovation in payment systems that layer on top of them.

The adoption of cloud-based payments in enterprise systems is rapidly growing. According to Murphy, this is due to the shift in revenue sources amid the unpredictability of market conditions and the need for more non-interest income in commercial bank models.

For example, banks can charge a processing fee for each transaction processed through their cloud-based payment systems. These fees can be a significant source of non-interest income for banks, especially if they process a large volume of transactions. Through their cloud-based payment systems, banks can also offer value-added services to their customers, such as fraud detection and prevention, data analytics, and customer insights. These services can be charged on a subscription or usage-based model, creating a new revenue stream for the bank.

Clouds can be public, private, or a mix (hybrid), each with its own pluses and minuses. Murphy also notes that banks can struggle to keep up with the latest security breach mitigation procedures and protocols required to secure their private cloud infrastructure. Pivoting to a public cloud like AWS or Azure can obviate the need to deal with all of that. Furthermore, the public cloud model is often cheaper, easier to scale, and more reliable.

When it comes to how banks interact with a public cloud, Murphy highlights the importance of distinguishing between the legacy application service provider (ASP) model versus the SaaS model. In the ASP model, service providers manage third-party software on behalf of banks. In contrast, modern SaaS providers manage their own software on behalf of their customers. This is what underlies public cloud services and the development of BaaS and PaaS solutions.

Use Cases of Cloud Computing and Cloud Payments: BaaS and PaaS

BaaS is a banking model that allows a fintech to offer banking services without needing to obtain a bank license, which avoids the rigorous chartering and capital management process. This occurs through a partnership with a licensed bank, which manages the accounts and gains some fee income. The client-facing activity remains with the fintech brand, but it is fundamentally a collaboration.

For example, the Stripe Treasury platform launched in 2020, in partnership with Goldman Sachs and other banks. According to Murphy, this was the first transaction banking business built entirely in the cloud with an API-first approach.

Another important model for cloud-based payments is PaaS, in which a third-party provider offers payment processing to other businesses. B2B PaaS can encompass a wide range of payment methods and services, including electronic funds transfers (EFTs), automated clearing house (ACH) payments, wire transfers, and virtual credit cards.

One example of the PaaS model is Stripe, a suite of software tools for businesses to manage payments, subscriptions, and billing. PaaS adoption is driven by technological advancements, such as faster payments, global messaging standards, API adoption, and increased innovation in cross-border alternative payment methods.

Advice for Financial Institutions

When financial institutions want to upgrade their payments capabilities, it’s best to approach cloud migration gradually and not disrupt existing delivery methods all at once. Cloud-based SaaS solutions can integrate banks and their clients. FIs might consider partnering with third parties to offer BaaS and take a cut of the fees that are collected by a potential fintech partner.

Real-time payments adoption is a good fit for PaaS deployment. This is because it’s a new service that won’t cause any system disruptions and has low upfront costs, allowing volume to grow over time. The FedNow launch expected in July is likely to lead to additional growth in real-time payments, and companies should plan accordingly. They can rely on third-party companies to scale up RTP for services gradually, as it gains traction.Top of Form

Banks, fintechs, and cloud services companies clearly have become entwined and are producing an ecosystem that is dynamic and flexible and will serve well as the financial system develops over time. For banks, in particular, success will involve reimagining banking as a collaborative effort.

The post Cloud-Based Payments Are the Future, and Banks Need to Get with the Program appeared first on PaymentsJournal.

Concentration risk has been playing an increasingly important role in banking regulation in recent decades. Diversification within investment portfolios is not only desirable but a necessary aspect of risk management. This same approach is also necessary for financial services on a technological level—to ensure the operational resilience of the digital infrastructure powering the future of banking business models and services.

Gone are the days when storing all critical data on premises in the company data center was the safest option. Business continuity and disaster recovery strategies today depend on cloud solutions that can be accessed 24/7, regardless of any incidents or outages on the ground at or near one company location. One cloud is not enough. To truly secure data flows and create resilient connectivity, a multi-strategy approach is needed—for clouds, for data centers, and for connectivity providers.

The cloud has become essential to the smooth running of any modern business. In addition to speed and scalability, it enables an increasingly mobile workforce to access data and resources regardless of location. It also allows businesses to connect with the latest artificial intelligence (AI) and analytics tools and capabilities, and to implement strong disaster recovery and business continuity plans.

While security was once a concern, most organizations are now confident the tools and processes implemented in cloud infrastructure can deliver robust protection. In fact, many are now realizing their critical data and workloads might be far safer in the cloud than stored in one specific location, with this location representing a clear single point of failure. Business continuity and disaster recovery strategies today are more focused than ever on the secure storage of critical data in the cloud, and the need to provide uninterrupted access to it.

When Caution Becomes an Unintended Source of Risk for Critical Data

Analysts, observers, and growth strategists bewail the fact that banks are notoriously conservative when it comes to digital innovation. This reluctance can be clearly seen when it comes to cloud adoption. While the finance sector has been relatively slow to move to the cloud, adoption is now accelerating, as changing customer expectations push banks and other financial institutions to emulate the speed, agility, scalability, and efficiency of cloud-native organizations. Nonetheless, the conservatism seen in the financial sector has often resulted in institutions being extremely selective and often exclusive in their choice of cloud partners. And although this degree of caution is expected in such a critical sector, the lack of diversity in infrastructure dependencies that result from such a strategy becomes a new risk factor in its own right. This leads to the risk of cloud concentration, where key financial services become overly reliant on one specific cloud service provider. Whether it’s Deutsche Bank and Google Cloud, UBS and Microsoft Azure, or BNP Paribas and IBM Cloud, many financial institutions have close relationships with single cloud service providers. And too much of one thing—even if it is in essence a good thing—is rarely a good idea.

Cloud Concentration—Putting All Your Eggs in One Basket

Certainly, working with trusted partners is an essential ingredient in critical sectors like financial services, but financial regulators around that world are increasingly concerned about cloud concentration—that, despite the benefits of cloud infrastructure itself, this exclusive partnership with one cloud provider may become a single point of failure. Regulators are concerned that disruption and instability across the global financial system could stem from an outage or cyber-attack on a single cloud. Although there are mechanisms to mitigate this risk through distributed computing and diversifying within a single cloud environment, regulators remain unconvinced. As a result, financial institutions need to mitigate this risk through strategically focusing on the operational resilience of their digital infrastructure—and keeping themselves ahead of forthcoming regulatory hurdles.

Interoperability and Cloud-to-Cloud Communication for Seamless Multi-Cloud Scenarios

Adopting a multi-cloud strategy is the first step towards not only mitigating over-reliance on a single provider, but also avoiding vendor lock-in, allowing financial institutions to select services from multiple cloud service providers. This also enables the cherry-picking of best-in-class services for specialist cloud providers.

But simply sourcing services from multiple clouds is not a complete solution. As a result of data portability challenges, financial institutions cannot easily switch between cloud providers, so individual workloads and applications may remain siloed on single clouds. This is also the case for certain cloud providers that offer proprietary applications not available through other providers (e.g. certain AI applications). Therefore, a second step is to ensure interoperability between all cloud environments and the given application, in order to synchronize data and results across a diverse operator landscape.

Management and orchestration of a multi-cloud scenario can become highly complex. One way to simplify this is to make use of a Cloud Exchange in combination with virtualization, automation, and API (Application Programming Interface) capabilities. This puts the booking and scaling of cloud services across providers at the fingertips of the Network Architect responsible, and enables automated scaling to be triggered at times of greater demand.

A further step required is the enablement of cloud-to-cloud communication, thus simplifying the spreading and orchestration of workloads across multiple clouds and streamlining the multi-cloud approach. Connectivity to and between cloud service providers has thus far often been overlooked in strategies and regulations alike, but its resilience is essential to ensure services can be up and running quickly in the event of any outage anywhere within the distributed infrastructure.

Diversity, Redundancy and Geographical Distribution Mitigating the Risk of Concentration

True mitigation of the cloud concentration risk doesn’t simply stop at using multiple clouds. Why? Because it’s also important to be able to access those clouds from physically independent locations. What good is a multi-cloud strategy if a bank is limited to one single location—or one single connectivity provider—to connect to the chosen clouds? If one connection fails, or one provider or data center experiences an outage, there is still the risk of a single point of failure. Your eggs are still all in the one basket, so to say. Therefore, digital infrastructure must be conceived of not only in terms of a diversity of providers, but also as geographically distributed infrastructure involving multiple redundant pathways. This creates the resilience necessary for critical applications and data.

Managing all of this will be complex undertaking, and it’s certainly a challenge, but there are ways of simplifying it. One solution is to use a distributed Cloud Exchange built on a carrier and data center neutral interconnection platform: this allows a multi-home set-up and a diversity of not only cloud providers, but also connectivity providers, network operators, and data center operators. In this way, it is possible to ensure redundant connections to multiple clouds from physically separated locations, and to manage all of the connections easily via a single portal and API. This dramatically increases the resilience of connections and ensures continuous access to critical data, no matter what happens on a local level. And this strategy has the added advantage of protecting the institution against vendor lock-in.

Critical Data – Not One Basket, but Many

You may ask, ‘Won’t the Cloud Exchange in this scenario then become the next single point of failure?’ It would seem that the concentration risk will raise its ugly head at some point, no matter what strategy is implemented. In this case, however, the answer is: No, it won’t. And here’s why: The design of the distributed platform—which is cloud, carrier and data center neutral interconnection—operated by DE-CIX, for example, offers a model on the macro scale for exactly the kind of geographical distribution, diversity, and redundancy that I also recommend for the design of enterprise-owned digital infrastructure for any critical use case. Although such an interconnection platform may appear to the outside world to be a single entity, it is, in actual fact, composed of a multitude of redundantly implemented servers, services, software, and other components, distributed across multiple locations, and supported by the services of a myriad of infrastructure providers.

Within the company premises, or within a single connected network or data center, a localized incident could lead to a situation where the given location is temporarily unable to access or send data. This is the reality that all companies and providers need to recognize, and a risk that must be mitigated—for example, through redundant power supplies and emergency generators —for critical use cases. However, for a distributed and provider-neutral interconnection infrastructure, there is no “off-switch” that could bring the entire infrastructure to a standstill. All other locations – that is, other non-related networks and data centers – will remain unimpeded by the localized incident. This is the strength of taking a cloud, data center, and carrier neutral approach to designing enterprise infrastructure: a multi-strategy approach on all levels, with redundancy across all infrastructure and providers, creates the greatest possible resilience for critical data pathways, data storage, and workloads.

The post Handle Like Eggs: Why All Your Critical Data Should Not Be Placed in One Basket appeared first on PaymentsJournal.

In today’s always-on, need-it-now world, both merchants and consumers alike are quickly relying on real-time payments as a preferred method of payment. This summer, real-time payment adoption is expected to soar when the U.S. Federal Reserve rolls out FedNow.

For merchants, the value of real-time payments is in speeding up the time frame for improving cash flow management, increasing liquidity, and offering better back-office efficiencies. For consumers, it offers a fast, frictionless way to send and receive payments between friends, family, or even vendors, regardless of time or distance.

However, the convenience of real-time payments doesn’t come without risk. Faster payments provide easy access for bad actors to exploit for money laundering and financial crime. This poses a huge threat to fintechs, banks, and payment service providers (PSPs) that need to have strong anti-money laundering (AML) controls in place.

Sanctions Bottlenecks Risk Customer Experience

To protect businesses from high-risk customers and ensure the integrity of the global financial system, sanctions screening is an integral part of AML, know your customer (KYC) and counter-terrorist financing (CTF) programs.

However, as the popularity of real-time payments accelerates, the time it takes to review sanctions alerts also increases exponentially—creating a potential bottleneck. On average, it takes three to five minutes of a human reviewer’s time per transaction, and that’s if the alert is worked immediately. Alerts are generated overnight and often sit in queues, increasing the average time worked to 30 to 60-plus minutes. This means that the real-time alert processing is no longer happening in real-time if it’s done by a person—jeopardizing customer experience and devaluing the instantaneous nature of instant payments.

Financial institutions (FIs) must deliver a seamless customer experience for real-time payments, including speed, security, and convenience to create a competitive advantage, maintain revenue, and prevent reputational damage.

Cross-Border Payments Risk Regulatory Enforcement

While domestic real-time payments are relatively low risk, cross-border payments are another story. Cross-border payments are exceedingly more complex since they involve bridging multiple currency systems and regulatory jurisdictions, and generate far more sanctions alerts.

Today, cross-border payments no longer take days, they are nearing real-time, with many transactions now being processed in minutes, or even seconds. This means for sanctions screening to be effective, the information included in payment messages needs to be good quality, which is often the biggest challenge for compliance.

According to SWIFT, “Banks that receive suspicious payments must often follow a trail of breadcrumbs across time zones to find missing data. Simply misspelling a name can quickly result in higher costs, missed shipments, idle factories, and empty shop floors.”  

The increased potential for financial crime and sanctions evasion with cross-border real-time payments has attracted the attention of regulators. You need to know where the money is going, not just who is sending it. Over the past six months, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has brought several enforcement actions on FIs that were in violation of sanctions compliance controls, specifically related to their failure to use geolocation tools.

In November 2022, OFAC announced a $362,158.70 settlement with Payward, Inc., aka Kraken, a virtual currency exchange for cryptocurrencies. Kraken agreed to settle its potential civil liability for apparent violations of sanctions against Iran. Due to Kraken’s failure to timely implement appropriate geolocation tools, Kraken exported services to users who appeared to be in Iran when they engaged in virtual currency transactions on Kraken’s platform.  

Additionally, in September, Tango Card, a Seattle-based company that supplies and distributes electronic rewards, agreed to pay $116,048.60 to settle its potential civil liability for apparent violations of multiple U.S. sanctions programs. According to the Department of Treasury, “in total, between September 2016 and September 2021, Tango Card transmitted 27,720 merchant gift cards and promotional debit cards, totaling $386,828.65, to individuals with email or IP addresses associated with Cuba, Iran, Syria, North Korea, or the Crimea region of Ukraine. While Tango Card used geolocation tools to identify transactions involving countries at high risk for suspected fraud and had OFAC screening and Know Your Business mechanisms around its direct customers, it did not use those controls to identify whether recipients of rewards, as opposed to senders of rewards, might involve sanctioned jurisdictions.”

Regulators Call for Use of Innovative Technologies to Combat Risks

The debate over whether FIs should pursue advanced technologies—including artificial intelligence (AI) and machine learning (ML)—to drive sanctions compliance has shifted from “if” to “when, how, and on what scale?”

Even regulators now recommend technology to combat risks specifically related to real-time payments. Last Fall, OFAC published Sanctions Compliance Guidance for Instant Payment Systems. In its guidance, OFAC reaffirmed that financial institutions should take a risk-based approach to manage sanctions risks; and encouraged the development and deployment of innovative sanctions compliance approaches and technologies to address the risks.

OFAC specifically calls out the availability and use of emerging sanctions compliance technologies and solutions. It states that “technology solutions for sanctions compliance, which have advanced significantly in recent years and become more scalable and accessible, can be leveraged to help mitigate a financial institution’s sanctions risk, including with respect to instant payment systems.”

How AI Can Help

Alert fatigue is draining on compliance teams and adds time to the sanctions screening process. Sanctions screening software generates many sanctions alerts, and 99% of those alerts are false positives. For each alert, payment is held up pending review. This means real-time isn’t near real-time anymore, it just becomes a wait.

In response, FIs directly employ or contract out dozens or hundreds of people to manually review these alerts. Using time and money to review thousands of false positives is an efficiency problem that can lead to missing that rare true positive.

Following OFAC’s guidance, AI tools can mitigate many of the sanctions’ risks associated with real-time payments, including:  

• Accelerating exception processing to near real-time, thereby mitigating sanctions risk and maintaining speed-of-transaction.
• Instantaneously resolving exceptions (sanctions alerts) and allowing the payment to progress with no effect on the customer.
• Determining those payments consistent with past customer behavior, which a financial institution has previously vetted and cleared for potential sanctions implications. Therefore, the exception can be reviewed and processed in real-time.
• Evaluating data fields in the payment messages associated with exceptions, eliminating the false positives, and escalating only potentially true positives to compliance teams.
• Leveraging geolocation tools to identify potential sanctions violations.

I recently had a conversation with a BSA officer from a top 30 U.S. bank who said that their bank strategy is to move to real-time payments. He said that real-time payments for domestic payments will have sanctions screening after settlement. However, he warned, while this works for domestic payments, it wouldn’t work for international. In his opinion, automation is the only way to achieve real-time for international payments because their manual real-time payments sanctions alert review for international payments will slow the process down (20 min SLA), which is no longer real-time.

Real-time payments will continue to grow exponentially with it expected to surpass half a trillion payments globally by 2025. To be a major player, FIs will need to adopt real-time payments. With that said, it has never been more important for organizations to leverage all the tools at their disposal including AI to ensure fast, seamless screening and continuous monitoring to identify potential financial crime activity for both domestic and cross-border payments to ensure customer experience and prevent regulatory violations.    

The post Using AI to Combat Financial Crime in Real-Time Payments appeared first on PaymentsJournal.

In 2020, the line between the online and offline worlds blurred as the digital economy became the business norm. The pandemic accelerated the adoption of digital payment methods and significantly changed consumer behaviour. As a result, industries and ecosystems rapidly adapted to the new reality. 

Fast forward to now, digital payment transactions are projected to reach a staggering $9.68 trillion, thanks to the continued growth of digital wallets, virtual cards, and open banking. These advancements have made payment methods more versatile, faster, and secure. 

Digital payments are now embedded into consumers’ daily lives, with access to mobile devices providing both convenience and efficiency. If merchants are to retain existing customers and attract new ones, they must continue to embrace new payment methods.  

Digital Wallets Are Gaining Traction 

A digital wallet stores a user’s credit and debit card information on a mobile device, such as a phone or watch. It’s estimated that by 2026, 5.2 billion people will use digital wallets to make payments. That’s more than half of the world’s population using digital wallets in just three years. Interestingly, QR codes are expected to account for 40% of these transactions.   

Digital wallets offer convenience and flexibility by allowing users to link multiple payment cards or other payment methods, and easily choose their preferred option for each transaction. In addition to digital wallets, contactless card payments have become increasingly popular, with the percentage of contactless card payments at point-of-sale in Europe rising from 41% in 2019 to 62% in 2022, according to a study from the European Central Bank. 

Digital wallets benefit retailers by increasing conversion rates and lowering cart abandonment. Research suggests that the online average for cart abandonment in 2022 was a shocking 70%, with a significant proportion of customers saying that a complicated checkout process causes them to give up. Digital wallets expedite the payment process, making it more straightforward and convenient and ultimately reducing basket abandonment. 

Improving Cash Flow with Virtual Cards 

Virtual cards are unique as they generate a new long virtual card number (VCN) for each transaction. These cards are linked to the user’s bank account, as with traditional debit cards, and are growing in prominence for corporate purchases. In 2021, the global market for virtual cards reached $11.7 billion, and it is set to grow at a compound annual growth rate (CAGR) of 21% to $65 billion by 2030. Many major banks, including Citi, Capital One, and HSBC, now offer virtual card services to their customers.

Virtual cards provide many benefits for B2B payments, including increased control, with 37% of C-suite leaders stating that it was easier to manage spending. The most significant benefit, though, is the improved security that a dynamic VCN brings, as even if the card’s details are exposed in a data breach, these same details cannot be used to make any further payments. Virtual cards have existed for many years, and it’s fair to say they have had a slow burn. Still, the security and control they deliver will encourage greater adoption in the current tumultuous economic climate. 

Unlocking Opportunities with Open Banking 

Open banking continued its upward trajectory, with the number of active UK users reaching 7 million in February this year. Customers can initiate payments to merchants through their online banking or mobile banking app. This increases both the speed and efficiency of payments, reducing checkout time for the consumer and processing time for the merchant.

Crucially for merchants, open banking payments deliver instant settlement, supporting improved cash flow. Our Merchant Perceptions report revealed one in four (25%) merchants predicted open banking will become the most popular payment method among consumers within five years’ time. 

Another key benefit of open banking is the significant decrease in payment fraud, as much as 34%, as found in our research. This is due to the enhanced security measures in place for open banking payments, which seamlessly comply with Strong Customer Authentication (SCA) regulations and often involve biometric verification through a mobile device, providing added protection for both merchants and customers. 

As technology and consumer demand continue to disrupt the market, this year will undoubtedly see further digital payment technology innovation. If merchants continue to adopt payment methods aligned with a better consumer experience, they will improve consumer satisfaction with the checkout process and reap the benefits.

The post Navigating the Future: Top Digital Payment Trends to Watch appeared first on PaymentsJournal.

Every business has a certain number of necessary friction points—such as requesting billing and shipping details—when it comes to payments. But too much friction can drive even the most patient customers away.

In its “Friction – Friend or Foe?” ebook, Ekata looks at how merchants can optimize the friction they apply in their payment processing and strike the right balance between preventing fraud and valuing the customer experience.

Types of Friction

Friction is essential in the customer experience journey. It slows down the process, helping merchants ensure that a transaction is safe and secure. Deciding on a friction strategy is equal parts science and art. Friction can be introduced anywhere in the transaction process—during the account sign-ups, when a credit card is added, or when the customer selects a shipping address. But according to Ekata, “the strategic differentiator when it comes to preventing fraud without creating undue friction is identity verification.”

Whenever possible, companies have customers set up an account so their identity can be verified. This can involve strong authentication measures, such as multifactor authentication, which requires customers to provide multiple pieces of evidence to verify their identity, including a password and a one-time code sent to their phone. Strong authentication can help reduce fraud by making it more difficult for hackers to gain access to accounts or steal sensitive information.

Identity verification doesn’t need to be the same for all customers. In fact, according to Ekata, “the merchant who rises to the challenge—protecting themselves and their consumer, whilst ensuring a fast and easy transaction—is the merchant who deploys a comprehensive, layered identity verification solution; one that boasts an array of dynamic, intelligent ‘step up’ escalation methods. By applying the ‘right friction’ when needed, faster payments can be facilitated while fraud is deterred.”

Right friction is arrived at by doing risk-based authentication, which adjusts the level of authentication required based on the perceived risk in the transaction. For example, if a customer is making a large or unusual purchase, the payment system may require additional authentication steps to ensure the legitimacy of the transaction. Customers who have shopped with a merchant before or are less risky based on their information may skate through with minimal friction, while riskier customers are asked to jump through more verification hoops.

Guest Checkout: A Necessary Risk

Customers who don’t want to go through the effort of signing up for an account with a merchant tend to go through the guest checkout process. Guest checkout, however, does come with its own risks. In fact, identity verification is not as easy, and chargebacks are more difficult to identify as fraudulent. According to Ekata, a retailer can ship a purchase to an address that was provided during guest checkout, then a few weeks later see a chargeback for that very purchase, with a consumer’s claim that nothing arrived. The merchant, in this case, loses revenue. Depending on the cost of the item—and the frequency with which this occurs—chargebacks from guest checkout purchases may end up being costly for merchants.

That said, there’s also a risk involved in not letting through customers who want to use guest checkout, along with the potential loss of revenue from declining those customers.

The best solution for guest checkout is verifying the customer’s information without concluding whether the information is actually associated with the customer, according to Ekata.

Eliminating Unnecessary Friction

While the above-mentioned types of friction are important in preventing fraud, other types are not. Some user interfaces are clunky, unclear, and frustrating to work with. Reducing such friction can involve designing a user-friendly interface, providing clear instructions, and minimizing the number of steps required to complete a payment. By streamlining the payments process, businesses can reduce customer frustration and increase the chances that a transaction will be completed.

Minimizing unnecessary friction can be as simple as identifying friction that isn’t absolutely necessary and removing it. An example might be double-checking an address and sending an email validation link.

It’s also helpful to invest in a faster processing bank or payments system, which automates authentication tools. According to Ekata, “this might be moving away from manual review processes for all transactions and adding faster, automated solutions that speed up good transactions and add friction to potentially bad ones.”

One last approach is giving customers who see their payments rejected a last chance. “This could mean training a team of skilled agents to make account remediation calls, allowing users to transact in a monitoring state that restricts their access to your product; or using third-party data providers for document verification, biometric analysis, or linkage-based data verification,” Ekata noted in its ebook.

Conclusion

There are several ways to maximize friction in payments to reduce fraud and optimize the customer experience. These include implementing strong authentication measures, using risk-based authentication, designing an easy-to-use payment process, and ensuring that payment systems are secure and up to date. Businesses can do this in-house, but it may be easier to farm such functions out to a third-party company.

Ekata’s Identity Engine can validate the legitimacy of customers’ information (name, email, phone, IP, physical address) and determine how those data points appear in other digital interactions. Using the Identity Engine, the Ekata Transaction Risk API generates validity markers and identity scores, which help merchants do risk-based authentication.

The post Too Much Payments Friction Can Lead to Customer Chafing appeared first on PaymentsJournal.

Consumer trust is what every business strives for, but as companies continue to expand and increase their payments volume, tackling online fraud — while maintaining consumer confidence — is becoming increasingly difficult.

A recent study from the Ponemon Institute, commissioned by PayPal, sought to gauge the many challenges global risk professionals face when mitigating fraud, as well as the key issues around it — cost, types of data at risk, structuring the right tech stack, just to name a few.

Overall, the research shows that online fraud is a big issue for many businesses. To put into perspective just how costly it is, the businesses represented in this study reported an average loss of roughly $3.7 million per year because of fraudulent online transactions. What’s more, on average, these businesses had 8.78 million online transactions annually, and roughly 2.5 million were compromised.

Why Mitigating Online Fraud Is Tough

One of the biggest challenges in combatting online fraud is dealing with the increasing sophistication of fraudsters. In fact, 63% of respondents in the PayPal study — the largest share of respondents — said so. Not having the right technologies in place is another key obstacle that more than 50% of respondents cited, while slightly fewer (43%) said mitigating online financial fraud is just not considered a priority.

“You can’t plan for everything, but you should plan for what you can control,” said Sandipan Chatterjee, Senior Director, Optimization Services at PayPal.“Focusing on products that have built-in fraud capabilities can help set a baseline for your security posture and should be the minimum. No business should go online without some kind of risk mitigation system enabled.”

What many businesses struggle with when tackling online fraud and minimizing their revenue losses is knowing where to begin. According to PayPal, prioritizing customer data is crucial. This is especially true as more than half (56%) of respondents are concerned about the theft of customer data due to the increasing sophistication of fraudsters.

But the good news is that many businesses are taking the necessary steps in ensuring customers’ trust. The study found that 69% of respondents have policies to guarantee stringent security safeguards are in place. Additionally, 59% of respondents said they’re transparent about the sensitive data that are used in online financial transactions, while slightly fewer (53%) said they perform regular assessments of online security risks for customers.

Customers want to transact with businesses they trust, and it’s important that all payments are processed in a seamless and secure manner. By investing in robust fraud mitigation solutions, businesses stand to earn customer trust and loyalty, thereby securing a customer base that will shop with confidence. A solution such as PayPal Fraud Protection gives merchants more visibility and control over the transaction decisioning process, while its Fraud Protection Advanced solution goes a step further to equip a merchant’s fraud team with the right tools to identify and investigate suspicious transactions, as well as analyze patterns and look for key insights to help mitigate fraud losses.

Tackling Charge-back Fraud

When businesses are looking for the right fraud solution, there are many factors to consider, but one primary area of focus should be on preventing charge-back fraud.

Every month roughly 679 chargebacks occur among those surveyed, and the time spent investigating and responding to these charges averages 31 hours. One of the most significant reasons there’s a surge in chargebacks is the continued impact of the pandemic. More consumers are shopping online, and this influx in online shopping means there’s also an increase in bad actors looking to steal consumer data and commit other fraudulent acts. Moreover, supply chain issues, which are contributing to significant delays in shipment and deliveries, are also causing many charge-back disputes.

According to the PayPal study, businesses are taking necessary steps in fighting against chargebacks. Nearly two-thirds (65%) of respondents said they use clear merchant descriptions, while nearly as many (64%) have clear and flexible return policies. A little more than half (51%) of respondents reported that their businesses are equipped with evidence.

When it comes to fighting chargebacks, the most effective tools and resources include those that have machine-learning capabilities. To help both detect and mitigate these types of fraud in real time, it is best to use a combination of traditional rules-based fraud prevention along with adaptive risk solutions. Nearly eight in ten respondents have said that using adaptive machine learning has resolved their fraud challenges, while 64% said they plan to invest in this technology next year.

In addition to leveraging technology such as machine learning to protect online transactions, businesses should consider collaboration. In fact, mitigating risk should never be done in a silo. Partnering with industry partners and in-house experts can significantly enhance the time in detecting fraud and reducing costs.

For example, merchants using PayPal’s Dispute Automation solution don’t have to worry about spending an abundance of time and effort problem-solving transactions or disputes — or even taking on the losses that may come as a result of not being able to fully handle the situation.

What’s more, teaming up with the right partner that can anticipate what’s coming next through various datasets is fundamental. PayPal has one of the largest global payment datasets and its global commerce can help businesses expand their operations more seamlessly.

“Merchants — especially those selling across borders — are looking for a partner that can help predict and manage risk and can provide a unique skillset enabled by high-performance computing power,” said Chatterjee.

Addressing Fraud to Drive More Seamless Customer Journeys

Today, shoppers expect a very smooth and seamless online shopping experience. And they expect that their personal financial information is stored securely and kept safe — regardless if this is their first time shopping with a merchant or their 100th time. Therefore, businesses need to make sure they’re set up nicely to prevent any potential online fraud.

But according to the PayPal study, many have a way to go. The research found that just 42% of respondents said their business has the necessary in-house expertise to not only identify e-commerce fraud, but also prevent it. That means that more than half are struggling with this.

As previously mentioned, it’s important for businesses to make sure they’re partnering with the right providers to help them navigate fraud protection. A company such as PayPal can help businesses accept transactions, or block them, with the help of continuous feedback loops. Technology such as automation, artificial intelligence (AI), and machine learning are also valuable solutions that are producing favorable results.

It all comes down to prevention. It’s through prevention that more businesses will retain their earnings and their customers and protect sensitive information.

“Our story-based approach helps us better understand individual customers’ journeys, behaviors and needs,” said Chatterjee.

The post Understanding the Cost of Online Fraud and How to Prevent It appeared first on PaymentsJournal.

Last year, eBay launched a live commerce pilot program, eBay Live, in an effort to keep up with the changing e-commerce landscape and offer consumers and businesses another way to connect.

PaymentsJournal recently sat down with Avritti Mittal, Vice President and Head of Global Payments for eBay, to discuss the company’s ongoing live shopping efforts as well as to get a pulse on the evolving payments space.

We’ve seen a lot of change in the payments space—increased adoption among consumers, more payment methods, in addition to some other advancements. Can you speak to this shift, and what you expect to see in the next few years?

Payments and commerce experiences, overall, look very different from a few years ago. And we’re seeing this across industries. Digital transformation has continued to accelerate across various verticals, and payments is no exception.

We also see that the way consumers are shopping, and the way they access and consume products, has also changed significantly. The COVID-19 pandemic played a really big role in accelerating the adoption of digital and mobile payments. For example, in 2021, the global share of mobile e-commerce exceeded that of desktop e-commerce. In 2022, nearly nine out of 10 Americans were using some form of digital payments, which is pretty massive.

We’re seeing heightened customer expectations around friction. From a payment method perspective—while credit and debit and other more traditional forms of payment methods are still quite popular and prominent, digital wallets, as well as buy now, pay later (BNPL) offerings have become more mainstream.

We’re also seeing growth in embedded financial services. Brands are embedding financial products and services within their core e-commerce experiences to offer consumers more convenience and value.

Are you seeing a generational shift when it comes to payment methods?

We are seeing a significant shift in behavior. When I think about Gen X and prior generations, they may continue to lean toward more traditional ways to pay: debit cards, credit cards, cash as well, or even bank payments.

When we talk about Millennials or Gen Z, they didn’t grow up with checkbooks or having to visit a bank. They’re basically digitally native generations who are demanding convenience, simplicity, and transparency in their payment experiences.

So in terms of payment method preferences, we’re definitely seeing a shift in Millennials and Gen Z, who are heavily leaning toward digital wallets. Even the overall shopping experience itself is evolving. Live commerce experiences are very much mainstream now, and as an example, live shopping is expected to proliferate even more with an emphasis on social.

We launched our live shopping pilot last year, and we’ve since held multiple events across verticals, including luxury and collectible. We’ve seen a lot of success with the pilot and are looking forward to expanding more in that space.

Do you find that the social element of live shopping helps drive consumer engagement and, ultimately, product sales?

Yes, absolutely. This is an element of community that has always been the way forward for eBay. It’s about connecting communities and unlocking economic opportunity for all.

The beauty about live shopping experiences is that it brings the community together and [collectively] helps them experience something. It definitely results in more excitement and enthusiasm about the category, and we’ve seen promise with conversions as we’ve done some of these sales in the past.

Let’s talk about merchants and small businesses. In your conversations with them, are there challenges they’re facing, whether it’s with new tools or keeping up with the constantly evolving space?

If I take a step back and think about the small-business persona, they’re focused on operating their business efficiently. Time is the most precious asset, and they often don’t have access to financial resources that larger businesses do. These businesses are pretty much always a labor of their entrepreneurial passion, and so digging a little bit deeper in the SMB space and their needs, we published a small-business report, which was our inaugural report last year. And we discovered that eBay is a crucial economic driver for many of our sellers. Two-thirds of respondents said they rely heavily on eBay for their business.

In terms of the needs, specifically, as they relate to payments enablement, we’re fully committed to fueling the business growth of these sellers and ensuring they have the flexibility and control they need when it comes to managing their money. I’ll give you a couple of examples here. Our payments platform simplifies payment operations and gives sellers access to everything they need in order to sell and get paid, including reports, fees, and protections.  Another thing that’s important, especially for smaller sellers, is timely access to funds. We offer our sellers a significantly wide variety of payment schedules and payment payout methods, including daily, weekly, biweekly, monthly, and on demand. And the idea here is that we put the seller as the customer front and center. They are in the driver’s seat, and they have the access and control for their choice in order to access their funds and reinvest in their business.

We’ve spoken a lot about the rapid change the payments space has seen. As we look ahead, do you anticipate any continued changes?

There’s certainly been a lot of change that has happened over the past several years. When I look at 2023, as well as the next several years, I’m personally excited about the innovation and disruption.

Technological advancements, as well as dynamic consumer and business expectations, are continuing to evolve as well. As is the evolving global regulatory landscape. We’ll continue to lean into this space. It’s going to be incredibly important to keep the customer need front and center and let that drive how we create products and experiences for our customers.

I had mentioned embedded financial services earlier, and that’s an area we expect will continue to grow. In 2021, financial services embedded in product e-commerce experiences accounted for about $2.6 trillion of total U.S. financial transactions. By 2026, these transactions are expected to exceed about $7 trillion, so that’s massive growth that we’re talking about. This notion of embedded financial services is really expected to grow significantly because it promises consumers more convenience. And it also creates more opportunities for brands and businesses to unlock new revenue streams while deepening customer relationships and increasing that stickiness with their customers.

The post Q&A: eBay Exec on Live Shopping and the Future of Payments appeared first on PaymentsJournal.

Cross-border payments are on the rise, and Europe is a region where cross-border revenue is soaring. In fact, European online businesses generated $100 billion Euros in cross-border revenue. According to the Bank of England, the total value of global cross-border payments is expected to grow from $150 trillion in 2017 to more than $250 trillion by 2027. The main driver for this growth can be attributed to e-commerce. E-commerce sales are projected to reach a staggering $6 trillion by 2024.

Ekata, a Mastercard company, recently released its report, “Expand Cross-Border E-Commerce: Combat Fraud — The 5 Key Challenges Retailers Can Overcome Fraud with Data,” where it cites the massive surge of cross-border payments as well as the accompanying fraud that usually follows. The report outlined key strategies and Ekata’s own solution as a formidable tool to mitigate fraud.

Let’s Look at the Numbers

Cross-border payments are vital for businesses as they sustain foreign expansion. For consumers, cross-border payments mean having the facility of sending funds to friends and family in their native countries.

With more consumers and businesses using the e-commerce space, the demand for faster, safer, and more efficient payments continues to grow as well.

As mentioned previously, Europe is seeing expansive growth in cross-border revenue, with European online businesses generating cross-border revenue of $100 billion Euros. Germany leads the pack as the largest cross-border seller, at $32 billion Euros. So, why is this relevant? This can present a prime opportunity for new players to enter the market, as Germany is known for its infrastructures to operate like clockwork.

According to Deloitte, the most mature market for cross-border e-commerce goes to China, as it has reached $1.5 trillion. Of this combined total, 72.8% is attributed to cross-border business-to-business (B2B) e-commerce. This segment is expected to reach $2.2 trillion by 2026.

On the home front, 64% of American consumers have reported making an online purchase from another country in 2021. Forty-three percent of consumers cited purchasing overseas because of the inability to purchase that product in the U.S. Close to half also mentioned lower prices for making these foreign purchases.

With Cross-Border Payments Expansion Comes Fraud

Although the statistics make the case for entering the cross-border space, businesses should be wary of the risks for fraud. And as technology continues to evolve, we will see more sophisticated attacks than ever.

Juniper Research conducted a study and estimated that retailers are at risk of losing $25 billion in payment fraud by 2024. This reflects an increase of 52% in just four years. Although these statistics are sobering, we need to get to the root causes that are putting cross-border payments at risk.

The Challenges With Cross-Border Selling

As with any payment solution, there are challenges to be reckoned with as no solution is foolproof. These are the key obstacles businesses face when selling cross-border:

1. Data Residency Laws

These laws dictate how personal data are processed and stored. One well-known law is the General Data Protection Regulation, also known as the GDPR in the European Union (EU). The GDPR has specific rules about how personal data are handled in the EU. However, processors based in the Middle East, for example, do not need to comply. Yet, if the data is from a consumer based in the EU, then the foreign processor is required to comply in the proper handling of the EU citizen’s information. Not doing so would cause a breach, leading to further consequences for the processor.

In addition to these regulations is the lack of a global customer identity standard. The format, even the reliability of individual identity data, varies tremendously by country, making it impossible for companies to implement a consistent way to verify a customer’s identity.

2. Fraud Attacks More Sophisticated

Fraud comes in many forms, each causing significant damage to a business’ bottom line. Here are some that are making its way throughout the industry:

• Chargebacks. A chargeback occurs when a customer issues a fraud claim to their card issuer that takes the consumer’s side. The merchant loses both its product and the sale. Chargebacks are costly for businesses. In a recent study, 58% of merchants stated that their chargebacks rates have increased.
• Friendly fraud. This is when a cardholder claims they never received their purchase, or they deny that their purchase was ever made when they did make it.
• Account takeover. One of the latest, most menacing attacks, this is when cybercriminals completely take over bank accounts. This can be done via phishing or malware.
• Synthetic identity fraud. A false identity is created when criminals combine fake and real personal information to commit fraud such as applying for a loan and credit cards.
• Promo abuse. This can be the fraudulent exploitation of promotional program incentives, such as a 50% coupon.

3. Fraudulent Hot Spots

Fraudulent attacks can happen anywhere in the world, but businesses must pay close attention to areas where fraud is endemic. Turkey, Nigeria, and India continue to be where fraudulent attacks are rampant. Caution when doing business there is imperative, as is having robust tools in place.

“There is a lot of sales potential, so I don’t think it’s a sound business decision to ignore them, but caution is warranted,” said Daniel Keyes, Senior Research Analyst for Merchant Services at Mercator Advisory Group. “You need to have a game plan. You must factor the risk into your prices. There are tools available to limit the losses from fraud in any country. That should be enough to give them a shot.”  

4. Overly Protective Fraud Strategies Hampering Revenue

There is such a thing as being overly cautious when it comes to current fraud protection strategies. This can take the form of rejecting a perfectly legitimate buyer. Rejecting a legitimate buyer means that the consumer will take their business and their money to a competitor, jeopardizing the opportunity to create a loyal customer.

According to a PaymentsJournal report on cart abandonment, 20% of consumers said they would abandon an online shopping cart if the checkout process lasted longer than one minute. Making the online checkout process as seamless and frictionless as possible is critical to retaining loyal customers as well as growing revenue.  

To address this overcompensation for risk, it would be best to account for all the false      positives and investigate them at different periods of time. Businesses can also partner with their Chief Revenue Officer to go over their global expansion strategy and determine the unique risks inherent in those markets.

5. Having to Look Over Multiple Identity Data Elements

Having to search through multiple sources of data to verify and authenticate identities can be challenging for merchants. To ensure accurate authentication, current application programming interfaces (APIs) and web-based services can run searches concurrently and link real-time identity data.

The Cross-Border Payments Solution

Using a multilayer approach is the key to approving more cross-border transactions while still mitigating fraud. To detect and control fraud, an effective tool to use is automated fraud screening. To capture fraud, you will need to use global consumer identity data in conjunction with a layered process.

Ekata’s Identity Engine refines your current identity verification data for identity verification and fraud prevention. This engine is made up of two different data sources: Ekata Identity Graph and Ekata Identity Network.

The data assets and advanced machine learning capabilities are used to run Ekata’s global APIs and software as a service (SaaS) solution. Both the Identity Graph and the Identity Network equip you with the data you need to see a comprehensive view of your customers’ digital identity and the risk associated with it.

The challenge to fight fraud continues. However, by using the above-mentioned fraud tools, authenticating identities will become easier for cross-border e-commerce.

The post Cross-Border Payments: Fighting <br>E-Commerce Fraud Using Data appeared first on PaymentsJournal.

The digital economy and online shopping continue to grow at a rapid pace, as more and more consumers become comfortable transacting in a digital environment. However, with this rise in popularity comes a concurrent rise in digital fraud.

With more people buying and transacting online, fraudsters have increased their activity in kind, targeting consumers with account takeover attacks and committing refund fraud, promo abuse, and other forms of payments fraud. It’s no surprise then that in 2021 globally, online merchants lost around $20 billion due to payments fraud, according to Statista.

In response, spending on fraud detection and prevention tools has increased by a compound annual growth rate of $21.5% as e-commerce companies seek to stem this tide of attacks. But companies cannot just implement a solution and expect the problem to go away; they need a holistic fraud prevention strategy. A recent white paper from Ekata, a Mastercard company, highlighted three key fraud prevention tactics online merchants should adopt.

Tactic #1: Account Opening Solutions

Consumers want a quick and rapid sign-up experience, and to then be able to deposit money instantly into a payment account. While businesses want to enable this experience for their customers, fraudsters take advantage of this with fake new account registration. A prime fraud attack fake accounts are used for is promo abuse. This is prevalent in a number of industries.

For example, sports betting platforms often offer free money or free bets to entice new customers to sign up. Fraudsters take advantage of this by signing up for fake accounts at scale and then just taking the free money or making a minimal bet and taking the rest. Online video gaming platforms may also offer incentives for signing up, such as free items, gold, or exclusive “skins” to use in the game. Fraudsters create new accounts en masse, collect these items, and resell the items on third-party platforms to real users of these games. These are but a few of the many examples of promo abuse online.

Merchants want to stop this abuse, but they also need to continue offering these promotions to entice new customers. Discounts, coupons, and online sales methods draw in new customers and reward loyal customers. Reports stated that 91% of consumers enter an online store because of an online deal or sale, and 93% of shoppers shared that they used a coupon throughout the year.

This means online merchants need to implement account opening solutions and technological applications that ingest internal as well as third-party identity and behavioral data to monitor sign-ups, new account creations, used voucher codes, and repeat referrals from single users, the white paper stated.

“When issues arise or are flagged (sometimes with as little as an IP [internet protocol] address and phone or email), companies can automate the introduction of pre-defined levels of friction based on the risk profile to conduct additional checks and more accurately define and block fraudulent transactions,” the white paper continued. “Moreover, automated risk solutions that use third-party identity and behavioral data can either be built in-house or integrated directly into a merchantʼs current infrastructure, meaning it creates no additional friction to the sales experience for legitimate customers.”

Tactic #2 Transaction Risk Profiles

Balancing a great user experience with friction is a delicate line to toe for digital merchants, who don’t want to introduce friction to legitimate customers, yet don’t want to let everyone sail through easily and open their platform up for fraud.

That’s why transaction risk profiles are important. Companies should not just strive to create a “frictionless experience” as a hard and fast rule, but adjust the experience for each user based on the amount of risk they present.

“In other words, fraud teams benefit from introducing a variable amount of friction that balances the financial risk and reward of accepting or declining an order — and that starts at account opening,” the white paper advised.

This means that online merchants need to build transaction risk profiles that allow them to increase or decrease friction according to risk throughout the entire customer journey.

Most companies doing business digitally have a wealth of data at their disposal; they should take advantage of tools and data science techniques to use this information to build risk profiles. These profiles can start with internal data to build accurate digital identities for potential customers.

From there, businesses should look beyond just siloed, proprietary data and take advantage of broader network data. For example, the Ekata Identity Engine can validate five key identity elements — name, IP address, address, phone, and email — and analyze how they interact and behave in digital interactions beyond a single retailer. The result is a comprehensive view of a customer’s digital identity as well as a more accurate assessment of their risk at every stage of the journey.

Tactic #3: Manual Review

In general, fraud and security teams want to reduce manual reviews. Doing so saves time and money and increases operational efficiency. However, targeted expert human reviews should still be used in cases where it is difficult to assess the risk potential.

Algorithms, while extremely helpful, cannot accurately account for all the variables that define the customer experience across the buyer journey. Businesses want to risk neither false positives — that is, good customers identified as potential risks — nor false negatives and letting bad actors through.

That’s why the targeted human review needs to be blended with automated solutions.

“The investment in a human fraud analyst team more than pays for itself in increased accuracy, customer satisfaction, and ultimately, dollars,” the white paper stated. “This is why the future of fraud prevention looks to marry manual review and machine learning capabilities of automated fraud prevention solutions to capture the advantages of both options.”

The Ekata Solution

Fraud is an ever-present problem for digital merchants. That’s why the Ekata Identity Engine aims to help merchants with an ever-expanding suite of solutions that can help better detect fraud, validate identity, and provide valuable insight about potential customers.

Ekata offers a variety of account opening solutions, comprehensive identity assessments and insights, as well as data and insights that analyze billions of behavioral data points from logged transactions to flag and evaluate risky orders that need further review.

Completely eliminating fraud in digital commerce is an impossible task. But with the right tools, technology, and processes in place, online merchants can ensure they are identifying potential threats as accurately as possible and enabling a great experience for good users.

The post How to Fight Fraud While Still Enabling a Great Online Customer Experience appeared first on PaymentsJournal.

In recent years, organizations have made digital transformation a top priority. To achieve success, they need to effectively harness their financial data to increase revenue, improve customer experiences, foster innovation, launch new products, and expand into new markets.

Companies need to generate insights in real time to unlock the full potential of all their data. According to industry projections, nearly a third of all data will be real time by 2025. Analyzing real-time data is critical to staying ahead of the competition, as businesses can respond quickly to changing market conditions and customer needs.

In the financial services industry, real-time data has never been more important. With the adoption of fintech, customers expect fast, personalized, and convenient experiences. Real-time data can enable financial institutions to meet these expectations by providing up-to-date information about customer behavior, market trends, and risk factors, empowering them to make informed decisions quickly and efficiently.

For example, financial institutions can use real-time data to detect fraudulent customer transactions, develop models to predict credit risk, and provide personalized services and offers. All while ensuring a seamless customer experience that boosts satisfaction and loyalty.

However, leveraging real-time data requires a modern data architecture that can instantaneously process and analyze large amounts of data. Financial institutions must invest in the appropriate technologies to transform real-time data into actionable insights to gain a competitive advantage.

Detecting Fraud with Graph Analytics

With the rise of digital payments and online applications, fraud has become more sophisticated and prevalent, posing a risk to every transaction in the customer life cycle. Financial institutions must be vigilant against the increasing threat to avoid financial and reputational damage.

To improve fraud detection efforts, the industry has embraced graph analytics to identify fraudulent behavior and take appropriate action quickly. With a graph database, financial institutions can analyze vast amounts of complex data to identify patterns and relationships that traditional methods can’t.

A graph database consists of data elements and the connections between them. Each data element represents a person or an account, while the connections represent the relationships between these entities, such as transactions, identity, or social connections. Financial institutions can analyze the relationships between the data elements to identify suspicious patterns, such as multiple accounts being opened under different names but with the same IP address, or a group of people making transactions to the same offshore account.

PayPal is one company that has successfully used graph analytics to prevent fraud, saving millions of dollars in fraud losses. With a vast network of users and transactions, PayPal uses a custom-built solution capable of analyzing billions of records within 20 milliseconds to determine if there is fraud risk.

Leveraging Document Data Stores for Credit Risk Models

Document data stores are increasingly used in credit risk management as they can store and analyze large amounts of unstructured data. These document databases collect data from various sources, such as credit bureaus, financial institutions, and social media platforms, to provide a comprehensive view of a borrower’s creditworthiness. Financial institutions can analyze this data in real time using machine learning algorithms to identify patterns, trends, and potential risks and take proactive steps to mitigate them. The insights can be used to create risk models that evaluate a borrower’s creditworthiness based on credit history, income, and employment status.

For instance, financial institutions can analyze transactional data and credit bureau information to help quickly identify customers experiencing financial difficulties and take prompt action to assist them before they default on their loans. Additionally, financial institutions can use predictive analytics to develop models that identify potential credit risks before they materialize, allowing them to adjust credit limits, offer alternative payment arrangements, or start collection efforts.

Using Document Data Stores to Unleash Personalization

Personalization is instrumental in building strong customer relationships in the financial industry. To offer these experiences, financial institutions can create 360-degree customer profiles by aggregating data from various sources in real time, including mobile and location-based services.

A document data store can manage in real time all this customer information, such as personal information, financial information, and transaction history. Financial institutions can better understand their customers’ financial behavior by analyzing this data with artificial intelligence (AI) and machine learning and offer tailored product recommendations, personalized financial advice, and targeted marketing campaigns.

For example, by analyzing a customer’s spending habits and investment preferences in real time, a financial institution can provide personalized product recommendations better suited to their needs and preferences. They can also use personalization to offer customized pricing, credit scoring, interest rates, and loyalty programs, speed up customer onboarding, and predict and prevent customer churn. By using these techniques, financial institutions can enhance the customer experience and improve their bottom line.

The financial services industry faces a significant challenge in managing the massive volumes of data generated daily. By adopting a modern data architecture, they can effectively analyze this data, enabling them to stay ahead of potential fraud activities and credit risks while delivering the personalized experiences today’s consumers expect.

The post How FIs Can Power Their Operations with a Modern Data Architecture appeared first on PaymentsJournal.

More consumers than ever are embracing digital methods to pay bills. In our research we found that 54% pay using the biller’s website, 33% use the biller’s mobile app, and 8% pay remotely using cash at a retail location. What’s more, a significant group of consumers says it would be very convenient to have additional mobile payment options, such as PayPal (20%), Apple Pay/Google Pay (14%) and Venmo (10%).

Billers are hurrying to get on board with these trends and make digital bill payment as easy and frictionless as possible. But before they get too far along that path, they should recognize that new payment types and channels add complexity to the payment delivery chain and require additional focus on vendor management. Without an oversight program, the business and their customers could potentially be at risk of excessive declines or disputes, service interruptions, increased transaction costs, and security incidents.

The 2022 Verizon Data Breach Investigations report noted that ransomware attacks alone increased by 13% between 2020 and 2021—a larger jump than the past five years combined. Vendors, partners, and third parties in the payments delivery chain were responsible for 62% of system intrusion incidents in 2021, which may represent “larger trends that we’ve been seeing in the industry, in terms of the interconnected risks that exist between the vendors, partners and third parties,” according to the analysts. 

Billers can’t opt out of offering digital payment options—customers have already made their preferences clear. However, they can choose a payments platform partner that expands and integrates digital bill payment, while effectively detecting and managing risk.

Lessons We Can Learn from Target

To illustrate how damaging a single cyberattack can be, it’s helpful to look at one of the most visible examples in recent history: the 2013 Target breach. According to one analysis, Target had to invest $100 million after the incident to improve its payments infrastructure, and another $100 million-plus in payouts to banks and credit card companies that had to reimburse customers.

But even more catastrophic was the hit to its reputation and customer trust. The company’s “buzz score,” which measures brand perception, dropped 45 points during the week after the breach and, in turn, profits dropped 46% in one quarter.

Your company may not be a mega-retailer like Target, yet this experience can teach billers that cybersecurity is always a “invest now or pay later” calculation. Invest in a secure payments platform now, or face the financial fallout when a security breach occurs.

In addition, a payments platform provider that cuts corners may compromise the very protections you currently have in place to hedge against cyber losses. For example, in 2021, surging ransomware losses caused the cost of cyber insurance premiums to nearly double in 2021, and some insurers dropped coverage entirely for companies that couldn’t demonstrate they and their payments platform provider have reasonable security protections in place. Investing up front, including selecting the right payments platform partner, requires effort and forethought, but it could save you from these costly repercussions in the future.

Four Cybercrime Prevention Strategies

There are numerous cybercrime prevention strategies, but I’ll briefly cover four that your payments platform provider should have in place to guard against cyber attacks.

1. Two-Factor and Biometric Authentication

Customers increasingly expect to be provided protection as part of the payments experience. And, rightly so. A year-long study by Google, New York University, and UC San Diego found the simple practice of two-factor authentication using on-device prompts was highly successful at preventing the vast majority of account hijacks. Sending a message directly to the device on file and having the individual tap on the message to authenticate prevented 100% of automated bots, 99% of bulk phishing attacks, and 90% of targeted attacks.

Even better is biometric authentication, which is built into digital wallets and some mobile payment types such as Apple Pay and Google Pay. Customers avoid entering payment information altogether, simply using a facial scan or fingerprint to access their account.

Yes, authentication can add friction to the payments experience. However, it’s necessary friction that when timed appropriately actually creates a better experience for customers. Configuring the authentication “trust hug” early in the customer relationship with messaging that lets them know they are being protected against fraudulent transactions is essential. Business rules can then be implemented to address anomalies that raise a red flag for potential fraud.

The payments provider should have a customer engagement strategy for educating customers and facilitating two-factor authentication for functions such as autopay registration. For built-in biometric authentication, it’s smart to work with a platform provider that enables Apple Pay and Google Pay as payment options and generates biller-unique credentials specific to each payer’s bill. Customers appreciate when authentication is designed as part of the payments experience because they understand the risk and potential misappropriation of their data, as well as the avoidable hassle to remediate the situation.

2. Encryption and Tokenization

Encryption and tokenization play different roles in protecting data, so both should be leveraged to facilitate digital payments. Tokenization is the replacement of sensitive account-level data with a unique encrypted value. Encryption is the method in which the data is converted to a “secret value.”  

Using them together helps companies build trust with customers by avoiding damaging data breaches. Additionally, these security measures help your payments platform provider meet regulatory compliance requirements necessary for any business collecting credit or debit card information, which render them must-have tools in your payments platform provider’s security toolbelt.

These methods protect sensitive payment data from being stolen and ransomed by cyber criminals. Even better, these methods act as deterrents, since hackers tend to gravitate to unprotected targets that offer a big payoff with minimal effort. If they can’t easily and quickly find valuable information, they will retreat and look elsewhere.

3. A Risk Mitigation Team

Cybercriminals are both creative and skilled, so it’s important to have an equally formidable defense on your side. That means your payments partner employs a cross-functional team of seasoned risk, compliance and technology professionals who know how to design and build a secure payments environment: a head of risk to lead the development of a scalable control environment; an information security officer to oversee monitoring of the perimeter, conduct ongoing testing and perform security audits; staff members dedicated to reducing operational risk and implementing dynamic security protocols as necessary; and a legal and compliance officer to work with regulatory agencies, coordinate regulatory audits and ensure regulatory compliance.

Keep in mind designing risk protections into a payment product or service is much more cost-efficient than retrofitting after the fact, so look for a payments platform with built-in controls, as well as a talented team that custom-fits them to client needs.

4. Audits, Certifications, and Security Standards and Tests

With the intensifying pace of payment types and technologies, some payments platform providers have failed to prioritize time and resources in internal and external audits, security tests and security certification procedures. However, those areas of oversight provide an effective third line of defense—after operations and second-line functions such as risk management and compliance—to ensure the platform is sound from a “security hygiene” and regulatory perspective. Third-line audit functions keep payments platform providers sharp, accountable and provide assurance to senior management and board members that the first two lines of defense are meeting expectations.  

For that reason, billers should only work with a payments platform provider that has undergone comprehensive privacy and security assessments and certifications performed by qualified third parties. For example, to keep information assets secure, a payment platform provider should have the ISO/IEC 27001 certification or an equivalent security-focused certification.

The platform should also be PCI compliant and have processes in place to enable the biller’s customer support staff to maintain compliance when interacting with customers regarding payment.

Every payments partner under consideration should be following NIST CSF, a cybersecurity framework containing industry standards and best practices to help organizations understand and reduce their risk.

Finally, ask prospective payments platform providers whether they conduct regular security training for their staff—including social engineering risks—and test their systems to identify vulnerabilities. You need to know you have someone on the inside thinking like cybercriminals and taking preventive measures accordingly.

Securing Every Link for Digital Bill Payments

Today’s bill payment stack is more complex than ever with the addition of digital bill payment options—digital wallets, scan-and-pay QR codes, person-to-person payment apps, and more.

You can’t control the criminals, but you can strengthen your payment supply chain, from beginning to end, by working with a security-focused payments platform provider that has put in place protections, such as two-factor verification; encryption and tokenization; a risk management and compliance team; and professional third-party audits, security tests and certifications.

The evolution of mobile bill payment is in full swing. Now payments professionals must work together to stay one step ahead of those working to exploit it.

The post Cyber Criminals Are Targeting Digital Bill Payment: 4 Ways to Fight Back appeared first on PaymentsJournal.

As the shift to digital banking continues, physical bank branches are losing their raison d’etre and closing in many locations. More than 3,000 bank locations have closed in the United States over the past year, with more closures expected in 2023.

More than ever, it’s important for banks to adapt to the changing landscape and leverage technology to keep pace with what consumers expect. According to Lumen, a multinational technology company, banks can learn a lot from retailers, including Apple, and shift their focus to meet consumers where they are and how they want their banks to be. Lumen’s Revolutionizing Banks through Branch Transformation whitepaper gets into how banks can change their approach.

Banking in the Digital Era

The pandemic proved that although consumers need banks, they don’t necessarily need to go to a physical location for most services. Most consumers visit a physical branch for the personal touch many offer, as well as out of habit. This is especially true when much of banking can be done online, so to get customers in the door, banks put an emphasis on knowing their customers personally.

According to Lumen, banks can set themselves apart from competitors by addressing the omnichannel experience. That comes down to ensuring that they offer a user-friendly and reliable experience across mobile, desktop, and in-person transactions. This is similar to what is happening in retail environments. Initially, stores thought of e-commerce as a separate, secondary business and treated it accordingly. Now retailers are working to integrate physical and digital business assets for a unified customer experience, and banks are following suit.

Improving customer service can also be a game-changer. Indeed, customer service is the factor that sets the best apart from the merely good. And as in the retail space, customer service can help banks not only drive in new customers but also, just as important, retain current ones, building on long-established loyalty.

Turning to Retail Innovation for Answers

In many ways, banks and retailers face similar issues. But unlike many retailers, banks have been slow to adopt new technologies and stay ahead of the curve. An examination of successful retailers and taking some of the key lessons that have worked well for them will help banks long term.

According to Lumen, banks should look at Apple for inspiration. Central to Apple’s optimization of the customer experience are specialized cameras that track customers as they move through the stores. “By monitoring how customers used their stores, Apple has been able to continually improve the in-person services and products it offers to give customers a consistent experience across all its locations, while also tailoring services for local needs in each store,” the whitepaper noted. “The in-store interaction fits in as a part of the company’s omnichannel strategy, so customers have a familiar experience when they’re using a smartphone or computer or talking with an employee in a store.”

Banks can leverage tracking and customer identification technology in a similar way to learn how customers use their services, then use that knowledge to create compelling customer experiences that will keep bringing them in. For example, smartphone proximity sensors can pick up on where phones (and their owners) are in the room and use that information to track how customers move and spend their time in a bank.

Smartphones have a small infrared LED and photosensor located near the earpiece. The infrared light emitted by the LED is reflected back by the objects near the phone and sensed by the photosensor on the phone. The sensor measures the time it takes for the pulse of light to return and uses this to determine the distance between the phone and the object. It then sends a signal to the phone’s processor, triggering an appropriate action, such as turning off the screen. But IR light can be picked up by other photosensors in a room. Using the same principles the phone uses, photosensors scattered throughout a room can be used to triangulate a phone’s location as it moves through a room.

Photo sensors are complemented well by cameras that use machine vision. These cameras can visually track customer movement through a store. The combination of data from these two technologies can help determine which in-store activities consistently require human interaction and which don’t. Biometric facial recognition could help employees provide quicker account access and make it easier to address customers by name when they walk in.

Banks could use this technology to create a more interactive and engaging in-branch environment. This can include using digital displays, interactive kiosks, and other digital tools to enhance the customer experience and make the branch a more enjoyable place to visit.

Furthermore, technology can personalize the banking experience for customers and draw in new ones. As peoples’ lives have become more digital, a personal interaction is likely to become a stronger selling point. Indeed, for people who work from home and spend most of their days on the computer, going out to do errands and talking with real human beings may become highly desirable. That will be especially true if the people they interact with at physical bank locations know them personally. The reorienting of part of society around digital, remote work has the potential to enhance physical retail and banking locations, if those businesses play their cards right.

Although banks historically put more of an emphasis on reliability than on innovation, now is the time for differentiation. Bank branches need to become innovative showcases with a personal touch. One idea might be to transform a bank into a financial literacy center, with courses on budgeting and investing—similar to how bookstores bring in authors for book signings and host community events. Although these events are not part of the core banking business, they build relationships with the community and get customers in the door. This approach, coupled with the technological advances advocated by Lumen, could help bank branches differentiate themselves and thrive well into the digital age.  

The post What Bank Branches Can Learn from Retailers appeared first on PaymentsJournal.

As our highly digitized economy continues to evolve, cash flow and liquidity management are paramount to businesses. Modernizing payment processes away from manual processes—such as checks and extended terms—is crucial for businesses to control their cash position. How can real-time payments help?

It’s also crucial for consumers, who tend to believe their funds are sent and received in real-time, although some payment methods can take days to reach recipients and settle in their accounts. This can create uncertainty and a lack of clarity around cash management as bank account balances are not current. In this new era of instant gratification, businesses, and their consumers have rising expectations about how and when to sell and purchase goods, trade stocks, and monitor cash positions precisely in real-time. 

Businesses using real-time payments (RTP) in their day-to-day operations will have better cash management. These businesses are getting paid and paying on time—no longer waiting days or weeks for their payments to process. Maintaining a steady cash flow puts their business in a stronger position for increased revenue, greater transparency, improved payments reconciliation, reduced unauthorized payments, reduced reliance on cards, and overall customer and supplier satisfaction.

Still, many business leaders don’t understand how real-time payments can transform their operations for the future—let alone what they are.

Real-Time Payments Defined

Real-time payments are initiated and settled faster than the average bank transaction—they are nearly instantaneous. Traditional payment methods can take several days for funds to reach a recipient’s account, and they won’t know about or see the payment until the bank has cleared it. When The Clearing House launched the RTP® network in 2017, businesses and consumers could make real-time payments 24/7/365 since RTP rails are always online and available to process transfers, including weekends and holidays.

The immediate nature of RTP transferring funds more cost-effectively than standard credit card transactions removes cash flow bottlenecks so people can see their money instantaneously, up to the second. Real-time payments are irrevocable push transactions, so only payers can initiate the payments—other parties can send a request for remittance but cannot begin the process. Once the payer sends the money, it can’t be reclaimed.

Every bank account owner is eligible to receive a real-time payment—a game changer when time is sometimes more valuable than money. Today, a digital experience without instant payment tends to be lackluster, fall short of customer expectations, and put a merchant at a disadvantage.

How RTP Can Transform Your Business

Real-time payments are bound to affect how we transact and conduct business —consumers, businesses, and financial institutions will all see the benefits of faster payment methods. Here are a few ways:

Improve liquidity: Merchants with fewer liquid assets don’t have to wait for checks to clear or payments to settle to cover their costs. Real-time payments make payroll on demand a practical reality so vendors and employees can get paid faster, which minimizes the risk of supply chain disruptions. Even gig workers and contractors can receive payments in full right after a job, increasing the fluidity and convenience of conducting business.

Reduces Risks: With other B2B payment methods, there are potential credit risks, chargebacks, payment failures, and limit restrictions. Many companies will even float payments to try and create an instant, real-time experience, but traditional cash flows prevent this workaround from being a seamless solution. Real-time payments help remove those headaches and intermediaries to provide more security and confidence during transactions.

Advanced Financial Management: RTP offers businesses more control of their payment processes, including accessing and moving funds immediately. Merchants can see their funds in seconds to plan and adapt their finances more efficiently. Business owners can meet short-term commitments, minimize borrowing, and optimize the use of surplus cash. Transparency develops both B2B and customer loyalty and relationships and also creates a better payment experience for customers.

The pandemic caused a severe disruption within the supply chain, creating a domino effect throughout the B2B relationship. Real-time payments are gradually staking their claim as a financial solution, providing new opportunities for merchants and customers seeking secure, user-friendly online payment options.

However, the rapid adoption of digital technologies, especially in the financial industry, is reshaping economies like never before. With RTP’s ability to move money quickly, so both payer and payee know precisely when the transaction occurred, more businesses are well-positioned to resemble the “pay now” experience in the B2C market. Innovative technology-backed processes, like real-time payments, are quickly becoming the business baseline.

The post Real-Time Payments Explained appeared first on PaymentsJournal.

The future of banking is rapidly changing in response to technological advancements, shifting customer expectations, and increased competition from fintech firms. Banks are no longer the gatekeepers of financial transactions and are instead shifting towards becoming facilitators for transactions between various parties. Three key trends are driving the future of banking transactions: embedded finance, decentralized finance (DeFi), and the growing trend towards the central banks of several countries experimenting with central bank digital currency (CBDC).

Embedded Finance

Embedded finance refers to the integration of financial services into non-financial products and services, allowing customers to access financial services through the products they already use. For example, a customer may be able to access loans or insurance through a ride-sharing app, rather than through a traditional bank.

Embedded finance is a win-win for all stakeholders involved. Customers benefit from frictionless banking experiences, such as the ability to make purchases using buy now, pay later (BNPL) options. Merchants and brands also benefit from the ability to attract customers with digital financing options and expand their business. Banks, on the other hand, can expand their services to more customers without incurring the costs of distribution.

Progressive banks are approaching embedded finance with a product management mindset. They are building ecosystems of digital platforms, fintechs, e-commerce players, and other entities to offer a wide range of financial services to their customers. This enables them to offer new products and services, such as digital wallets, mobile payments, and other digital financial services in a cost-effective way. By partnering with digital platforms, banks can also gain access to new customers and markets that were previously out of reach. In addition, embedded finance enables banks to increase revenue from existing customers by providing them with additional services such as lending and insurance. This allows them to increase customer loyalty and retention.

DeFi

Decentralized finance refers to the use of blockchain technology to create decentralized financial platforms and services that operate independently of traditional financial institutions. DeFi platforms provide customers with greater access to financial services, such as lending, borrowing and trading, and provide increased transparency and security through the use of smart contracts.

One of the key advantages of DeFi is that it’s built on blockchain technology, which allows for secure, transparent, and tamper-proof transactions. This creates a trustless and decentralized environment for financial transactions, which means that there’s no central authority that controls the system, making it more resistant to censorship and fraud. DeFi also enables greater access to financial services for individuals and businesses that may not have access to traditional banking services. This includes those in emerging economies, as well as underbanked or unbanked populations.

However, DeFi also poses some challenges, such as the lack of regulatory oversight and the potential for security risks. While still in its early stages, DeFi has the potential to revolutionize the way that financial services are provided and consumed.

CBDC

Central bank digital currency refers to digital versions of fiat currencies issued and backed by central banks. One of the key advantages of CBDCs is that they have the potential to enhance financial inclusion by providing access to digital payments for those who may not have access to traditional banking services. This could be particularly beneficial for individuals and businesses in emerging economies or for underbanked or unbanked populations.

CBDCs also have the potential to simplify cross-border transactions by providing a unified digital currency for countries to use, reducing the need for currency conversions and exchange rate fluctuations. This could also reduce transaction times and costs, making international trade more efficient.

However, there are also security and privacy concerns surrounding CBDCs, including the risk of hacking and the potential for governments to monitor citizens’ financial transactions. It’s important for central banks and governments to address these concerns and ensure that any implementation of CBDCs is done with proper security measures in place.

Key Takeaway

In summary, embedded finance, decentralized finance, and central bank digital currency are all key trends that are driving the future of banking. These trends are providing customers with new ways to access financial services and providing new opportunities for financial innovation. Banks must adapt to these changes to remain competitive in the future.

Puneet leads global marketing and FinTech engagements for Finacle. In this role, he is responsible for charting out marketing strategies, enhancing brand differentiation, and driving growth. Today, banks in over 100 countries rely on Finacle to service more than a billion consumers and 1.7 billion accounts.

The post Adapt or Die: How Banks Can Survive in the Age of Embedded Finance and Decentralized Finance appeared first on PaymentsJournal.

Promotions play a big role for nearly every retailer to drive customer acquisition as much as retention. But retailers often are entirely focused on providing incentives to as many consumers as possible to increase sales and thus overlook a big concern that’s affecting their bottom lines: promo fraud.

A whitepaper from Ekata titled “Reining in Promo Fraud” looks at the importance of assessing risk during the account-opening process and how doing so provides companies with the ability to reduce promo fraud, increase the return on investment from marketing campaigns, and grow overall profitability.

The Impact of Promo Fraud on Businesses

Promo fraud has been an area of concern for some time, and this trend is set to continue as the cost of living increases and consumers continue to hunt for deals. Some examples of promo fraud include a customer reusing a coupon multiple times or opening multiple accounts to take advantage of a current promotion. Ekata notes that sign-up incentives, referral bonuses, and loyalty discounts are some of the main promotional campaign types where fraud is prevalent.  

For many retailers, promo fraud is just the cost of doing business. In fact, data from Kount revealed that 42% of respondents said their company lets consumers abuse promotions. But promo fraud can have an impact on a company beyond hurting its bottom line.

For one, it can distort a company’s marketing budget. A retailer can see an influx of consumers coming through after a recent promotion, but the increase in volume may not necessarily give a full picture. A company won’t know the difference—at least not at first—between those abusing the promotion and those who are genuinely using it.

In general, promo fraud can highly distort ROI numbers. “You may think a promotion brought in 100 new customers. However, when you factor in duplicates due to fraud, you discover that you acquired only 75,” according to Ekata. “It skews visibility into your customer base. When fraud consumes a big chunk of your promo budget, your campaigns don’t deliver the desired results. Fake accounts soak up new customer perks. So the cost per new customer is higher than it appears, which hampers decision making for future campaigns.”

Putting the Right Solutions in Place

When companies run promotions, they can benefit from actively building anti-fraud strategies into those campaigns. This involves implementing technology solutions to assess accounts for fraud risk, minimize friction for low-risk customers, and prohibit high-risk users from completing transactions or signing up for an account.

It’s important to verify that data elements — such as email addresses, telephone numbers, and physical addresses —are legitimate and examine how they have been used in past online transactions. For example, if an email address is being used for the first time in an online transaction, that increases the likelihood of fraud. An IP address with thousands of associated email addresses may also be suspect.

The Ekata Identity Engine helps ecommerce companies validate the identity elements used by customers and analyze how they have been used in other digital interactions over the last 90 days. Risky transactions can then be routed to a workflow with more scrutiny, while low-risk applicants can be fast-tracked through the account sign-up process.

This identity verification process yields significant results. For example, when Ekata worked with one global payment service provider, it reduced chargebacks by 17% and increased acceptances for payment by 15%. On a global travel marketplace, it caught 93% of bad actors at account opening.

Promo fraud needs to be taken more seriously because it has an impact on the bottom line and distorts marketing campaigns’ data in significant ways. Using technology solutions to assess the risk of customer identity elements at account openings helps to catch potential fraudsters before they have a chance to act.

The post The Hidden Cost of Promo Fraud appeared first on PaymentsJournal.

Digital innovations abound in automotive retail—you can purchase a vehicle via your mobile phone without getting up from your couch. But surprisingly, automotive finance isn’t going through that same digital transformation.

Customers want seamless digital finance experiences when shopping for a vehicle, yet traditional and even new direct-to-consumer (D2C) manufacturers are slow to offer true innovation in digital finance. To better understand the current automotive finance environment, we need to understand the credit industry and applicable legislation.

Automotive Finance Is a Regulated Industry

The domain of auto finance is governed by legislation that provides guidance for safeguarding personal financial information, credit reporting, and equal credit opportunity. The three key acts of federal legislation are the Gramm Leach-Bliley Act, focused on data privacy and disclosure rules; the Fair Credit Reporting Act, which ensures accuracy, fairness, and privacy of credit reporting; and the Equal Credit Opportunity Act, introduced to promote equal access to credit and prohibit discrimination. In addition to this federal legislation, the Consumer Finance Protection Bureau (CFPB) was introduced in 2011 to help enforce federal consumer protection laws. While the automotive finance business is ripe for innovation today, we must keep in mind that since the industry is regulated, it must comply with federal legislation as well as state law, as the California Consumer Privacy Act (CCPA) states.

Customer Time and Convenience Are the Most Important Factors to Consider

In the years before e-commerce and the internet, the process of purchasing a vehicle was very slow and could easily require signing a stack of papers, which could take anywhere from several hours to an entire day. Even today, the time it takes to purchase a car can often be lengthy and this is still a key friction point. The main benefit of digitizing automotive finance in this highly regulated industry is to accelerate where possible, reducing the total amount of time required to complete a transaction and enabling as many digital solutions as possible, especially with paperwork. To enable this, there are certain customer-facing and behind-the-scenes aspects used by banks’ credit providers.

Banks can use next-generation capabilities for credit decisioning. For example, machine learning (ML) and artificial intelligence (AI) can help accelerate credit application processing and reduce the likelihood of errors. Additionally, risk management can also benefit from ML and AI tools as they can quickly flag suspicious credit applications and help reduce fraud. Powerful AI and ML back-end capabilities can power a much-improved customer front-end experience with quicker responses and the ability to move forward with a purchase as fast as possible.

For customers in the market to purchase a vehicle, the focus should be on educating customers about credit and simplifying the process of applying for credit—this includes leveraging a single digital experience on any device using digital documents. Customer time is often constrained and the ability to start a credit application on one channel and finish later on another is convenient and removes friction from the credit process. Since a customer has the option of financing through any bank, more options for integration to multiple financial providers can also help streamline the process. What’s more, providing digital solutions to enable a customer to obtain an estimate for a trade-in vehicle from the comfort of their home is a key accelerator in the car-buying process and helps the customer determine their budget and the total amount to finance a vehicle purchase.

Since the industry focuses on providing customers similar offers for a given credit score, down payment and vehicle for compliance, personalization can be challenging. However, personalization can drive deeper brand engagement and build strong customer relationships. Personalization tactics that comply with federal and state legislation can be powerful and may not necessarily be monetary, including membership in a loyalty club or loyalty points.

Where Do Cryptocurrency and Blockchain Fit In?

The market shifts in cryptocurrency that occurred in 2022 have, for the near term, impacted cryptocurrency value to such a degree that a crypto vehicle purchase may not be an option. That said, if a consumer wishes to purchase a vehicle with cryptocurrency, this can be done if the retailer accepts cryptocurrency as a form of payment.

Another crypto option for consumers would be to borrow against cryptocurrency assets in a similar fashion to how a consumer could borrow against a physical asset like a home from an online cryptocurrency bank. In the wake of recent developments in the crypto industry, this may be a possible but less viable option in the near term.

Still, the benefits of cryptocurrency can include the potential for increased transparency and reduced fraud. However, we are still in the early days of digital currency with virtually all original equipment manufacturers (OEMs) experimenting with cryptocurrency in some form or fashion until regulations are defined to govern digital currency more broadly.

Where Is the Industry Headed and Where Does Automotive Finance Go from Here?

All automotive manufacturers’ captive finance units need to provide fully digitized, multi-channel automotive finance tools. These tools must be inspiring and provide a compelling, branded experience on par with online retail market leaders and seamlessly integrate into the process of vehicle selection (stock purchase) or placing an order (build to order).

A focus on increasing automotive finance efficiency and accelerating and integrating the credit application and purchase processes for customers should continue to be the focus of automotive finance for the near future.

A simple, transparent, and engaging digital finance experience will drive customer satisfaction and reduce friction. And digital capabilities such as AI and ML will continue to expand in the back end to drive increasing speed, reductions in errors, and identify fraud earlier so it can be stopped. Yet automotive captive finance units and dealers will continue to cautiously experiment with cryptocurrency in order to be ready when crypto recovers in the future.

The post Digital Innovations Are Modernizing Car Shopping. Why Isn’t Automotive Finance Next? appeared first on PaymentsJournal.

Profitable and effective businesses require seamless, organized, and efficient payment operations. However, the current panorama of most back-office operations reveals a concerning trend.

Instead of employing the latest software that’s easily adaptable and ready to handle real-time payments (RTP), most companies use legacy back-office systems that are slow and outdated, causing a considerable bottleneck in processing payments. This means increased costs and a loss in revenue.

Payment Operations Generate More Cost Than Profit

The back-office role is to support transaction reconciliation, settlement processing, and the movement of funds. Additionally, it handles disputes and the assessment of transaction-based fees.

A poorly run back office can be the source of significant revenue loss, and payment processing organizations currently lack viable and adaptable solutions to boost profitability.

The Pressure to Provide RTP

Real-time payments can clear and settle instantly with the use of a payment rail. The benefits of RTP are that funds are available immediately, the settlement is final with an instant confirmation, and workflows are integrated. RTP solutions can be used by consumers, merchants, and financial institutions to pay customers or bills, or to transfer money.

Worldwide RTP networks have been developed for nearly a decade, and RTP payments continue to see a surge in growth.

Today, financial services organizations face the formidable challenge of facilitating RTP along with traditional methods of payment. The only way to thrive in this new payment environment is to revamp the payments back office, offering faster money movement and value-added services for customers.

Payment’s Back Office as a Processing Bottleneck

Unlike back-office payment systems, front-end payment systems have easily adapted to RTP. The payments are processed instantly; however, legacy back-office payment processing systems are not suitable for such payments. In traditional processes, transactions are typically batched and processed at scheduled times. As most back-office systems are equipped to handle only batch-oriented payments, a system bottleneck has inevitably developed.

But these aren’t the only obstructions faced by companies with inefficient back-office systems.

Before companies can effectively address and enhance their current payment systems, they must overcome three roadblocks.

Legacy Batch Systems

Legacy batch systems are typically outdated software suites that many companies still use to process payments. Often, these systems are decades old and are ill-equipped to handle modern, 24/7 RTP demands. Although a company can initially process faster payments, thanks to the fast-processing speeds on the front end, a bottleneck inevitably occurs during the “last mile” once the payment hits the back-office stage and the attendant slower processing speed.

Spaghetti IT

Far too many payment organizations are operating with spaghetti IT systems, which are essentially numerous software environments cobbled together. These disconnected batch systems are not only outdated but also lack interoperability. Just to perform standard back-office functions, payments organizations must wade through labor-intensive, manual processes.

Frankenstein Systems

Let’s face it: Software can be costly, and it is little wonder that payment organizations try to make do with what they have. This usually means organizations will piece together their own system, adding and removing parts as they go. Before long, they have an inefficient and slow-moving hodgepodge system that, over time, can end up costing much more than an effective external solution.

If companies don’t make the necessary changes to improve their current back-office system, they could run into problems with scalability, preventing them from expanding their enterprise and sustaining future growth.

The Takeaway

Payments organizations don’t have to look far for the right solution. It comes down to needs. A company considering a revamp of its back-office payment systems should consider the following:

• Look for a solution that supports all payment types and data sources.
• Find a solution that has a continuous processing, API-driven architecture to eliminate bottlenecks.
• Seek a solution that has a configurable workflow engine that liberates company leaders to focus on profit-building tasks.
• Seek a rules-based, configurable system to avoid costly software code changes.

To remain competitive and gain market share, companies need a modern back-office system that’s fast, resilient, and agile. Employing the right back-office payment solution allows companies not only the ability to accommodate faster payment methods but also to be better positioned to adapt in an ever-evolving landscape.

The good news is that recent technology and software advances are providing more options for payments back office modernization.  In fact, companies are finding ways to transform their back office from a cost center to a profit center.  You can learn more in this recent thought leadership paper from BHMI, a leading software solution provider specializing in the back-office processing of digital payment transactions.

The post Back-Office Operations Need Serious Revamping appeared first on PaymentsJournal.

Fintechs are flourishing in a post-pandemic world. Equity funding for fintech companies doubled last year, bringing the industry’s global market value to about $5 trillion. Meanwhile, data from Statista found that roughly 65% of the U.S. population uses digital banking services, up from around 61% in 2018. That means more than 16 million Americans have adopted digital banking services over the past five years.

Mass mobile banking adoption suggests the financial future will be digital-first. Fintechs excel in this environment because digital applications developed on, by and for mobile devices usually provide a better user experience. Still, financial leaders must unpack how this trend will affect their bottom line. Understanding post-pandemic consumer behavior is the first step toward generating more meaningful, modern and holistic user experiences for fintechs, Big Tech, and traditional financial institutions (FIs).

Mobile payments are on the rise

Challenger banks—neobanks or digital-only banks—are increasingly popular. The global neobank market is expected to reach $2.05 trillion by 2030. Statista also predicts the number of neobank account holders in the U.S. alone will reach $40 million by 2025.

A decade ago, opting for a bank without a traditional brick-and-mortar presence probably seemed unthinkable. For many, the personalized customer care that physical banks provide is crucial to the overall financial experience. But fintechs have made great progress in improving the user experience of online-only banking, and many consumers—especially millennials and Gen Zers—now prefer to manage their financials on the go. Highly effective UX eliminates the need for a brick-and-mortar bank, at least, in the eyes of some users.

Fintechs have excelled in this digital environment because their platforms are created exclusively for mobile use, and so their user interface is usually a priority. But FIs also stand to gain from the trend toward mobile, easy-to-use platforms. FIs must consider offerings that will entice consumers to use their mobile wallets. In many cases, that means making banking apps an “all in one” stop shop for customers—an ecosystem, if you will. Instead of providing incomplete loan information, FIs should revitalize their online presence to provide robust loan application portals, financial wellness information, and credit score solutions.

Consumers are more likely to engage with a bank’s app or site if it provides a relevant portfolio of financial information. And the benefits go both ways. A consumer’s financial history can be used to pre-determine loan qualifications and personalize economic wellness outreach, allowing FIs to inform pre-qualified candidates how to refinance and consolidate their loans. That creates an easy, frictionless borrowing process, which is good for both the consumer and the bank.

Post-Pandemic Borrowing Behooves Fintechs

Financial uncertainty defined the early days of the pandemic. To address this, many governments encouraged borrowing through extended forbearance periods. Other FIs offered loans through the Paycheck Protection Program, designed to keep consumers afloat during tough times.

Two years later, the financial landscape has changed significantly. Loan applications are rising, and consumer credit debt is nearing an all-time high. Fintechs that reduce friction in the borrowing process have reaped the benefits. Now, banks have the opportunity to capitalize on that growth by presenting pre-qualified consumers with an intuitive and responsive loan application process.

Industry research shows that loan application processes longer than five minutes get abandoned by 60% of consumers. Users want easy, accessible applications they can start and finish on the go. As such, banking professionals should always prioritize responsive, mobile-friendly applications when searching for fintech partners. Even better, they should prioritize partners that compile consumers’ credit score information and lending histories to provide a detailed list of pre-qualified lenders. Doing so allows consumers to find relevant loan information at the perfect time.

Consumers Are Spoiled for Choice

Fintech companies are at an interesting junction. Digital financial processes were necessary for consumers in 2020, but now these applications are returning to a “nice to have.” Most consumers still opt to go digital, but now they’re exploring their options. If an application or bank doesn’t cut it, consumers are at liberty to find financial wellness options elsewhere.

Ultimately, the providers that win will offer extended functionalities like credit score solutions and streamlined loan applications. Superior UI will play a key role as well. In other words, while fintech companies adapt to their golden age, FIs also have an opportunity to expand and improve their market presence. And the benefits of doing so at the tail-end of the pandemic will be massive.

The post Understanding How the Pandemic Permanently Accelerated Fintech appeared first on PaymentsJournal.

Too many choices can sap our brainpower and make it hard to think straight. Unfortunately, when making e-commerce payments, things aren’t all that different.

The time has come for retailers and digital financial services firms to make the online payments experience smarter—smart enough to hide payment options that aren’t relevant to the buyer. 

E-Commerce Payments: The Upside of Accepting Multiple Payment Methods

E-commerce brands typically support as many popular payment options as possible on their websites. And why not? Customers expect it, competitors offer it, and it prevents businesses from being dependent on a single payment provider. Besides, additional payment options generally lead to more paying customers.

But is a crowded checkout page with multiple options really the best experience?  Probably not. In fact, research from Baymard Institute found that the average e-commerce site can improve its conversion rate by 35% solely through design improvements to the checkout process.

The Downside of Accepting Multiple Payment Methods

When thinking about how to pay for something online, today’s customers face a dizzying array of options: card payments, direct bank deposits, multiple digital wallets, and peer-to-peer payments. Now add to that the acceleration of buy now, pay later (BNPL) providers such as Klarna and AfterPay—with Affirm and Apple as the latest entrants to the market—and consumers have even more choice. And this doesn’t account for emerging payment methods such as cryptocurrency, biometrics, contactless payments, QR codes, and bitcoin.

With all these choices, it shouldn’t come as a shock that checkout pages are busy. What’s more, merchants must select, on behalf of their customers, not only the types of payments their e-commerce sites will support, but also which brands. For example, one retailer may use Klarna, while another may use Affirm. So, a customer who’s shopping online at both retailers would have to create multiple payment accounts for multiple retailers and geographies. In the brick-and-mortar world, this would be akin to a customer deciding to pay by credit card and then finding out that the store only accepts a Citibank or Chase card.

More Choice, More Mess for Merchants

The proliferation of payment options doesn’t only make things more challenging for customers. The growth in digital wallets, and the number of payment choices out there, are making things more complex for merchants too.

Global wallet choices offered by U.S. providers alone include Apple Pay, Google Pay, Samsung Pay, and PayPal. In China, wallets are the most popular way to pay, with Alipay being a preferred payment method. Additionally, the four major credit card payment processors rolled out Click to Pay, and many merchants including Amazon, Walmart, and Fitbit, even offer their own payment solutions. So how’s a merchant to decide which ones to implement?

Payment processing companies, such as San Francisco-based Stripe and Dutch payments company Ayden, have begun to introduce turn-key support for multiple wallet options to make them easier for merchants to implement and manage. Such companies have built an economic infrastructure to support making and accepting payments. And they process card payments, ACH payments, as well as some digital wallets and local payment methods.

A similar trend is emerging to help merchants tackle the complexity in BNPL options. Companies such as ChargeAfter provide a single interface for merchants to choose which BNPL options they’d like to implement.

While such solutions may simplify the merchant’s development process, overcomplicating the checkout page will never be the answer. And moving forward, the continued evolution of the vast technological advance fueled by the internet only promises to make things more complex for merchants. Ronak Doshi, Partner at Everest Group, agrees.

“The rise in Web 3.0 and metaverse adoption will expand the number of channels and the payment methods that come along with them,” said Doshi. “At the same time, the rise of real-time payment schemes are poised to add more competition and players in the payment ecosystem. This will simplify the payment processes but increase the number of choices for e-commerce firms and their customers.”

E-commerce Payments: The Right Option at the Right Time

Consumers don’t necessarily need more payment options—they need the right option at the right time. This means that companies need to be able to put forth the proper payment platform for a specific purchasing scenario. Payments should take a page from the playbook of digital-native companies such as Netflix, YouTube, and Amazon, which use product recommendation engines to entice users with relevant suggestions based on their previous choices. 

Extending product recommendation engines to payments would enable the customer to select the best payment option for them. This requires a deeper insight on consumer buying preferences and predictive modeling. 

E-commerce product recommendation engines are sophisticated systems that use algorithms and data to predict the products most relevant to the customer in a given context—increasing the likelihood of a purchase.   

The proliferation of choice is less about the next big payment platform and more about being smart about how we use the payment platforms that are already available.

Which companies will be the first to improve the customer experience by personalizing the types of payments they offer at certain touchpoints in the purchasing journey? That remains to be seen.

But one thing is certain. Those that do will have a competitive advantage and provide customers with a great experience all around.

Eddie Chin, experience solutions lead of financial services & insurance at Rightpoint, a Genpact company, co-authored this article.

The post Why Less Is More When it Comes to the Future of E-Commerce Payments appeared first on PaymentsJournal.

The banking and finance sector is undergoing a significant transformation as digital technologies and new business models dramatically alter the way they compete for customers. A key challenge for banks is the legacy infrastructure that underpins much of their operations.

Legacy systems include core banking systems, data management systems, and payment systems, which are often arduous to change, thus making it difficult for banks to modernize their operations and take full advantage of new technologies. Many systems were built for a different era of banking and were not designed to accommodate the rapid changes taking place in the industry today.

In a recent whitepaper, Diebold Nixdorf looks in detail at how legacy infrastructure is holding banks back and at how modernizing this infrastructure can improve customer service and increase margins.

Modernizing IT Infrastructure

Legacy infrastructure systems work well but aren’t suited to a rapidly changing landscape. Because many banks still use the underlying code to do transactions that was employed in the 1980s, these systems often require specialized expertise and dedicated resources to ensure they’re running. According to the whitepaper, “the generation of IT professionals who developed these systems and who hold the expertise in COBOL and other antiquated code have now reached retirement age, leaving no bench strength. And the ‘Great Resignation’ has only deepened the cracks.”

Innovative banks are addressing their legacy infrastructure in several ways.

Take cloud-based technologies, for example, which provide greater flexibility and scalability than company-maintained data storage. With cloud-based technology, the bank doesn’t have to worry about having the right amount of in-house data storage and computing power. If more customers come, the bank can simply add capacity from the cloud rather than buy additional hardware.

Similarly, low-code environments make it easier for people without a background in programming to change aspects of an IT system. Updating legacy systems requires programmers who are familiar with the outdated code used to create the system, and those programmers are a dying (or retiring) breed. Thus, a low-code environment is a permanent fix to that problem.

“A low code environment is a platform that allows users to create and customize applications using visual drag-and-drop interfaces and pre-built templates, rather than writing code from scratch,” the whitepaper notes. “Low code environments can be used to build a wide variety of applications, including web and mobile apps, data analytics dashboards, and more. [In particular] they can be useful for quickly prototyping and building applications and can help organizations speed up the development process by allowing more people to contribute to building and customizing software.”

Cloud-based systems and a low-code environment are essentially an update to existing banking systems and constitute a conservative approach to developing IT. Certain banks are taking a more radical approach and opting to replace their legacy systems altogether with new platforms built on a microservices architecture to support the new services-oriented business models of today.

Microservices architecture breaks down a large application into small, independent services that communicate with each other over a network. Each service is responsible for a specific function and can be developed, deployed, and scaled independently from the others.

With microservices, it’s easy to update and replace individual components of the system without affecting the rest of the application. This contrasts with traditional monolithic architecture, where a change to one part of the system can affect the entire application and deployment of updates difficult.

Microservices can enable banks to develop and deploy new features and services quickly and easily, which can improve customer experience and drive innovation. It also allows for new features to be tested and deployed in a controlled way, reducing the risk of disruption to existing services. But implementing a microservices architecture requires effectively starting from the ground up. Banks taking this approach would need to throw out a system that they already know works and start from scratch.

Using cloud-based data storage, a low-code environment, and microservices architecture is helpful for banks as they pivot toward a more services-oriented business model. Traditionally, banking has been seen as a product-based industry, with banks offering specific financial products such as loans, savings accounts, and credit cards to customers. In recent years, banking has evolved into a service industry, where the focus is on providing customers with a range of services to help them manage their financial lives. This is essentially a different business model, and banks are investing in advanced technologies and building platforms to compete in that model.

Advantage of Banks over Fintech

With the tanking of fintech stocks in 2022, it has become clear that banks have significant advantages over the younger upstarts. They already have a customer base and historical transaction data. Furthermore, banks can execute a variety of payments, including debit card transactions, ACH transfers, and checks. Banks don’t rely on payment transaction fees as their sole source of income. All of these aspects give banks an edge over fintechs. With the right technology enabling a flexible payment experience for customers, banks can retain that edge.

However, the advances in technology have been a double-edged sword for banks in terms of customer retention.

“The cradle-to-grave loyalty days are long gone, and minor issues can cut relationships short. Thanks to modern technology, consumers can quickly google alternatives that offer the services you don’t and join in just a few minutes,” according to the whitepaper. “On the other hand, if you give your customer great experiences, you drive stickiness. With a modern system, FIs can tap into real-time data for a 360-degree view of customers, accounts, and transactions. This view enables the extension of hyper-personalized services, which results in consumers doing more transactions with you, increasing your revenue and attracting new customers.”

Legacy infrastructure is a major challenge for banks as they look to fully embrace the digital and services-oriented architecture transformation needed to excel in the future of payments. These old systems are inflexible, costly, and time-consuming to maintain. To stay competitive, banks will need to make significant investments in modernizing their infrastructure and transitioning to more modern and flexible platforms that can support the new business models and technologies.

To learn more, you can read the full whitepaper here.

The post How Modernizing IT Can Help Banks Compete With Fintechs appeared first on PaymentsJournal.

Business-to-business (B2B) payments are one of the world’s most used financial services, and estimates predict global transactions will surpass $111 trillion by 2027, up from $88 trillion in 2022.[1] Where does B2B BNPL fit in?

Current State of BNPL

Business-to-consumer (B2C) BNPL was riding high during 2020 to 2021 as millions of shoppers worldwide used it to finance purchases conveniently. As a result, BNPL accounted for 2.1% of all global e-commerce transactions or $97 billion in 2020, according to a Q3 2021 report from Worldpay.[2]

However, B2C BNPL now faces regulatory scrutiny to protect consumers from debt bubble entanglement. The U.S. and Europe are mulling regulatory oversight to rein in B2C BNPL. Moreover, rising interest rates make credit costs pricey for providers, stagnating the growth of firms heavily focused on B2C BNPL as margins erode.

We saw in the first half of 2022, several B2C BNPL firms had reported considerable losses resulting in steep market capitalization declines. For instance, stock prices fell 93% for Affirm—the loan company that allows consumers to pay off purchases in fixed monthly payments.[3] And analysts slashed the valuation of Klarna, a Swedish fintech with a similar model, by a startling 85%.[4]

Conversely, the B2B BNPL model appears poised for 2023 growth because it facilitates third-party credit and risk-management tools that improve cash-flow flexibility for businesses by accelerating credit approval while mitigating repayment risk.

The total value of the B2B market in Western Europe alone is estimated at over $12 trillion, which is the total addressable market (TAM) for B2B BNPL service providers. And only 6% of this is from digital payments (less than $700 billion).[5]

If you extrapolate this data on a global scale, it identifies a massive market opportunity. As B2B digital payments grow, we expect the B2B BNPL TAM to increase accordingly. Moreover, B2B BNPL profit opportunities are significantly higher than business-to-consumer BNPL because the value of B2B transactions far outweighs low-value B2C transactions.

Benefits of B2B BNPL

B2B BNPL is on the rise based on its potential to scale and its advantages for buyers and sellers. So, what’s driving the benefits? First, buyers can conveniently repay in installments exceeding standard terms, while sellers receive payment upfront, which previously might have taken 30 to 90 days. And second, BNPL increases sellers’ average order value and improves sales conversion rates. Seller risk also goes down because third parties handle credit evaluation.

Historically, the BNPL market has been advantageous for incumbents, but now new-age players are catching up.

Traditional banks have regulatory expertise and access to low-cost capital. Additionally, they have customer data that can simplify credit evaluation. Yet fintechs can streamline onboarding, underwriting, and payment complexities for businesses. The result? Fintechs now hold a 10-15% share of the supply chain finance market.[6] And bolstered by open banking and investor funding, they can leverage data to extend B2B-focused loans at lower rates than incumbents.

For example, San Francisco-based Plastiq— a service that lets individuals and businesses use debit or credit cards to pay vendors that don’t otherwise accept those payment methods—deploys risk models to determine payback periods. They also provide embedded finance options at the point-of-sale.

Further, small- and medium-sized businesses (SMBs) show high potential for BNPL because this segment’s typical 40% financing rejection rate has sparked a pent-up need for alternative solutions. The short-term credit industry remains dominated by incumbents. However, we expect several more fintechs will turn to B2B payments to improve their unit economics. Moreover, with 70% of SMEs accelerating digital technologies after COVID-19, B2B BNPL solutions promise real-time credit. In addition, SMEs can recycle working capital, easing their liquidity crunch.

Banks realize they must offer B2B BNPL products to stay in the game. Therefore, incumbents and fintechs are partnering to leverage all aspects of the B2B BNPL trend.

For instance, Deutsche Bank and Credi2, an Austrian provider of and operator of digital financing solutions, launched a white-label BNPL solution for e-commerce merchants in Germany. Similarly, Berlin-based Raisin Bank, a savings and investment marketplace that connects retail customers with firms looking to expand deposit reach, collaborated with German B2B payment fintech Mondu. In early 2023, Santander CIB launched its B2B BNPL for corporates.[7]

The most significant benefit for banks stemming from B2B BNPL is that it successfully drives low-cost business-client acquisition and generates retention and loyalty by enabling superior customer experience. Firms should be cautious and monitor and mitigate risks. They need to underwrite various businesses and identity theft, which requires more effective risk management and fraud analysis tools than those in the consumer market. Not many countries have strict regulatory frameworks for B2B payments yet, meaning that B2B BNPL will continue to ride the growth wave in 2023 and beyond.

[1]    Juniper Research, “B2B PAYMENTS TO EXCEED $111 TRILLION TRANSACTIONS GLOBALLY IN 2027, AS BUSINESSES ACCELERATE PAYMENTS AUTOMATION TO REDUCE COSTS;” October 31, 2022.

[2]    CNBC, “How buy now, pay later became a $100 billion industry;” September 21, 2021

[3]    Forbes, “Stock Down 93%, Affirm’s BNPL Model Suffers As Funding Costs Rise;” June 22, 2022.

[4]    Ibid.

[5]    Business Wire, “Fintech Hokodo Raises $12.5 Million in Series A Funding, Enabling B2B Merchants to Offer     Instant Payment Terms and Scale With Confidence;” June 10, 2021.

[6]    Finextra, “B2B BNPL: Embedding Banks Within The Supply Chain;” September 15, 2022.

[7]    The Paypers, “Santander CIB, Allianz Trade, Two to offer B2B BNPL solution;” January 10, 2023.

The post B2B BNPL Offers a High-Potential New Chapter in Payments appeared first on PaymentsJournal.