WEBINAR

The Payments Paradox: Racing Toward Real-Time While Running on Manual

April 28, 2026

1:00 pm EDT

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Can your operations keep up with the speed of modern payments?

Payments aren’t just changing, they’re accelerating in every direction. Transaction volumes are surging, new payment rails are gaining traction, and AI is rapidly becoming part of the core infrastructure. But behind that momentum, many organizations are feeling the pressure: manual workflows, disconnected data, complex integrations, and increasing regulatory demands are making it harder to keep up.

On April 28, join Nick Botha, Vice President of Payments and Retail Banking at Autorek and James Wester, Co-Head of Payments at Javelin Strategy & Research, for an in-depth discussion about what’s really fueling this transformation, where the biggest operational challenges are hiding, and how these dynamics will shape the future of payments in 2026 and beyond.

In this webinar, you will gain insights into:

• Why operational capabilities are struggling to keep pace with payment growth
• How fragmented data is creating hidden risks across the ecosystem
• Where AI is delivering value today—and where gaps in maturity still remain

Our Presenters

Nick Botha

Vice President of Payments

James Wester

Co-Head of Payments

The post The Payments Paradox: Racing Toward Real-Time While Running on Manual appeared first on PaymentsJournal.

Banks are racing to modernize their payments systems, as real-time payments surge and artificial intelligence begins to reshape every corner of the industry. What once seemed like a back-office upgrade is now a critical priority—one that can define customer relationships and market positioning.

In a PaymentsJournal Webinar, Scotty Perkins, Head of Product Management at ACI Worldwide, Tyler Pichach, Global Head of AI Strategy at Microsoft, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed what banks need to do to prepare for these changes—and the cost of falling behind.

Modernization Is Moving Quickly

A survey by ACI of 200 banks last year found that modernization is their top priority. Banks wants to bring new products to market more quickly and deliver innovative solutions to customers. True modernization goes beyond adding a new payment rail; it raises critical questions about readiness, cloud adoption, native architecture, risk management, and scalability.

Digital channels are advancing faster than payment cores can keep up. While momentum around APIs and cloud adoption is strong, execution remains uneven, varying significantly by region and use case.

AI further amplifies the urgency around modernization. Banks need to consider not only how AI will enhance the customer experience but also how it will optimize the back-office processes that underpin payments.

“Leveraging the new tools around AI, as well as understanding and rewriting code is a great place for folks to learn and for customers to understand how to use AI,” said Pichach.

Wester added: “It may be that one thing that hits everybody in the face and says, you really need to be doing a lot more to prepare for what’s to come.”

Smarter Payments, Smarter Banking

Selecting partners with a deep understanding of the payments space and strong credibility can be a vital first step. Partners who can leverage all payment types help prevent a fragmented infrastructure.

A single, cohesive infrastructure allows banks to deploy instant payments quickly and efficiently. It also creates opportunities to introduce new offerings, like FedNow and RTP, alongside wire and batch payments.

“What if yesterday a consumer was going to use debit rails for a payment and tomorrow they’re going to use FedNow instead?” said Perkins. “How does the bank cost effectively and operationally manage that transition and make it seamless for customers? That’s where you want to involve partners that have expertise in showing those historically different use cases, but using a common look and feel, with orchestration logic that can credibly manage those payment types.”

Building In Scalability and Resiliency

A cloud-native strategy cannot compromise scalability or resiliency when deploying new solutions. Dynamic scalability involves more than just handling traffic—it includes managing costs and expectations. For example, it eliminates the need for excessive on-premises infrastructure that must be over-provisioned to accommodate peak demand. There should never be any perception—by customers or the bank—that availability is limited.

Resiliency extends beyond uptime. It encompasses the ability to continue processing safely under stress, whether facing sudden spikes in volume, fraud attempts, or network outages.

“One of the things we talk about in modern payments is the idea that failure is inevitable,” said Pichach. “You want to design systems with the mantra that things are going to go down. We need to ensure that these always-on operational components can continue to work.”

The Risks of Missing Out

For decades, banks have relied on payment systems that, while reliable, are now showing their age. Legacy code and infrastructure are increasingly fragile, making outages, slow performance, and outright failures more likely. Maintaining COBOL applications and the layers of customization added over time is no longer just a technical challenge, it’s a strategic one.

At the same time, payments are accelerating. Real-time payments reduce reaction times, making fraud more difficult to detect and prevent. This accelerated pace requires not only payment systems but also operational systems that can respond as quickly as transactions happen.

“The next piece is really around customer trust,” said Pichach. “If you’re not highly available, if you do not have the right fraud controls, you’re going to lose customer trust. You’re going to erode your customers’ desire to participate with you as a bank in payments.”

Taking the First Steps

Modernization is more than just an infrastructure upgrade. It’s an opportunity to rethink what problems the organization is trying to solve—both internally, for operational efficiency, and externally, for customer experience.

Quick wins are important: reusable patterns that deliver tangible business benefits early build momentum and credibility for the broader transformation. And AI? It can help deliver these faster experiences.

Bank strategy leaders must ask themselves: where do we want to be in five years? Which trends should we embrace—whether it’s the shift from wire transfers to instant payments, or integrating stablecoins and crypto capabilities now emerging under the Genius Act?

The first step is adopting a platform that can evolve with the market, letting banks innovate quickly and compete with those already moving fast.

“We saw a very large firm earlier this week talk about getting a banking license in the U.S. to do lending,” said Pichach. “But all of them are coming to play, and banks are competing with a wider array of players. They need to be able to innovate, to be able to get new products to life.”

Looking Down the Road

Instant payments are just the beginning. Banks need resilient infrastructure and reliable data to scale them while staying compliant with anti-money laundering and other financial crime regulations.

“One additional trend that we at ACI see is the ability to use AI to interact with consumers,” said Perkins. “If I can use ISO 20022 to understand transaction histories and how and what consumer behavior looks like, it makes me much more able to provide meaningful experiences.”

For business, especially small ones, the goal is simple: serve their customers without worrying about payments. They want transactions to simply work. Banks and their partners are building toward that reality, but the journey is ongoing.

“We have seen so much change, and we have gotten to the point now where everybody feels sort of caught up,” said Wester. “But there is no catching up. There is only going to be continued change.”

The post Modernizing Payments: Tackling the Toughest Tech Challenges appeared first on PaymentsJournal.

Financial institutions have traditionally been risk-averse, relying on tried-and-tested products and services. However, transformative innovations—such as real-time payment rails, artificial intelligence (AI), ISO 20022 adoption, and increasing demands for cybersecurity and fraud management—along with a constantly shifting regulatory backdrop—are making it critical for organizations to adopt new technologies.

In a recent Payments Journal podcast, Radha Suvarna, Chief Product Officer for Payments at Finastra, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the trends shaping the financial services industry and how organizations can seek new opportunities while keeping security and compliance top of mind.

Resilience Amid an Unpredictable Future

One of the main trends impacting the financial industry is the growing expectation—among customers, partners, and regulators—of what a bank should be.

“Let me call it resilience,” Suvarna said. “Given the growth of real-time payments globally and the criticality of payment infrastructure to the local economies in many countries, we are seeing a lot of regulators who are starting to expect more from banks, both in terms of platform availability as well as disaster recovery requirements. In turn, expectations around 24/7 service and responsiveness have increased.” 

Finastra has developed our Global Payments Framework (GPF) to underpin the modernization approach for our suite of payments and financial messaging products (see below).

Many small to mid-tier banks are unprepared for new payment formats coming down the road, such as ISO 20022. This makes speed to market increasingly important, allowing these banks to comply with the new specifications before they become mandatory.

Another trend impacting the industry is the move to combine multiple rails into a single payment hub. This approach centralizes a financial institution’s payment processing, simplifying the technology stack, streamlining operational processes, and enabling innovative use cases.

At a broader level, organizations across industries are adopting cloud-based solutions. In the financial sector, banks and credit unions of all sizes are leveraging these platforms to move away from costly data centers. Instead, a technology vendor can manage the payments orchestration end to end.

Another overarching trend is the adoption of generative AI in various forms. For example, Agentic AI solutions are both enhancing the customer experience and improving operational efficiency.

Whilst the potential of these trends is clear, navigating the path to adoption can be extremely challenging.

“There’s so much complication on the business side, and now the technology departments are being told you need to be ready to do all of this. Also, can you anticipate everything that’s going to happen in the future?” Wester said. “With things like Gen AI, do we really know exactly what’s going to happen with that? No, we don’t. You now have to future proof against a future that used to be somewhat predictable, but now is completely unpredictable.”

Playing Offense with Payments Modernization

Though these emerging payments technologies may seem daunting, they are ultimately just tools that financial institutions can use to fulfill one of their most fundamental functions: moving money from one account to another.

With this mindset, organizations can begin to break down the elements of payments modernization that will have the greatest impact on them.

“In my mind, the business case and the business value around modernization should be seen in two lenses—I would call them offense and defense,” Suvarna said. “On the offense side,  modernization should drive product innovation and enhance the customer experience, whether it’s faster and immediate funds availability for cross-border payments, greater transparency, or a reduction in cost.”

An example of playing offense would be embedding payment initiation within a customer’s ERP system. In the past, users may have had to upload files with batches of payments to the bank’s website. If customers were able to integrate payment initiation directly inside their ERP systems, it could be a game changer in many use cases. Also, a highly configurable solution means banks can avoid risky and expensive customizations, allowing them to introduce new rails, features, and process payments around the clock without upgrading the entire payments system.

Another way to play offense is by incorporating intelligent payments routing, or smart routing. When multiple payment mechanisms are available—such as a real-time payments or wire transfers—smart routing can help determine the best option based on a wide range of criteria such as speed and cost.

This same principle can be applied to cross-border transactions, which have traditionally been a pain point in payments. Smart routing technologies could evaluate options like Swift, Visa Direct or Mastercard Move to determine the best way to send the payment.

Another offensive maneuver could be streamlining the payment reconciliation process. For instance, ISO 20022 has a flexible and XML-based structure where the invoice amount, invoice number, and other data can form part of the transaction payload. This additional information can make it much more efficient to reconcile payments and invoices; or automate the process completely.

“The next stage is how do we leverage the specification to drive incremental value to the customers, and go after the customers that the banks don’t have today?” Suvarna said. “All of that is possible through modern technology and architecture. That’s all offense—to drive incremental market share and incremental customer and business value.”

Protecting Against the Downside

Though it is critical to be proactive to stay competitive, financial services organizations can’t forget their foundations.

“At the end of the day, financial institutions are about compliance,” Wester said. “They are about risk management, governance, security, and all those things have reasserted themselves. We want to bring in new clients and deliver them delightful products, but still—as a financial institution—you need to be paying attention to those things.”

Defending against the downside means that financial institutions must stay abreast of new regulations, which are constantly changing. For example, as real-time payments become more prevalent, they will likely be governed by a more stringent set of rules than those that apply to other payment types.

This is because when an instant payment is sent, it is irrevocable. In contrast, the delays inherent in ACH transactions allow for payment to be reversed in cases of error or fraud.

Fraud, scams, and the increasing sophistication of cybercrime are critical threats to all organizations, but especially to financial institutions. That’s why building and maintaining strong fraud prevention capabilities is an essential part of playing defense.

“That’s the number one topic that we hear from both financial institutions and vendors now is that discussion on risk, compliance, governance, security, and they’re all changing very quickly,” Wester said. “Those same macro trends and micro trends apply to what bad guys are doing and how they can do what they’re doing, and the risks that are in the market.”

A Maniacal Focus on Customer Value

These risks, coupled with an uncertain future, have kept many financial institutions on the sidelines, waiting for a moment when it might be more convenient or less expensive to modernize their payments stack. However, institutions that delay modernization now will be even less prepared for what comes next.

“It’s exciting times, but it means that this is one of those things where I like to say, ‘There is no destination, it’s all journey,’” Wester said. “You’re never going to get to the point where you can say, ‘OK, we’re modernized, we don’t have to deal with this anymore.’ Understand that everything is changing, is going to continue to change, and over the horizon there are going to be more changes.”

In this shifting landscape, the first step in the payments modernization process is to embrace the change, get comfortable with it, and adapt the mindset to deliver value around the unique business and customer needs that a modern, agile solution can address.

“There is no one-size-fits-all solution in my view, but customers want scalability that is hosted by the vendor,” Suvarna said. “It’s more modern, resilient, and multitenant, which makes it a bit more cost effective for them. We need to adapt the modernization agenda, an objective that is number one.”

Once these needs are clear, financial institutions should explore how they can leverage partnerships and third-party solutions. For example, a cloud-based platform like Finastra’s Payments To Go, hosted on Microsoft Azure and designed for mid-tier banks, can serve as a plug-and-play solution, offering institutions scalable, secure, and around-the-clock functionality.

Partnering with a robust payments modernization provider can take the heavy lifting off financial institutions, allowing them to refocus on what they do best.

“Above all, it is critical to maintain a maniacal focus on delivering customer  and business value, whether it is internal stakeholders or external stakeholders, and avoid distractions from the next shiny object,” Suvarna said. “Having a deliberate strategy, sticking with it, and keeping the eye on the ball is going to be critical. That approach ensures the best modernization outcomes for the institution and the customers we serve.”

The post Playing Offense and Defense: Why Now Is the Time for Payments Modernization appeared first on PaymentsJournal.

For years, banks and credit unions have been urged to upgrade their tech and infrastructure to support the next generation of financial services. However, with so many vendors and an overwhelming amount of information on emerging solutions, many institutions struggle to map the way forward.

In their report, 2025 Tech & Infrastructure Trends, James Wester, Co-Head of Payments, and Matthew Gaughan, Payments Analyst at Javelin Strategy & Research, detailed  three key tech and infrastructure trends shaping the industry—artificial intelligence, payments modernization, and open banking—and how having the right people in place can help institutions build systems that meet rising customer expectations.

AI Across the Entire Bank

There’s little debate that artificial intelligence has been the most talked-about technology in the financial services industry over the past year. While AI may still be a new consideration for small to mid-sized banks, the largest banks have been deploying it for years.

For example, JPMorgan Chase CEO Jamie Dimon recently said that the bank has been using AI for decades and employs a team of over 2,000 AI and machine learning experts, along with data scientists. These experts have helped JPMorgan Chase implement AI across multiple areas, including marketing, fraud detection, and risk management, supported by the bank’s $12 billion annual technology budget.

Bank of America has made similar investments, using the technology to support its customer-facing chatbot, Erica, for years. The bank has also explored ways to enhance its programming capabilities through AI-driven solutions.

“It’s clear that AI is having a big impact across the entire bank at these organizations,” Gaughan said. “It’s not just some buzzword that they’re putting in outbound marketing material to make it seem like they’re on trend. Given that, it is an all-bank—front, middle, and back office—initiative where functions across those areas will be increasingly supported by AI. In the near term, it will most deeply be felt across the middle and back office.”

These offices are crucial to the institution’s operations, ensuring that its processes and products function properly. AI can supercharge anti-money laundering verification, Know Your Customer checks, fraud mitigation, and even credit scoring decisions.

Banks have also begun integrating AI into their accounting and IT operations, further expanding its impact.

“In utilizing AI across the organization, bank leaders will need to be more comfortable with the knowns and the unknowns,” Gaughan said. “It’s typical in technology investments at banks, that these are things that require steep investments where the return on that investment isn’t necessarily clear at the beginning. It’s harder to pin down beyond the potential cost savings because this will impact multiple functions across the entire bank.”

Though AI is an enterprise-wide endeavor, it is not a one-size-fits-all tech solution that can simply be plugged into any process. For this reason, banks will continue to look for top talent—both internally and externally—to navigate the complexities of AI implementation.

“The competition for tech talent will be fierce, as it always is,” Gaughan said. “The fact that JPMorgan Chase has 2,000 people focused on AI tells you there’s a lot of people needed to build out these functionalities, and that’s just one bank. Especially among the biggest banks, there’s going to be a lot of competition over tech talent.”

Modernizing Cores for the New Payments Era

For all the attention it gets, AI is far from  the only technology institutions should prioritize. As customers increasingly expect modern payment solutions—such as open banking, instant payments, and embedded finance—many banks will need to upgrade their core systems.

However, determining the right scope of such an upgrade isn’t always straightforward. Additionally, many banks still don’t feel an urgency to update legacy core systems they have functioned reliably for decades.

While these systems work now, banks that have neglected to upgrade their core platforms over the last decade will find it difficult to adjust to the next wave of financial innovation.

“The ecosystem has expanded, and your core needs to be able to adapt and integrate these outside solutions more easily,” Gaughan said. “The it-isn’t-broke-don’t-fix-it mentality has worked, but band-aid fixes to connect to cores won’t be effective over the long term if consumers are expecting more forward-looking offerings like real-time account management and instant payments.”

Many of the largest financial institutions have already modernized and have the resources to continue evolving. However, beyond the top-tier banks, institutions will increasingly rely on vendors for support in their payments modernization projects.

These vendors can assist with key aspects like integrating a wide array of API connections with new payment rails and systems. They can also help banks streamline business processes and offer guidance on technology adoption. In some cases, third-party providers can even support a full-scale transformation of core banking systems and architecture.

Regardless of whether financial institutions handle modernization in-house or get third-party help, it is critical to start the process now.

“For the smallest banks, payments modernization might not be the most important thing, if they like the simplicity,” Gaughan said. “But there are over 9,000 financial institutions across the U.S., so it’s a highly fragmented market. To compete in that landscape, you’re going to want to offer these things, especially if they become table stakes. It’s better to invest now than scramble later and feel like you fell behind.”

Open Banking Puts Developers in the Spotlight

The fragmented U.S. financial landscape is one reason why efforts to import elements of the open banking model—widely adopted in many other countries—have gained traction. Open banking connects disparate institutions through third-party providers, ultimately giving consumers greater freedom of choice.

While this model might seem like a natural fit for the U.S., lawmakers have largely opted to let the market drive open banking adoption. In contrast, government mandates have accelerated its implementation in many other regions.

“In the UK, it was much easier for them to take a regulator-driven approach because there are not as many banks,” Gaughan said. “There are probably 10 to 20 institutions, and most of the usage is concentrated in the top 10. It’s much easier in a country with less banks to take a regulator-driven approach where the lawmakers set the tone and the requirements, than in the U.S.—where what works for one bank probably doesn’t work for another one.”

Still, the U.S. is beginning to make strides. According to the Financial Data Exchange—a leading nonprofit that offers banks a data-sharing standard—more than 94 million customer accounts now connect to financial institutions using its open banking standard, up from 21 million just three years ago.

This increased adoption has accelerated open banking’s momentum and thrust one community into the spotlight.

“Pulling the curtain back, it’s the developers who are the technology decision-makers who look across the vast array of these different APIs offered by banks and data aggregators as they create these new and better financial tools,” Gaughan said. “Not only are they responsible for creating APIs, they also are responsible for ensuring they adhere to evolving standards and provide useful connections into financial data.”

The key role of these tech professionals means that courting developers—making their lives easier and providing them with clear, easily accessible documentation—will become an essential product marketing strategy.

To attract developers, some banks have followed the lead of technology companies by building portals to house developer documentation. Other institutions have created sandbox environments where developers can test applications.

This developer-centric approach could lead to a substantial strategic shift for many institutions.

“Building these technology-driven communities will require a rethinking of a bank’s financial product marketing approach,” Gaughan said. “There will need to be a rethinking of its go-to-market strategies, messaging, and outreach. It means banks will need to find marketing talent that can understand financial services, technology standards, and compliance, among all the other important competencies that flow throughout this area.”

The post As Tech Takes Center Stage for Financial Institutions, Talent Becomes Key appeared first on PaymentsJournal.

Many banks rely on legacy systems, often built 15 or 20 years ago—sometimes on IBM mainframes. The original developers have likely retired, and there’s minimal documentation on the system’s architecture. These systems are black boxes—any change risks unintended disruptions, making banks hesitant to make any modifications.

As a result, banks are increasingly looking for modern solutions that allow them to innovate without the risks associated with overhauling legacy infrastructure. That’s why Payments-as-a-Service (PaaS) has emerged as a viable option for banks of all sizes.

During a PaymentsJournal webinar, Deepak Gupta, Executive Vice President for Demand Fulfillment at Volante Technologies, Belhassen Belkhechine, Payments Product Manager at Azqore SA, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the benefits of implementing PaaS.

Meeting the Customers’ Needs

No one chooses their bank based on the quality of its payment service. However, if payments are not executed swiftly and efficiently, clients will notice and likely take their business elsewhere. These concerns have given rise to PaaS, though it still faces skepticism from many financial institutions.

“When I joined Volante almost six years ago and started the business plan for Payments-as-a-Service, the belief was that a bank is never going to put their payment solutions online on a cloud,” said Gupta. “They were concerned about security, and about keeping their data outside the data center. Lo and behold, five years after, most of our deals are on Payments-as-a-Service.”

If banks don’t adapt to their customers’ expectations, staying ahead of the game will be difficult. Speed is critical in payments, as is the quality of service. Customers will have little tolerance for downtime.

Overall, banks don’t need to invest time and money in learning different applications, navigating multiple UIs, or creating data lakes to gain a unified view of the customer. Additionally, there are business benefits, such as flexible pricing models.

“We are in Switzerland, with a lot of banks in Europe and in Asia,” said Belkhechine. “We need to manage their local payment as well as the different payments in the SEPA area. The pay-as-you-go model has allowed us to choose the rails that we need, and the features that we need. We can also take advantage of the economy of scale because we share together the evolution of your system.”

The Necessity of the Cloud

A bank can’t effectively execute a PaaS without a cloud-native solution. Mid-sized and small banks should secure their payment systems on a public cloud like Azure or Amazon.

“If you are a Tier 1 global bank, you have the means, the resources, and the knowhow to run it in your private cloud,” said Gupta. “But midsize and small banks have to ask themselves if that is the best usage of their people, even if they have the IT resources. Are you going to spend those scarce, expensive resources on maintenance? You might be better off using them to improve security and scalability.”

With a cloud-native PaaS solution, Volante has seen straight-through processing rates rise from the low single digits to 80%-90%, with more than 90% reducing payment processing costs. It eliminates the need to maintain a large mainframe or a team of 1,000 developers to lower processing expenses.

“Revenue is the endpoint now,” said Wester. “That is very different than the way we used to look at payments, where we’d often ask, ‘What’s even possible?’ Many times, the answer was that we simply didn’t offer those options, so we’re not going to be able to deliver that product. We’ve since realized that customers will leave for products that meet their needs and expectations.”

Scaling Up the Service

When someone describes a solution as scalable, it’s often viewed in the context of a single product line. For instance, an institution might evaluate its system’s ability to handle retail payments on Black Friday and determine if it can manage that load.  

However, scalability extends beyond just a single product line. It also refers to the system’s ability to scale across different lines of business. Can it be adapted to handle other payment rails, diverse settlement mechanisms, or various payment types? How far can these additional platforms be expanded?

“We have a Tier 1 bank that launched two rails, expecting to create more business for the bank,” said Gupta. “Lo and behold, when they launched these offerings, they found out that one is doing well, and the other one isn’t doing that well. Now the plans have changed and they want to add the third rail. You need to be able to evolve at the speed of business. You need to work with a provider who doesn’t lock you in a box when the game changes.”

Any bank looking to leverage PaaS should remember that it’s driving the process. Too often, vendors come in dictating what the institution should do and how to do it. Instead, the bank should focus on addressing its biggest pain point. If, for example, the wire system is struggling to meet growing demand, that should be the vendor’s primary focus.

The Technology Evolves

If a vendor can’t keep up with technological advancements, they risk falling behind in an ever-evolving industry. Banks must avoid relying on systems that will become outdated and legacy-bound in just five years.

For example, it’s clear that artificial intelligence will revolutionize the payments industry. Companies should partner with a provider that’s actively investing in emerging technologies—whether that’s AI, new payment types, or fraud prevention. They should inquire about how the provider plans to leverage AI to enhance STP rates, boost staff productivity, and reduce error rates.

“We have a customer who’s live on real-time payments,” said Gupta. “When they went live, they didn’t think that they’re going to need the Request for Payment feature. Nobody was asking for it, so they planned to worry about it in phase two. They could make that decision because they knew if they needed it, they wouldn’t have to build something new. They wouldn’t have to go through a six-month cycle of testing it. They can just turn on the feature.”

Seeking a Single Hub

Payments don’t operate in isolation; they are part of a complex ecosystem with a range of interconnected solutions. Many banks use multiple fraud detection systems, sanction screening tools, and ledgers. Additionally, banks often have separate applications for different payment types—one for ACH, another for wire transfers, and yet another for SWIFT transactions.

PaaS frees banks from having to worry about these complexities, streamlining their operations.

“When we think about B2B payments today, we think about ACH, SWIFT, FedNow, and RTP,” said Gupta. “Why do we have to think like that? Does FedEx ask you which plane you want the package to go on? Or whether you want it to go through Ohio or Chicago? They ask you two questions: When do you want it and what are you willing to pay for it?”

“Why can’t we do the same thing in payments? Why can’t we have a single payment hub which can provide all the payments type to any bank in the world?” he said.

The post The Easiest Route to Modernizing Payments? PaaS. appeared first on PaymentsJournal.

Financial institutions have been hesitant to embrace the array of payment types now available, from instant payments to stablecoins. However, these technologies offer more than just a faster means to an end—the operational efficiencies they deliver can have a significant impact across an organization.

In a PaymentsJournal webinar, Nick Botha, Global Payments Sales Manager at AutoRek, Michel Vaja, Head of GTM Europe Cards & Payments Practice at Capgemini, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the state of the payments industry, the benefits of emerging payments, and the approaches financial institutions can take to transform their organization.

The Overall Objective

The payments industry has flourished over the last two decades, and 2024 was no exception. According to Capgemini’s World Payments report, 1.6 trillion digital payments were exchanged globally. Digital transactions saw double-digit growth across all regions, with Asia leading the way.

“It’s quite a dynamic and interesting market, both in transaction volumes but also in value,” Vaja said. “What is stimulating the market is instant payments—we’ve seen more than eighty countries across the world adopting instant payment schemes. Of course, that introduces a number of new use cases for corporate consumers. There has also been the rise of open banking, where there has been strong growth over the last 12 to 18 months.”

The overarching goal is to build a global real-time payments economy, and last year saw significant progress toward that objective. Emerging technologies, like cloud platforms, are becoming integral to the infrastructure that supports the vast transaction volumes processed by organizations.

Another key trend is the integration of artificial intelligence and machine learning into the payments space. AI is making an impact in areas ranging from fraud prevention to data management. This new technology is also closely tied to various regulatory initiatives, which has shifted the broader conversation about the industry.

“Payments regulation over the last 10 years or so has been about encouraging competition, encouraging growth, and bringing new entrants to the market,” Botha said. “In today’s world, the regulators are trying to understand what needs to be in place to put control frameworks around certain types of payments, and especially the technologies that are being introduced to payments.”

A Technology Deficit

The technologies driving the acceleration of payments have created more opportunities than ever for financial institutions, but they have also introduced complexity and uncertainty in many cases.

“It’s exciting on one end to know that the world is getting smaller and smaller from a payment standpoint,” Wester said. “But on the other side, what does that mean in terms of where our products are going to go? What can our companies do? What can financial institutions do? That’s a bit more daunting simply because we are opening so many possibilities.”

The rapid pace of technological innovations means that, despite investing in tech solutions for decades, many organizations still find themselves operating at a technological deficit. In Capgemini’s report, European banking payment leaders were interviewed about their readiness to support SEPA Instant, an EU instant payment rail. The study found that only 7% of these leaders felt their organizations were prepared to comply with the regulations.

“They looked at readiness just from a compliance standpoint, while many in the industry are massively investing in those initiatives to generate more value,” Vaja said. “If (the institutions) are not ready to comply, it tells a lot in terms of how much they are ready to leverage some of those initiatives to enhance their payments customer propositions. A lot of work still needs to happen there.”

A Tough Sell

Shifting to a new payments paradigm can be a tough task because traditional banking systems are reliable and well-established in many countries.

“It’s an expensive, time-consuming exercise to keep up with the times,” Botha said. “For many, it’s this thought process of, if it’s worked until now so it should continue to work. When we speak to businesses that have been around for a long time, they’re very heavy on the head counts that are required to run these processes. It’s hugely expensive, and the reason is they’re running off these legacy tech stacks.”

While the current model may be effective, it will become increasingly difficult for institutions to shift to new payments protocols, such as ISO 20022. The standard offers significant benefits, like richer transaction data, but adoption is not as simple as flipping a switch. Many of the current systems aren’t equipped to handle the extensive data that the format provides.

When it comes to instant payments adoption, the reliability of the U.S. traditional financial system has been a significant barrier. The financial services space has traditionally been risk-averse, which means that tried-and-true payment systems are often valued over innovative systems that could invite risk.

“Financial institutions want to run a cost-benefit analysis and some of the stuff that we talk about in terms of benefit versus cost is a little iffy,” Wester said. “Sometimes we have to estimate and say, ‘We know this is going to be good for you.’ The idea of these financial institutions implementing some of the technological advancements, even though we know they are going to come with benefits from efficiency, it becomes a very tough sell.”

Walking the Transformation Path

The efficiency benefits from payments modernization can unlock significant revenue. However, even as organizations begin to recognize these benefits, they may still be unsure how to proceed. Transformation is often viewed as an expensive, multi-year program fraught with risk.

“The risk aversity of organizations can be a barrier to walking the transformation path,” Vaja said. “Where we’ve seen organizations be successful is when they accept that they need to be in an ongoing incremental transformation state. A key consideration for your bank is to define your organization’s transformation trajectory and your quick wins. Having a clear road map is a key aspect with which we’ve seen many organizations be successful.”

As many companies undertake modernization projects, they tend to focus heavily on the front office, particularly in improving customer acquisition or user interfaces. While these aspects are important, the most dramatic impacts are often achieved by transforming middle- and back-office systems and processes.

“Organizations operate on thin margins, and it becomes a diseconomy of scale if you’re not utilizing automation and the newest technologies to help your business increase margins and generate more revenue,” Botha said. “It’s fundamental to understand what your teams are doing to make sure that your payments are settling, you’re driving up liquidity, and you’re reducing settlement times to generate more revenue.”

Technology Interplay

The payments industry is soaring, driven by a growing number of enablers, including open banking initiatives, instant payments rails, digital currencies, and new payment formats. However, for organizations, navigating this complexity can be challenging, as they must balance innovation with the need to combat fraud and maintain compliance.  

“I would strongly encourage bank executives to look at those initiatives and regulations as opportunities,” Vaja said. “More importantly, I would encourage executives to look at how to combine some of those capabilities together to generate value, because combining richer data, real-time money movement, and the payment services offered by non-banks presents a major opportunity.”

As financial institutions undergo payments transformations, they should focus on understanding the interplay of technologies within the organization, rather than searching for a magic bullet.

“You can have the greatest system doing reconciliations, the greatest system processing payments, the best ledger technologies, and the best front-facing applications, but if they are not effectively communicating with each other in real time to allow for the effectiveness of the payment product that you’re offering, it becomes null and void,” Botha said.

To achieve this interoperability, many organizations will have to lean on partners—especially those providers who can lighten the lift on some of the middle- and back-office processes that often seem like a chore.

“Someone told me at a conference that reconciliations were not a very sexy part of the process and I disagreed with him,” Botha said. “What we do is play a part in that process of unlocking the potential for increasing your margins and generating further revenue. AutoRek is helping some of the biggest organizations around the globe with their data difficulties, and showing them how to reconcile effectively.”

The post Payments Modernization: Always Evolving with Tech appeared first on PaymentsJournal.

Many financial institutions are feeling the urgency to make headway on payments modernization and digital transformation initiatives. However, all the factors involved in outsourcing an essential function like item processing might make a migration project seem like a daunting task.

In a recent PaymentsJournal podcast, Candace Burleson, Senior Implementation Analyst at Fiserv, Amina Moyer, SVP of Core Banking Solutions at Community Bank, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the successful item processing migration at Community Bank, the issues it solved, and the opportunities the modernization project created.

An In-House Shop

Prior to the implementation, one of the biggest challenges at Community Bank was staffing. The Item Processing (or Proof) department struggled to retain knowledgeable staff. The roles were often considered entry level, even though the team was a critical component of the financial institution’s daily operations.

“The hours can be demanding, and our Proof and IT teams had many late evenings to ensure the balancing and timeliness of the cash letter getting out the door,” Moyer said. “Our mainframe tasks were extensive, comprised of multiple checklists that were probably no less than three or four pages. That poses significant risks if the teams handling those tasks lacked any expertise or overlooked a step.”

The bank’s IT teams were also responsible for server maintenance and timely software updates, which were crucial to preventing any processing disruptions. Before the migration, Community Bank was a fully in-house shop for all their processing, which is why it chose to first migrate item processing to an outsource environment ahead of its full core system migration.

However, the project still presented challenges because the bank had to maintain daily operations.

“That is a common refrain we hear from financial institutions, that they have a bank to run,” Wester said. “When they look at all the challenges of taking on a project like this, that’s on top of all the stuff that has to be done in terms of running a bank, plus the fact that every bank is different. Everyone has their own challenges, whether it is staffing or the nuances of how they may run their business. It can be a scary thing to undertake.”

Implementing the Migration

Once Community Bank made the decision to migrate item processing—with Fiserv’s aid—the process was accomplished in steps.

“First was discovery,” Burleson said. “We worked collectively as a team, the Community Bank team along with myself. We discussed processes and procedures that they were working on in-house, gathered data which assisted me with the best setups for the institution, both for capture and then the back-end processing approach.”

The next phase of the process was development. Fiserv and Community Bank professionals worked on coding collectively. They identified the items that they would capture daily and the expectations for the receipt of files from item processing.

Then came testing, which began internally on the Fiserv side and then was piloted at Community Bank. There was continuous testing to ensure that both parties were receiving the correct data on a timely basis. The final phase was the go-live and support process.

“On go-live week, we monitored all incoming and outgoing files, outgoing meaning cash, letters, files back to the bank,” Burleson said. “We were able to exclude a lot of things that they were doing internally, and it was a good teamwork effort.”

In-house to Outsource

One of the immediate impacts of outsourcing item processing was that it alleviated many of the staffing issues Community Bank faced when employees retired or moved on to other opportunities.

The bank was also able to initiate cross-training within their operations team, which turned out to be a significant advantage. Cross-training brought fresh perspectives to the table, which identified opportunities for process improvements and efficiencies.

The additional training not only increased the depth of knowledge within the institution’s teams, but it also helped employees recognize their value to the organization. The staff was more aligned with the bank’s broader goals because they had time to stop and see where they were on the bank’s road map, when previously they were too bogged down with day-to-day tasks.

“I’d also say our client experience improved,” Moyer said. “In addition to migrating item processing, we introduced front counter teller capture at our branches, which reduces errors. In the past, those types of errors that were occurring at the teller line posed both a financial and reputational risk to our bank. The teller capture solution came as a benefit through migrating and implementing the item processing solution.”

A Team Effort

Within the banking industry, front office projects often take precedence. However, the middle and back-office touch so many aspects of a financial institution’s operations that updating these functions can have a dramatic impact. Still, the work involved in modernizing those aspects of the business has made many banks hesitant to take on such a demanding task.

“For financial institutions, this is a shining example that these processes are difficult, but they can be done,” Wester said. “If you are looking at manual processes, paper-based processes, it’s beyond the point where these things need to be taken care of. So much of what we’re looking at in financial services—from a technology standpoint—depends on a completely digital middle and back office.”

These manual day-to-day tasks can not only mire down a bank’s operations, but they also create operational risks when there are errors and delays. However, a staff that understands these functions can be instrumental in a successful migration.  

“The collaboration was key, in addition to having teams that are intimately familiar with the day-to-day and the whole experience here,” Moyer said. “The strength of the teams on both sides is what contributed to the success of this migration. It just gave a comfort level to the team when they were trying to unwind years of these manual tasks and relating them to what today is going to look like.”

The post Item Processing Migration Success: A Client Case Study appeared first on PaymentsJournal.

In the fast-changing world of financial services, modernizing payments technology has become essential for businesses looking to reduce costs, enhance customer experiences, and stay competitive. Santander Consumer, a full-spectrum auto lender, stands as a prime example of how bold leadership and strategic decision-making can transform payments infrastructure to deliver long-term value.

On a PaymentsJournal podcast, Santander Consumer Chief Technology Officer, Don Smith, spoke with PayNearMe Chief Revenue Officer Mike Kaplan and James Wester, Co-Head of Payments at Javelin Strategy & Research, about Santander Consumer’s approach to modernization and the benefits the company gained from it.

Why Payments Modernization Matters

Financial institutions operate with a fairly straightforward business model: they lend money and borrowers repay it. “Payments is a really important part of our business,” said Smith. “We lend people money to procure vehicles and then we really, really like it when they pay us back!”  Smith noted that modernizing their payments platform was critical to addressing service-level challenges and supporting scalability that existed with their incumbent provider.

PayNearMe’s Kaplan highlighted the broader implications of modernizing payment systems. “When payments go right, they are frankly really easy,” said Kaplan. “It’s when they go wrong that you need a modern platform and modern systems to address those things and drive the extra costs out of it.”

The motivation behind Santander Consumer’s decision to overhaul their payments technology was clear: outdated systems were creating inefficiencies, service disruptions, and unnecessary costs. As Smith explained, “When outages occur with a payment provider, it’s a big problem because customers can’t pay us. Reliability and stability in a payments platform are absolutely critical.”

A High-Risk Decision

Service-level challenges and stability issues prompted the company to evaluate opportunities to make a change with their payments provider. In addition, as a contract neared its end, Santander Consumer saw an opportunity to reassess its existing provider and consider whether to renegotiate or look at alternatives. Finally, the company asked whether the current platform and strategy could expand, improve efficiency, and better service customers. If not, it was time to consider a change.

“All those things coalesced together as I was introduced to PayNearMe,” said Smith. “We started evaluating their capabilities and looking at the stack and the architecture that they provided.”

Transitioning to a new payments platform is no small feat, particularly for a large organization like Santander Consumer. “These projects are high-risk,” acknowledged Smith. “Success requires a clear vision, the right partner, and active executive sponsorship. It’s not enough to just approve the project; leaders must stay engaged and work closely with teams to address challenges in real time.”

Wester praised Santander Consumer’s approach. “Many financial institutions struggle with modernization because they view technology as an ancillary function rather than a driver of business efficiency. Santander Consumer’s focus on aligning technology with business outcomes is a model for success,” said Wester.

“You need to be able to step up and drive transformation in your organization, and not fear the hurdles that you have to jump over,” added Smith.

Total Cost of Acceptance

For forward-thinking organizations like Santander Consumer, considering the total cost of acceptance—not just transaction fees—can transform their approach to payments. As Kaplan explains, the goal should be to address all costs associated with payment acceptance, including system costs, manual interventions, and exceptions from failed or delayed payments.

“It’s not just reducing the cost of an individual transaction, but really, the whole ecosystem becomes more efficient the more you take manual effort and touch points out of the process,” said Smith. By partnering with PayNearMe, Santander Consumer streamlined workflows, reduced exceptions, and improved overall efficiency, delivering both cost savings and a better customer experience.

The Role of Self-Service

One of the standout features of the modernization effort was the emphasis on self-service capabilities for both Santander Consumer’s customers and employees. With PayNearMe’s help, Santander Consumer introduced a feature that allows them to send personalized payment links directly to customers’ mobile devices, enabling one-click payments. This eliminated the need for the company to contact a subset of their customers.

“We saw thousands of people adopt that new capability,” said Smith. “Otherwise, we would have had to phone them up, track them down, get them to answer their phone in the first place, and guide them into making a payment.” This capability not only enhanced the customer experience but also freed up internal resources to focus on more strategic priorities.

Measuring Success

Santander Consumer measures success across multiple dimensions, including customer adoption of new payment methods and channels, such as Google Pay, Apple Pay, PayPal and Venmo. The team also monitors service levels to ensure stability and scalability, while tracking operational efficiency gains in back-office functions such as reconciliations and reporting. Ultimately, success is defined by enhancing capabilities, reducing costs, and managing risk effectively–ensuring the modernization delivers long-term value.

Smith’s advice for organizations considering a similar journey was clear: “Don’t start a project like this without the right partner and active executive involvement. It’s a long and complex process, but with close collaboration and a clear vision, the results are well worth the effort.”

As payments technology continues to evolve, Santander Consumer’s success demonstrates the benefit of modernization—not just as a technical upgrade, but as an enabler for long-term value.

The post Fast, Secure, and Future-Ready: Santander Consumer’s Payments Tech Transformation appeared first on PaymentsJournal.

Money 20/20, one of the largest financial conferences in the world, has become a must-attend for payments, fintech, and banking professionals. This year, hot topics included instant payments, cross-border payments, and the integration of AI into fintech. However, the acceleration of payments innovations has also caused a decided shift in the show’s tone.

In a recent PaymentsJournal podcast, Oscar Munoz, Vice President of Sales at Euronet Worldwide, and James Wester, Director of Cryptocurrency and Co-Head of Payments at Javelin Strategy & Research, discussed their experiences at Money 20/20, their insights on the payments industry, and the factors driving payments modernization.

The Next Guy

Thousands of companies at Money 20/20 showcased innovations spanning everything from cards to account-to-account payments. Alongside these advancements, there was just as much emphasis on fraud prevention and risk management.

As payments continue to accelerate, security has become a pressing priority. One of the most talked-about topics discussed at Money 20/20 was the incredible growth of instant payments. The rising adoption of real-time payments has driven a demand for modernized platforms capable of supporting them.

At past conferences, financial services firms often adopted a “wait-and-see” approach, observing how innovations might impact the industry before diving in themselves. However, that mindset has shifted. The industry is already embracing next-generation payment solutions, including instant payments, cross-border payments, and stablecoins.

“There’s no more waiting and seeing, because to take advantage of any of those payment options for your customers, you must have a modernized payment infrastructure,” Wester said. “The assumption is you’ve used the last decade to modernize your payment infrastructure. If you haven’t, you had better get going, because everything that’s going to happen from here requires that you have gotten to that point.”

McKinsey conducted a recent study about the costs of delaying a payments modernization project, which found that keeping and maintaining legacy systems was draining roughly 70% of organizations’ IT budgets, and it would only become more expensive as time goes by.

“Many have thought that modernization projects are something for the next guy to do,” Munoz said. “When you see what is happening today, which is you have 30-year-old code that was great and built for purpose, but then that updates are coming out twice a year, minimum. People are realizing that you have to go through (payments modernization). It’s no longer the next guy, you are the next guy.”

Orchestrating Options

Despite the various alternative payment methods available, cards are expected to maintain their dominance. The card market is projected to grow at a compound annual growth rate of 7.9% from 2023 to 2028, driven by an increasingly digital landscape. In three years, Euronet estimates that 95% of card payments in developed markets will be contactless, while virtual cards continue to gain traction. 

While cards remain a staple, instant payments are experiencing impressive growth, especially in markets outside the U.S. For example, instant payments are growing at a CAGR of 30% to 40% in countries like India and Brazil. However, the appeal of instant payments extends beyond speed—they also play a pivotal role in accelerating financial inclusion by reducing costs and expanding access for underbanked populations. 

As the array of payment options proliferates, payment orchestration is becoming essential. Recent studies show that 60% of enterprises with revenues exceeding $500 million are considering payments orchestration platforms. These platforms can improve rates by up to 20% while increasing security and scalability.

“It’s all about that optionality for businesses and consumers,” Wester said. “You have to support all those options, but then you have to be able to support them across the scale. You also have to think about risk and compliance across that scale, because there are no oopsies in payments. You have to be able to do it correctly from day one.”

The increasing number of options might be one of the factors that have some institutions on the sidelines. For instance, there are two instant payments rails in the U.S.—RTP and FedNow—and both are growing rapidly.

“Organizations might be waiting to see which one is going to win, but both are going to continue to grow,” Munoz said. “It’s important that you’ve got to have a foot on both rails. If you look ahead, at some point the ecosystem is going to converge in a way that it won’t matter if I pay from my bank account or if I pay from a card, I’m the same consumer no matter which form of payment I use.”

The Path to Innovation

As the payments infrastructure converges, consumers expect real-time information and access wherever they are in the world.

“When you ask a consumer what they want in terms of payments, oftentimes they can’t tell you what they want, but they know they want it,” Wester said. “What’s interesting is how quickly things become expectations, where consumers didn’t even know what they wanted until they experienced it. Once they experience, say, tap-to-pay, now they want it every time.”

Organizations that build payments products will have to anticipate customer expectations and design products with that in mind. To meet these demands, solutions should be cloud-native to maximize the flexibility and usability. They should also leverage modular microservices, with 100% API availability, enabling seamless integration and scalability.

Additionally, the platform must incorporate a distributed architecture to guarantee uninterrupted operations and ensure the organization remains always on.

“To make the switch, a lot of institutions are doing a phased approach,” Munoz said. “How do you do modernize when you have real traffic? A company can’t go from the ground to the cloud by flicking a switch, they need a platform to ensure their business today is taken care of. Then they are creating this day one, day two, day three path to innovation, without putting their current business at risk.”

The Rhythm of the Dance

The risks to institutions have been well-documented, and they are one of the main reasons that lawmakers have begun to implement a regulatory framework around fintechs.

“The first generation of fintech was more tech than financial,” Wester said. “There was that sense of move fast and break things, and that’s the way you come at a technology problem, but that idea doesn’t work in financial services. Tech is great, innovation is great, but when a customer goes into a store, they want to pay, the merchant wants to receive, and everybody wants to be whole at the end. That is a financial services arrangement, not a technology relationship.”

To modernize to today’s standards, an organization needs a platform that can speak the language of financial services. They also need a platform that can be a single technology stack for the myriad of payment types. However, just as important as the technology is the expertise of the company that provides it.

“Experience makes all the difference,” Munoz said. “It’s extremely important to be able to (modernize) with a company like Euronet. We have the robust, established organization to be able to manage these projects, not just at the rhythm we choose, but at a rhythm where we can dance with the client that is doing the modernization project.”

The post Payments Modernization Can’t Be Delayed Anymore 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.

As real-time payments expand globally, financial institutions confront the challenge of modernizing their legacy systems to meet the digital expectations of their customers. The positive aspect is that there’s no need to overhaul core systems. Instead, modern software can relieve core banking systems from real-time demands.

During a recent PaymentsJournal podcast, Carlos Netto, Co-Founder and CEO of Matera, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, delve into the success of Brazil’s Pix and what U.S FIs can glean from other countries that have successfully ramped up their instant payment efforts.

The Unexpected Impact of Pix

Pix, Brazil’s instant payments system, has enjoyed remarkable success since its November 2020 launch. That’s attributed to several factors. For one, certain financial institutions were mandated by the central bank to participate, and the regulator played a role in developing the system’s technical aspects. This ensured uniform standards, encouraging widespread adoption.  Pix’s free availability to all users also differentiated it from traditional banks, which typically restricted fund transfers to business hours.

“Pix is used by people to send money to friends, pay in stores, or by reading a QR code,” Netto said. “It’s not only a rail but also a way to move money from one bank account to another bank account.

“Pix and related technology enable every use case. We have QR codes so consumers can pay businesses instantly. We have the directory so we can send money to our friends. And there’s a standard UI so every bank providing Pix has to offer it in the same way so it’s easy for everyone to use. It enabled Pix to grow fast. Faster than we were expecting. It moved from zero to five billion monthly transactions in three years.”

The surge in transactions due to Pix has had a significant impact on core banking systems. With transactions moving directly between demand deposit accounts (DDA) without intermediaries, traditional core banking systems were not equipped to handle such high volumes.

This has led to Matera’s latest challenge, developing a core banking system that can handle a high volume of transactions brought about by Pix’s success.

How Matera Supports Its Clients

As a core banking provider, Matera set out to not reinvent the wheel but to add to it. Requiring banks to make a significant overhaul in their legacy systems, upgrading to facilitate 24/7 payments, and enabling Pix acceptance across digital channels was a tall order. Matera decided to enhance the existing core with its Digital Twin solution.

“We call this a light ledger,” Netto said. “It’s a thin, high performance ledger software that runs on top of our own core banking. This light ledger doesn’t perform all the activities a core banking system performs. As far as regulatory reports that need to be sent, we don’t need to do this in real time.

“The challenge was to keep the user happy. The user must be able to see their balance, see their statement, and use the money, pay, and receive. That’s it. Why do more than necessary?”

What FIs in the U.S. Can Glean from Brazil

The success of Pix proves that integration remains a viable solution with legacy systems, avoiding the need for overhauls and minimizing disruption. Brazil’s success offers valuable insights into the requirements for advancing the adoption of real-time payments.

“A big step for the United States would be creating a standard QR code or a standard way to make payments in-store because they don’t have this standard yet,” Netto said. “It can create new use cases for FedNow and instant payments.

Using a QR code to pay in-store means that the merchant can benefit from paying a much lower merchant discount rate. Furthermore, the customer can benefit by enjoying a special discount for using the QR code.

“Unlike Brazil, the Federal Reserve does not mandate FedNow adoption,” Tavilla said. “Nor is there any mandate in the U.S. to adopt real-time payment systems.

“We also have a very complex and diverse banking and payments ecosystem with roughly 10,000 financial institutions. So getting agreement or a consistent standard around QR codes as well as other technology—whether it’s APIs or an alias system—is certainly more complicated and would take time to achieve.”

Tavilla further notes that banks are heavily invested in their core providers and legacy systems. Any upgrade at this point would require considerable resources and could disrupt operations.

The Future of Instant Payments in The U.S.

If U.S. FIs want to participate in real-time payments, they must prioritize collaboration with other key players such as merchants and fintech companies.

“This QR code should be agnostic. In Brazil, you just have one QR code because there is only one rail. In the U.S., you have three rails. It’s very important that merchants drive this to force the creation of this standard so every bank account holder can go to the store and pay by bank regardless of the rail they use.”

Consumers will not know the value of real-time payments if the current use cases don’t resolve their pain points. Addressing their frustrations and offering real advantages will encourage customers to develop trust in and ultimately adopt these real-time payments use cases.

“While in Brazil, P2P was a primary use case that has been extremely successful on Pix,” Tavilla said. “In the U.S., we haven’t seen quite the adoption with real-time payments, whether it’s FedNow or RTP with P2P payments. Part of that might be because before RTP or FedNow was integrated into P2P apps like Venmo or Zelle, to consumers and the users, it seemed like their money was already moving instantly when they sent it to their friends or family.

“But behind the scenes, the money wasn’t necessarily moved instantly, although today, depending on the user’s financial institution, the money is moved over RTP. Defunding those wallets has been a primary use case on RTP and FedNow in the U.S. Earned wage access is another use case, as well as defunding for gaming accounts. Focusing on the use cases that provide the most value to customers would be important.”

The post Beyond Rip and Replace: Alternatives for Modernizing Core Banking appeared first on PaymentsJournal.

In the past decade, the payments industry has experienced more change than in the previous 40 years. The number of payment options for consumers is multiplying, and the adoption of real-time payments is soaring.  

While this is an exciting time for the payments industry, financial services companies are facing tough challenges as payment processing requirements become increasingly complex—especially in the back office. In a recent PaymentsJournal podcast, BHMI’s Chief Technology Officer, Michael Meeks, and Director of Software Engineering, Jon Protaskey, along with Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, spoke about these challenges.

The Historic Role of the Back Office

Backoffice transactions are largely hidden. After a payment has gone through a front-end system for authorization, the back office takes over and performs several key functions. It settles the transactions among the financial entities involved and reconciles them with various sources, such as front ends and network clearing files. The back office also charges the appropriate fees, handles transaction disputes, supports transaction research, and allows real-time financial positions to be viewed. 

Thirty years ago, when banks were first moving from cash to digital payments and cards, the ecosystem was different. The legacy systems that were built decades ago are just not capable of meeting today’s payment demands. Those systems were written with an isolated perspective and minimal requirements, then added to and pieced together over the years. The gaps in the operation still often require manual processes to be in place. 

At that time, nobody could have projected the transaction volumes seen today. As a result, there was no expectation for real-time processing or real-time data access for decision-making. Everything was handled in batches, and the need to support non-card-based transactions wasn’t even an issue. These historical card-based systems were written to support ISO 8583, not the new standard of ISO 20022—which makes it hard for back office environments to adapt and put the new requirements into their systems. 

“We have seen many organizations quickly upgrade their front-end client interfaces, but they have been a bit slower to upgrade outdated back office systems,” Bodine said. “Modernizing these systems is all about the elimination of friction, which means improvements in efficiency, accuracy, cost savings, and a variety of other things. As we started to get into the pandemic, we saw more folks working on back office processes. Now we’re really seeing efficiencies throughout the ecosystem by eliminating friction.”

Another challenge is the workforce that was in place more than 30 years ago and initially used those legacy systems is aging and retiring.  Those who built the systems are taking most of the historical knowledge with them. 

“It’s not a surprise to come into a new client and see them have many different systems that are siloed,” Protaskey said. “They’re all doing different functions of the back office and trying to get those systems consolidated is always a challenge.” 

New Solutions for Instant Payments

With instant payments settling in 20 or fewer seconds, the potential for instant fraud is more prominent. Because those funds are irrevocable, fraudsters have the opportunity to increase the amount of money that they’re able to take from organizations. Automation and modernization are imperative to cut into what the fraudsters are doing. 

“A modern back office can play a big role in helping to mitigate the risk and reduce the cost,” Meeks said. “The solutions we’re implementing continuously load payment data within seconds of the transaction being processed. When that data arrives in the back office, our software performs the back office processing immediately, including fee generation, reconciliation, and settlement. All this happens immediately after we’ve loaded the transaction rather than doing large batch processing at the end of the day. This provides you a real-time view of all the transactions that have been processed and real-time settlement positions throughout the day.”

Real-time data visibility allows banks to make decisions based on that data.  Every business has proprietary data to capture and make decisions on. A system needs to be able to adapt to a given business’ data needs, not just what every other company has out there. 

The Cost of Disputes

Another key consideration is the high cost of handling disputes. A modern back office enables companies to manage disputes more efficiently, with a greater degree of automation and accuracy.  These systems need to provide quicker ways to research a transaction, audit faster, and offer more automated ways to handle chargebacks. 

“I can give an example of one of our current customers, a company that we work with in Australia,” Meeks said. “In 2018, Australia launched the New Payments Platform (NPP), and one of the country’s leading payments services providers faced a lot of challenges in allowing their back office to handle disputes of real-time transactions. We implemented a system that accepts real-time dispute requests, enabling them to meet the requirements of the platform and respond in near real-time.” 

The Path to Modernization

Simply having a consolidated system can result in operational efficiency and reduced costs. With one consolidated rules-based back office system, banks can have the flexibility to adapt to industry changes with simple configuration alterations rather than expensive and time-consuming software code revisions. 

“The biggest competitive advantage we see right now is scalability and the ability to handle the increased transaction volumes,” Protaskey said. “And there’s always the regulatory compliance and enhanced security that comes with a modern system.”

“We conducted a survey a few months ago, and 80% of the respondents said that modernization of their payment operations was very important, and 46% said it’s currently a top priority for the organization,” Meeks said. “For someone who wants to sell modern back office software, that sounds great, but they also identified a number of hurdles. Most important was the perceived cost­­—not just the cost of the software to bring in, but the cost of its integration into the organization.”

Another hurdle was limited internal resources. People in these organizations already have day-to-day job responsibilities that keep them busy.  They are concerned they won’t have time to take on a significant new project. “We view our job as helping customers overcome these hurdles to implement a modern back office platform to meet these challenges and provide a nice return on their investment,” Meeks said.

The post Today’s Challenges for Back Office Operations appeared first on PaymentsJournal.

The current economic environment has been challenging for both consumers and businesses. To cut costs, businesses are prioritizing reducing the number of service providers, including payments, suppliers, and staff.

In a recent GoCardless survey of European and U.S. businesses, 66% of businesses said they plan to consolidate the number of payment service providers they use. Consolidating payment service providers simplifies how merchants understand costs and forecast future costs. To make matters more urgent, a third of these businesses stated they plan to cut off these relationships within the next year. Businesses believe this will reduce their operational costs without significantly impacting their day-to-day operations.

Payment service providers can redeem themselves by increasing value to businesses, particularly with fraud prevention. Over a third (34%) of businesses indicated they would be willing to pay more for fraud prevention solutions. Consumers who experience card fraud typically go through their bank for reimbursement, but oftentimes, businesses end up taking the loss from fraud.

Businesses are also interested in improving their payment success rates with better authorization rates to reduce checkout friction. One in four businesses said they would be willing to pay more for tools to increase payment success rates.

About a third of businesses (31%) are interested in and willing to pay more to accept a broader range of payment methods, including account to account transfers. Additionally, 35% of these businesses indicated they want their payment service providers to offer bank debit payments, and 27% of businesses are interested in open banking.

To gain a competitive edge and better meet customer demand, 86% of payment service providers reported plans to add more payment options within the next 12 months. But are payment service providers focused on the wrong initiatives? Only 31% of businesses indicated interest in accepting a broader range of payments. From the survey results, it is clear to conclude payment service providers can remain competitive and relevant by keeping their costs low and current product offerings strong.

Overview by Sophia Gonzalez, Research Analyst, Debit Advisory Service at Javelin Strategy & Research.

The post What Merchants Want from their Payment Service Providers appeared first on PaymentsJournal.

Japanese Banks’ Payment Clearing Network experienced a disruption on Tuesday, impacting transfers at 11 Japanese banks.

What contributed to the glitch remains unknown, however the Japanese Bankers Association believes it could be tied to updates on a relay computer program that took effect between Saturday and Monday.

For the time being, the Clearing Network is turning to a back-up plan and ensuring that funds in “already- accepted orders” are forwarded to the appropriate destination accounts. According to the Japan Times, Japan’s Clearing Network wasn’t the only one that experienced a recent hiccup. Similarly on Tuesday, Japan Post Bank also succumbed to an outage that rendered online services—including banking inquiries and mobile app transfers—inoperable.

The Call for Modernization

This may be the first time the Japanese Banks’ Payment Clearing Network has experienced a glitch of this type since its inception in 1973. As payments become more digitized, bank legacy systems are failing to keep up with real-time payment solutions, resulting in outages, glitches, and disruptions. For those on the receiving end, the results include a massive disruption in payments, loss of revenue, and ultimately, a loss of trust in traditional banking systems.

JPMorgan Chase reported an outage in July that put a halt to all Zelle transactions. Zelle later posted on X, indicating that everything was functioning on their end, while Chase was having an “issue with payment processing.” Clearly, real-time payment networks that were designed for app-based systems are incompatible with the current banking system that was originally designed to process checks.

There’s no question that legacy systems are the current achilles heel of traditional banks, but not addressing this crucial issue stands in the way of banks delivering the best customer service and earning a higher profit margin.

The answer for banks looking to modernize their legacy systems is to adopt cloud-based systems and a low-code environment. Cloud-based systems offer more flexibility and scalability than data storage offered by the company. If more capacity is needed, the bank only needs to increase the capacity via the cloud, without tacking on any additional hardware.

A low-code environment enables users to create and customize applications using pre-built templates and drag-and-drop interfaces.

The post System Malfunction Brings Japan’s Clearing System to an Abrupt Halt appeared first on PaymentsJournal.

Eco-focused cards are emerging as a significant force in reshaping the relationship between financial institutions and consumers—not only in the reduction of first-use plastics in payment cards but also in having a positive impact on the environment.

In a recent PaymentsJournal podcast, John Lowe, EVP of End-to-End Payment Solutions at CPI Card Group, and Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research, explore how banks and credit unions can be better equipped to address the sustainability concerns of their customers and the impact these sustainable cards could have for years to come.

A More Sustainable Process

The use of recycled PVC, a synthetic polymer of plastic, in card products is not new. In fact, the practice can be traced back to about 25 years ago. However, it failed to gain a significant foothold in the market even as consumer interest in more sustainable products grew.

Recognizing this opportunity, CPI consulted with its research and development team to determine a way to include recovered ocean-bound plastics in the production of payment cards. According to UNESCO, about 10 million metric tons of plastic end up in oceans each year.

“One of our longstanding leaders of our R&D team engineered a solution that was able to incorporate recovered ocean-bound plastic into the core of a payment card,” Lowe said. “CPI then branded and launched the solution that we call Second Wave® in late 2019. And this led us to partner with one of the largest issuers in the U.S.” Since that launch in 2019, CPI has shipped ~100 million eco-focused cards.”

Over the years, CPI has taken a stronger position around sustainability and continues to amplify its efforts within the space. CPI’s market research found that more than 80% of consumers would consider switching to an ocean-recovered plastic card if it were made available by their current issuer. And more than half of respondents said they would move from one financial institution to another if there were an offering for a card made from recovered ocean plastic.¹

Ensuring that products and services are more sustainable aligns with the growing focus on ESG. This includes increasing regulatory and reporting requirements, in addition to consumer demands that companies take steps to reduce environmental impacts.

The Future of Eco-Focused Payment Cards

Banks and credit unions have an opportunity to ramp up their sustainability efforts, and they can begin by offering eco-focused financial products and services.

“These efforts help create more demand for recycled materials and increase the incentive to collect them across the globe,” Lowe said. “We’re also in the process of bringing recovered ocean-bound plastics cards to our instant-issuance solution, a solution that we have in thousands of financial institution branches across the U.S.”

This strategy aims to marry convenience for the cardholder and loyalty to the card as it aligns with the  sustainability principles of CPI’s customers and the financial institutions’ customers. Lowe further explained that CPI is driven by a desire to be a force for good. The company aims to be mindful of the social impact and responsibility of its work, he said.

The trend toward eco-focused payment cards is well underway. Earlier this year, Mastercard announced that as of January 1, 2028, all new cards on its network will be made of sustainable plastics. Larger U.S. issuers are already moving along this path.

If there are any doubts among financial institutions about the viability of this trend, they will soon discover that it’s not a flash in the pan, Riley noted.

“The Mastercard issue is a big deal,” Riley said. “You can really see the cards are behind it when you start doing the math on how many plastics are in circulation. We’re in the billions and billions, so there’s certainly a lot that can be impacted here.”

“You’d be surprised at the amount of time and effort that goes into the branding, the marketing, the artwork on a payment card,” Lowe said. “The fact that we can create an eco-focused card that essentially looks like your typical payment card … we’re going to see eco as a means to expand payment cards long term.”

Why Banks and Credit Unions Should Embrace Sustainably Focused Solutions

Sustainability is a top-of-mind concern for many financial institutions. In a survey conducted by Javelin, involving 100 executives of small and mid-sized financial institutions, more than 80 reported having sustainability initiatives already in place.

What’s more, many respondents reported being very concerned about sustainability and having a budget allocated specifically for related issues.

“The numbers indicate that most institutions are already preparing for the moves,” Lowe said. “And if you haven’t, it’s something that you should definitely be focused on.”

Another key finding in the survey, unsurprisingly, is that younger demographics showed the highest interest in eco-friendly payment cards. Because this group was found to be highly receptive to this type of product, Riley said, this is a great opportunity for banks and credit unions to grow their portfolios if they do issue credit cards.

Eco-Focused Payment Cards Will Be Table Stakes

Financial institutions can do much to appeal to their customers’ concerns about sustainability. It may seem overwhelming at first, but many can begin by offering financial products and services that align with their sustainability values.

Providing the option for an eco-focused payment card is a step in the right direction, letting their customers know that their financial institutions are committed to promoting responsible actions that can contribute to a healthier planet.

¹CPI consumer insights fielded November 2022 n2100

The post Eco-Focused Payment Cards Help Pave the Way for a Sustainable Future appeared first on PaymentsJournal.

Owners of the 2024 Hyundai Kona can now pay for parking with the launch of Hyundai Pay. In partnership with Parkopedia, a platform for in-car parking reservations, Hyundai Pay will allow U.S. motorists to find, reserve, and pay at 6,000 locations, all from inside their car.

Hyundai owners can use the Hyundai Pay system within Hyundai’s Bluelink connected car services app. They can also see, book, and retrieve previous parking sessions for future trips.

According to Parkopedia’s 2023 Global Driver Survey, 94% of respondents experienced challenges with finding parking spots. More than half of U.S. drivers (58%) expressed a desire for being able to search for parking within their vehicle, and 68% wanted to pay for parking within their in-car media system.

“Hyundai Pay is the latest example of our continuous advancements in smart mobility and software-defined vehicles,” Olabisi Boyle, Vice President of product planning and mobility strategy at Hyundai Motor North America, said in a prepared statement. “With Hyundai Pay’s scalable e-commerce platform, we can elevate customer convenience and extend their digital reach by making everyday needs—like finding and paying for parking—easier, swifter, and safer via our connected-car, integrated-cockpit, and secure-transaction technology.”

“The Hyundai announcement mirrors those we have seen from other manufacturers such as Mercedes and BMW which position the car itself, and the “CarPay” system as a payment mechanism for car focused use cases such as tolls, parking, and refueling,” said Christopher Miller, Lead Analyst of Emerging Payments at Javelin Strategy & Research.

“Most of these have followed this same pattern of vertical-focused (parking, fuel, etc.) partnerships with specific retail brands or groups, and with some wallet form delivered through the vehicle’s control system.  In this sense, it represents the ongoing mainstreaming of the capabilities (essentially, moving down-market over time, while being positioned as a differentiator for exclusive vehicles at launch),” he said.  

Payments Through Connected Cars on the Rise

Digital payment solutions continue to evolve rapidly. Consumers can now pay for goods and services via their mobile phone, their smartwatch, and even their TV. In-car payments is just a natural progression in making digital payments more accessible, meeting consumers where they are.

In-vehicle payments, or payments made within embedded vehicle systems, are poised to hit $86 billion in 2025, a significant increase from $543 million in 2020, according to Juniper Research’s “The Race for In-Vehicle Payments.”

Partnerships that make such services more widely available to consumers will be the key to growth of this sector.

One of the challenges that in-car payments face is the issue of security. Although they are generally considered secure, in-car payments must still get some security kinks ironed out. Biometric scanning is being considered as a way to address such issues.

The post Hyundai Launches New In-Car Payment System appeared first on PaymentsJournal.

With exceptional customer experiences they have derived from giants such as Apple and Amazon, consumers expect choice, speed, and control in the methods they use to pay. And they’re looking for these very features from their financial institutions.

FIs, steeped in legacy systems, are simply not geared up to offer these features, which should be table stakes. Not offering these features could mean a loss of customers and an impaired ability to attract new ones. This discussion—between Marcell King, Product Innovation Officer of Banking and Fintech Solutions at Paymentus, and Brian Riley, Director of Credit and Co-Director of Payments at Javelin Strategy & Research—delves deeper into what FIs can do to give customers more convenience and control with a modern loan experience for customers.

What Customers Want: Convenience, Control, and Speed

Payment innovation and consumer demand drive the need for choice, speed, and efficiency of payments. Businesses and FIs alike must continually keep their finger on the pulse of what is happening within the payment landscape. This will ensure that banks offer what consumers want when it comes to payments.

Millennials, for example, expect more when it comes to their digital experiences. They’re less patient with organizations that don’t give them the control, convenience, and autonomy to make their own decisions.

“It is about giving consumers control over how, when, and what they pay with,” King said. “Millennials are entering their prime spending and borrowing years. The demographic studies show they’re less patient. They want more convenience. They want more control, and so they have different expectations than an older demographic.

“It’s about how do you give them what they want. They’re really looking for the payment options that they prefer, whether that’s their debit card, their PayPal account, or paying it through a retail store. It’s about giving consumers more human optionality and the ability to pay through whatever channel they choose, giving them the convenience to control that experience as much as possible.”

Payment options should match what everyday consumers deal with, such as when they get paid and when their bill payments are actually due. Therefore, flexibility is a key.

“When you think about how pay periods come, people get paid once every two weeks, and that doesn’t always stack up if I have a recurring payment to pay, like a car payment on the third of every month,” Riley said.

“That doesn’t always perfectly align with how the consumer’s budget goes. Rather than just setting it and forgetting it, it’s the ability to allow people to navigate that. If I’m a consumer, I can make that on the paycheck that precedes it, or I could make it really close to the end. That flexibility is an interesting opportunity.”

“As you think about how workers are traditionally paid, the payroll tends to be weekly, biweekly, semi-monthly or monthly. But with the on-demand economy, gig workers don’t have that same recurring frequency or predictability in terms of how they’re earning their income,” King said. “You want to be flexible enough to allow those consumers who have much more variance in their payment cycles to pay when they want and as quickly as they want.

“An Uber driver with earnings going to their PayPay account might work for 12 hours for the next couple of days to make their car payments. You want them to be able to pay with their PayPal account as quickly as possible. Give them the opportunity to receive a payment or text and pay immediately with that text. Or go right into their mobile app in between rides and pay it from their mobile app. Giving them the flexibility to pay whenever they need to and where their income flows support their expenses.”  

As the highly anticipated FedNow launch approaches, faster, real-time payments will become more mainstream. FIs must prepare for the implications.

“You’ve got real-time payments coming to fruition,” Riley said. “You already have The Clearing House RTP network online version. FedNow is coming up on July 1. So, this really bolts into having faster funds in your account and then being able to deal with them effectively. That’s something that’s really needed.”

FIs Are Falling Short in Payment Innovation

Neobanks and fintech companies have long filled the gap for banking customers by offering more affordable and personalized financial services. These organizations have done much to disrupt the traditional banking system as their focus has been on delivering what customers really want from services.

“Think about consumer expectations today, whether it’s Amazon or Apple, everything is very convenient,” King said. “It’s all about low friction, and these companies give consumers the ability to execute on whatever they want as quickly as possible so that they can get on to other things.

“When you think about the competition from a banking perspective, of all the non-traditional banks that are providing services to consumers for payments, whether it’s a mortgage or auto loans, there’s the expectation of convenience, of control, and of speed.”

“Traditionally, legacy technologies don’t support all those components. You may be limited to only the website because there’s no mobile app, or you may only offer an ACH payment to your loan from a checking account when you know a lot of consumers may not have checking accounts. I think that’s where the FIs are falling short.

“Giving the consumers those three things that are most important to consumers; together, not one or the other, but all three consistently.”

It’s not only about giving customers convenience, control, and speed. FIs must also fine-tune their offerings, providing innovative services that customers actually need and differentiating themselves from the competition.

“It boils down to account retention,” Riley said. “At the end of the day, that’s an expensive thing to manage. In the credit card business, you lose about 15% of your volume, and in the retail banking world that’s a consistent number also. It’s not just keeping the customers you have; it’s creating an offer that’s compelling to new customers that you bring in.”

Reshaping the Loan Payment Experience

With the wealth of innovative payment methods and the growing gig economy, FIs should put flexibility and choice of payments at the forefront. Payments must be fast and from customers’ preferred methods.

“Going back to the three buckets: Number one, it’s convenience,” King said. “How do you make it as easy as possible for consumers to pay their loans through any channel they want, as quickly as possible? You may have a consumer who banks with you but has an external account that they want to make their payments from.

“You may have a consumer whose primary income is from driving Uber or Lyft. How do you make it convenient for them to make payments from their mobile phone quickly? How do you give them the ability to pay with whatever payment method they want, where they’re keeping their dollars? It may not be at your institution; it may be at another institution.”

“It could be PayPal, Apple Pay, or Google Pay. They may want to pay with one of their digital wallets. They may want to pay with cash. Maybe they’re a service worker and use their tips to pay their car loan. We want to be able to give them the choice of how they want to pay. And then … control. How do you give them the ability to control where they’re paying from? It ties back to convenience. It comes down to giving them as many payment options as possible to pay their loans. And giving them the channels that they want to pay from.”

“The third one is around speed.  Consumers expect real-time (payments) now. How do you make it real time so that when you make that payment, it is being posted immediately, not two or three days later and now I’ve got a late fee?”

With all these critical needs from consumers, how will FIs deliver? It will be a tricky hurdle to overcome.

“Orchestrating all this gets interesting,” Riley said. “You have installment-type loans that have set amounts every month. Or you have bills to pay like your electric company, water company, and those vary every month. So, it’s not one-size-fits-all. Do you want to push in the payment? Do you want to pull out the payment? Orchestrating that really takes a very strong solution to make this all fit into the ecosystem.”

“That’s the challenge,” King said. “There’s a lot of legacy payment technology infrastructure that’s been in place for 10 to 15 years based on legacy payment methods like ACH when there are so many more payment options. Now you must deploy newer technology, more modernized technology that allows you to take advantage of all the new payment capabilities that the market has created and built over the last 20 to 25 years.”

Driving Value from Payment Modernization Efforts

Customer satisfaction scores reveal that fintech companies are doing something right for their customers, and banks should take notice.

“Number one is customer satisfaction,” King said. “There’s data out there that shows that banking NPS and customer satisfaction scores for making repayments are lower than some of the newer nontraditional bank fintechs, whether it’s Rocket Mortgage or other organizations that are deploying modernized technology and interactions with consumers.”

“Customer satisfaction and NPS scores is one way to think of it. If you have strong NPS scores, that means that your customers or members are willing to refer other customers to your institution. Reducing late payments and delinquencies create economic impacts on the business model. The cost to serve. Consumers want to do things themselves, and therefore providing as many self-service channels to those consumers to make their payments has a strong economic value from an operational efficiency.”

“So being able to reduce your cost to serve those customers with information that they need and that they can access over their mobile phone or their desktop drives ROI as well. Reducing PCI exposure, that’s another value that can be brought when you’re modernizing technology for payments.

“We have a product called Secure Service and instead of a member or customer providing their debit card number to a customer service representative over the phone, we can send a text message link to the consumer. They open the link and there’s a secure page that allows them to enter their card information directly into that page, which mitigates and eliminates the PCI requirements that you’ll need to maintain internally, reducing the number of vendors. We talked to many institutions and they’re running multiple systems to support loan payments. There are some capabilities at the core, but then there’s third parties that offer silo solutions like just web or just IVR or just collections.”

“Some institutions have three or four systems that they’re operating to manage collection of repayment on loans. Being able to consolidate into one platform, creates operational efficiency.”

“There’s a cross-sell opportunity. That’s a big area of focus for institutions who provide indirect auto lending. The customer may not have a banking relationship with you, but they have a loan with you because they bought a car at a local car dealership. If you provide great service interactions, and you give that consumer the convenience, choice, control, and speed, there’s opportunity to upsell and cross-sell.”

“You look at those buckets and you start holistically looking at the ROI. It becomes very strong when you’re providing things that the customer needs to manage and repay their loans.”

The post Omnichannel Experience, Real-Time Payments, and Payment Choice: The Keys to FI Payment Innovation 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.

Vehicles are no longer seen as a mode of transportation, but a connectivity hub. And as a result, in-vehicle payment demand is on the rise.  

In fact, in a recent survey by TechInsights, which explored in-vehicle payments by polling 4,990 drivers in China, Italy, France, Germany, the UK, and the U.S., more than half of respondents said they were open to making in-car payments.  

Increased Confidence with In-Vehicle Payments 

Consumers are always looking for ways to elevate their payment experience, and having the ability to make a payment in-vehicle adds another level of convenience and comfort. Indeed, in the research from TechInsights, 56% of respondents said that making in-car payments for food, tools, fuel, and parking is an essential feature when it comes to connected car services. 

Respondents also highly rated the ability to receive information related to traffic updates and parking availability.  

Overall, consumers’ barriers to adopting in-car payments are dissipating as the “perceived complexity” is dispelled, with the added benefits of more contactless payment options and more convenience can be had.  

Connected Cars Offer a Host of Benefits 

The global connected car market is expected to reach $212.7 billion by 2027, per separate data from ResearchAndMarkets.com. Currently, car makers including Toyota, Hyundai, Volvo, Audi, BMW, and Ford offer some form of connectivity in their vehicles. Mercedez-Benz recently launched its own pay-by-car feature as well. 

Another report from ResearchandMarkets.com, “Connected Car Market By Service,” indicates that connected cars are essentially “connectivity on wheels,” offering convenience, safety, and comfort while utilizing innovative network technologies.  

By and large, car makers can benefit from car connectivity as it will enable them to feature remote diagnostics, online car service scheduling, and predictive maintenance, all possible, thanks to this integrated connectivity.  

The post Are Connected Car Services the Future?  appeared first on PaymentsJournal.

OpenAI has announced initial support for plugins in ChatGPT, its widely known artificial intelligence model that produces human-like text from a basis of deep learning. The plugins will help ChatGPT access a range of applications and perform various actions for end users of applications.

OpenAI’s documentation page highlights various use cases:

• Retrieving real-time, as-it-happens information, such as scores and stock prices.
• Accessing standing information, such as company documents.
• Performing services for the user, such as ordering food or making reservations.

Building Use Cases

Plugin developers, OpenAI said, will “expose one or more API endpoints, accompanied by a standardized manifest file and an OpenAPI specification. These define the plugin’s functionality, allowing ChatGPT to consume the files and make calls to the developer-defined APIs.”

The use cases OpenAI mentions, such as pulling sports scores and flight reservations, are some of the easier ones to imagine. The documentation page goes on to note that “over time, we anticipate the system will evolve to accommodate more advanced use cases.”

That’s where things will get interesting.

The Coming Transformation

Although the bulk of the early attention on ChatGPT has centered on the question of who’s going to be writing what (and how will we know?), much of its potential for disruption and transformation has resided elsewhere.

Search functions are likely to change radically. Curation will, too. How people make their choices across a range of consumer options will be profoundly affected, as will choices about what payment vehicle to use. Those methods themselves are in for changes, too. AI will eventually make the payment choice for consumers, in the background, based on what’s most advantageous for the buyers.

Those things, cautioned Marco Salazar, Javelin Strategy & Research Director of Tech and Infrastructure, “are still a few steps away.” But they’re coming, he said.

“ChatGPT is becoming a really big testing ground,” Salazar said. “It’s at scale and at speed.”

Salazar’s recent report Open Banking Pushes Interoperability to the Payments Forefront highlighted what’s in store for AI tools as they absorb data to train the models. OpenAI’s call for plugin development opens the floodgates, he said.

In banking, the coming changes augur in favor of customers. In the Javelin report 2023 Digital Banking Trends & Predictions, authors Mark Schwanhausser and Emmett Higdon noted that automation and artificial intelligence would push financial institutions further along the path of reduced friction and heightened engagement through enhanced transactional, educational, and analytical customer experiences.

Effective Anti-Fraud Tools

FIs are already leveraging artificial intelligence and machine learning to know who’s on the other end of an interaction or transaction with greater accuracy. In an October 2022 Javelin report, Data Detective: Advancements in Contextual Intelligence, Senior Analyst Suzanne Sando detailed the challenge, writing:

“Because it’s nearly impossible to find a consumer without some semblance of a digital footprint, cybercriminals have mountains of data available to them for exploitation” in gaining unauthorized access to accounts.

AI and machine learning help blunt those attempts by zeroing in on characteristics—keystroke cadence, mouse control, browser choice, etc.—that help differentiate legitimate users from bogus ones. Imagine the possibilities for when AI becomes more robust and more embedded into everyday interactions.

The post OpenAI Announces Plugins to Connect ChatGPT, Applications appeared first on PaymentsJournal.

Mercedes-Benz is launching a new pay-by-car feature in its cars: Mercedes Pay Plus, the first in-car payment experience. Partnering with Visa, Mercedes will install a fingerprint sensor in all new vehicle models that enables biometric two-factor authentication, making the car itself a new way to pay. Some current Mercedes models already allow payment information to be stored in-car, however, car owners are required to authenticate payment using their smartphone. The fingerprint scan simplifies the in-car payment experience.  

To use Mercedes Pay Plus, a Visa debit or credit card is required to be stored in the car owner’s Mercedes-Me user account. Other card systems are expected to be added in the future.  

The initial launch will take place in Germany and car owners will be able to pay for digital services and hardware upgrades in their car by scanning their fingerprint. The pay by fingerprint tech is slated to be extended to other services such as refueling by the end of 2023. It is up to the fuel merchants to keep up with the speed of tech to enable these new payments at the pump.  

Another application of paying by car could potentially be applied to curbside pickups at retailers. Most retailers now have allotted parking spots for customers who shopped online and opted in for curbside pickup. The user experience in its current state requires customers to input payment information when placing the order online; however, they are not charged until the pickup is completed. With pay-by-car, retailers could utilize the new payment method and skip the checkout screen altogether. Customers would be able to pay for their goods at the time of picking up by scanning their fingerprint in their car.  

Many safety questions arise when considering this new way to pay. Fingerprint scanners have been known to fail, remember the iPhone 6’s fingerprint unlocking system? A security researcher at mobile security firm, Lookout, successfully tricked an iPhone 6 into unlocking using a fake fingerprint created with glue. iPhone has moved on from fingerprint scanning technology to face scanning technology which poses an important question—are fingerprint scans safe enough?   

Mercedes may want to consider face scanning technology utilizing rear-view mirrors in their vehicles. As a leading luxury vehicle manufacturer, they are setting a trend for the auto industry. Other vehicle manufacturers are expected to follow the trend, but they may be able to surpass Mercedes’ tech.  

Overview by Sophia Gonzalez, Research Analyst, For Debit and Payments at Javelin Strategy & Research.

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As consumers become more keen on adopting the latest payment methods, companies must innovate their payment acceptance strategies to meet them where they are.  

A recent report from U.S. Bank looked to gauge just how prepared U.S. organizations are by polling 300 senior finance, treasury, and revenue management executives from various industries, including retail, healthcare, and government. It found that while many executives are aware of just how critical offering the latest payment methods is to differentiate themselves from competition, the strategies they’re using to expand the range of payment options offered—and the technologies they’re investing in—varies depending on the industry.   

The Changing Payment Method Landscape 

Many consumers prefer using their physical card or cash to make a payment. In fact, 58% of respondents said consumers prefer to pay via cash today. Fewer respondents (10%) believe this will be the case the next two years. Where they do expect to see significant change in payment methods is in the use of contactless and digital wallets. When looking at respondents by sector, 72% of respondents in the state & local government sector said they expect contactless card payments will be the preferred method of payment in the next two years. That’s an increase from the 18% of respondents in that particular sector who believe it’s the preferred form of payment now. And across the board, regardless of sector, respondents expect consumers to gravitate to contactless card payment, as well as digital wallets.

BNPL, Zelle, and Overall Flexibility  

The surge in digital payments among consumers is driven by the need for convenience, and financial executives across all industries are already looking at ways to incorporate new technologies and even consider payment methods they initially didn’t as a way to meet consumers where they are.  

For example, respondents in the retail sector from the U.S. Bank report said they expect buy now, pay later (BNPL) payment methods to be more widespread in the near future, and as a result, are looking to further invest in the space. Similarly, after seeing how Gen Z shops—a group that holds a lot of spending power—and their want for more online experiences, many respondents in the retail sector also said they’ll be experimenting in the metaverse and enabling transactions there.  

Meanwhile, in the restaurant sector, respondents are seeing an increased demand from diners of using cryptocurrency and peer-to-peer (P2P) payments, in addition to mobile wallets. And respondents in the healthcare sector said they’re looking to accepting PayPal, Zelle, and Venmo, as another way to meet consumers where they are—in the form of “increasing access to patient financing.” 

As businesses invest more heavily on their payment acceptance capabilities, they are positioning themselves for more growth and more opportunities. 

Speaking to Businesswire, Jamie Walker, CEO of Elavon said, “By embracing the convenient payment processing options desired by consumers, large businesses and government agencies can get paid more quickly. We found that across all sectors, more than 75% of financial leaders are relying on payments transformation to feed into greater sales and greater profitability for their organization.” 

The post Consumers Favor Various Payment Methods, but Are Companies Equipped to Meet Those Needs? appeared first on PaymentsJournal.

The year 2023 is poised to see significant evolutions within the payments landscape. From the rapid rise of contactless payments in the past couple of years to the widespread adoption of embedded payments, consumers and merchants can agree that they want their payments to be seamless, frictionless, and fast.

The Current Payments Landscape

Consumers have always taken part in payments in some shape, but the channels in which payments are taking place have changed. In the wake of COVID-19 lockdowns, the need for contactless payments arose, bringing security to top of mind for consumers and merchants alike.

With these changes come new demands, shifting the landscape of payments. Here is what those in the industry must look out for.

“From the payments landscape forward, I look at it from three different perspectives,” said Sukanya Madhavan, Vice President of Product Management and Engineering at CSG Forte. “From the consumer side, the end consumers want additional methods of payments, such as alternate methods of payment and embedded payments. The goal is making it seamless and simple for consumers to make a payment.

“From the merchant side, adding this to their regular business activities and making payments seamless to their consumers is something to consider, while keeping costs at bay and optimizing payment operations. As a payment solution provider, we need to keep tabs on the market to determine consumers’ needs and ensure we add all these capabilities, such as a QR code or open-banking BNPL (buy now, pay later).“

Merchants must learn to thrive in this increasingly demanding environment to stay competitive. Balancing in-demand offerings while keeping costs low and providing a seamless checkout experience is no small feat.

“Alternative payments are important in meeting consumer needs,” said Daniel Keyes, Senior Research Analyst of Merchant Services at Javelin Strategy & Research. “But they also introduce new complications such as crowding the checkout page. You can potentially overwhelm consumers with options, but you also want to provide them with the ability to pay the way they want to. Offering consumers with the payment options they want while avoiding a fragmented and frustrating checkout experience is a challenge that merchants and their providers will need to meet.”

“We need to have a balance,” Madhavan added. “‘Do you want too many payment methods appearing in your checkout?’ As a payment provider and as a merchant, [having] that flexibility in the offering so you can change it as needed, depending on the market or the specific customer that you’re looking for is critical.”

Luckily, merchants can easily pick and choose the payment options that best suit their business, saving time and money.

“It’s not a one-size-fits-all,” Keyes said. “A restaurant doesn’t need all the payment options that an apparel retailer needs and so on. The ability to choose and understand what is the right match for a merchant is important going forward.”

Additional Ways Consumers Will Engage with Cashless Transactions

In the payments world, we have seen alternative payments options that have sprouted with abandon.

“The alternate-payment methods landscape has expanded in the past few years,” said Madhavan. “Although we’ve had digital wallets for a long time, Apple Pay and GPay adoption is accelerating. We have buy now, pay later, where customers can purchase items they wouldn’t have otherwise had they not had the option of paying for it in three or four or five installments.”

“From the merchant side, that’s a business or a sale that they wouldn’t have. There’s the concern of moving consumers toward additional debt. But it’s more of a calculated risk. We must ensure consumers are financially capable.

“We are also seeing an increased adoption in recurring payments, where people can set and forget it. People want seamless payments, and therefore we are seeing recurring payments grow.”

Younger consumers are more prone to be early adopters of such alternative payment methods as peer-to-peer (P2P) apps like Venmo and paying with a mobile wallet.

“Digital wallets really stand out to me as a cashless payment that is going to take off,” Keyes said. “Adoption has been on the way up. We’re seeing younger consumers rely on them more heavily. They’re making more purchases a week with a digital wallet than older generations, Gen Z in particular.

“I think digital wallets are really poised to become more of consumers’ go-to payment method, which is a big shift from what it’s been in the past years.”

On a personal note, Madhavan related a story about her teenage son’s inclination toward using Apple Pay on his phone instead of opening a bank account of his own.

Keyes added, “If you get a phone in your teenage years and you can get a debit card or a credit card loaded up onto Apple Pay, if that’s the first way you pay for something, why would you suddenly start using cards or other methods later? Those wallets are reaching consumers early and building up a relationship that could last for the rest of their lives.”

Embedded Payments’ Role in the Landscape

One of the biggest draws for embedded payments is just how easy they are to execute. The consumer does not have to search for a card or for cash. With just the push of a button, a purchase can take place, all on the same platform. What’s not to like about that? It’s a massive win for merchants and customers alike.

“We talked about how consumer behaviors have changed, how they demand instant payments,” Madhavan said. “Merchants must now offer all these capabilities in addition to their core business.  Embedded payments will make it easier for merchants and a seamless payment experience for the end consumer.

“Another benefit of embedded payments is additional reporting. We know companies spend a ton of time trying to go back and reconcile and make sure the books are right.”

“For merchants, embedded payments open so many doors and make things so much easier,” Keyes added. “For consumers, embedded payments make payments invisible. The average consumer does not want to think about payments and embedded payments. Consumers want a frictionless experience where they don’t even really know they’re paying. There’s not a lot of effort. That’s important for creating seamless, appealing checkout experiences and other shopping experiences. So, you know, I think embedded payments are certainly here to stay, and their importance is only going to grow.”

What’s Next for the Payments Landscape?

Payments providers will need to step up their offerings to serve the growing needs of their merchant customers, who are seeing growth not just in payments but also in alternative forms.

“I believe there is going to be a value sphere expansion,” Madhavan said. “At the core; capabilities and alternate methods of payment are expanding the value sphere. In terms of risk monitoring, fraud management, reporting and reconciliation, they will enhance consumer experience, ensuring merchants can continue to run their business while providing that better experience for the customer. That will be the focus, and we can expect several businesses to invest a lot of money in that area.”

Payments companies must also focus on the quality of their offerings, not just the quantity.

“Payments can be very fragmented,” Keyes said. “We’ve named a million different services that a company can offer: BNPL processing, acquiring digital wallets, [and more]. Payments companies that are trying to offer all these services in one have a real advantage if they can offer quality services. A merchant can get everything they need in one place. An SMB does not have the time to source out different vendors for all their payment needs. It would be much easier for them if it’s an all-in-one platform. Maybe it’s in a very-easy-to-use dashboard.”

Keyes continues, “I think we’re going to see a lot of companies continue to push to meet more if not all of merchants’ needs in order to deepen their relationship and to get more revenue out of the relationship as well. But I think the ability to make payments less fragmented for merchants will be key going forward.”

One thing is certain: More payment methods will mean that more must be done to ensure merchants and customers can enjoy quick, safe, and convenient payments. That is the future.

The post The Future of Payments is Fast, Secure, and Convenient 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.

The connected economy is changing the way businesses operate in many aspects and is becoming increasingly important. After a successful partnership that has lasted more than a decade, Stripe has deepened its ties with Amazon as a strategic payments partner with the e-commerce giant. According to the Irish Times, under this new arrangement, Stripe will process a substantial portion of Amazon’s entire payments volume, which include Audible, Amazon Pay, Kindle, Prime, and Buy with Prime.  

Stripe also has plans to extend its use of AWS in order to enhance security as well as increase efficiency in data processing.  

“The platform gives Stripe enormous developer leverage, which we then deploy in service of our users,” said David Singleton, chief technology officer at Stripe. “As we look at the decade ahead, it’s clear the best path forward for Stripe and for our users is to partner more closely with Amazon.” 

The partnership between Stripe and Amazon goes back all the way to 2017, when Amazon first sought out Stripe’s payments service in order to further intensify market expansion in both Asia and Europe. Stripe was also instrumental in supporting Amazon during events such as Prime Day.   

“Stripe has been a trusted partner, helping accelerate our business at every turn,” said Max Bardon, vice-president of payments, Amazon. “In particular, we value Stripe’s reliability. Even during peak days like Prime Day, Black Friday, and Cyber Monday, Stripe delivers industry-leading uptime.”  

Stripe is no stranger to payment partnerships as it endeavors to offer as many payment options as possible for their clients and their customers. We have covered just one of the many of these partnerships here.   

This collaboration cements the fact that no one can succeed in a vacuum. Stripe’s growth strategy can be tied to its numerous strategic partnerships, taking advantage of this new, connected economy. 

The post Stripe Cements Decade-Long Partnership with Amazon  appeared first on PaymentsJournal.

Despite the geopolitical and economic turbulence being felt worldwide, global payments are still coming out on top. A recent Fintech News Switzerland article highlights findings from McKinsey’s 2022 Global Payments Report, which explores how global payments are continuing to increase. 

The years ahead certainly look promising for the global payments market, with a projected 9% average revenue growth between 2021 and 2026, with total revenue expected to reach $3.3 trillion by 2026. Several trends, including embedded finance, instant payments, and open banking, are shifting the current payments landscape, and contributing to this increase.  

In fact, embedded finance reached $20 billion in revenue in 2021 and this market could double in size in as little as three to five years. Instant payments are also growing considerably worldwide, with countries including Thailand, India, and Spain doubling their use of real-time payments.  

In Europe, open banking continues to see a boost in adoption. Specifically, open banking payments are expected to increase over the next five years, from 71 million transactions within the UK in 2022 to as much as 1.6 billion by 2027. 

We’ve previously covered the massive acceleration of changes within the global payments industry, along with its challenges. This rapid evolution is great news for players in the payments industry and those ready to enter as these numbers mean an abundance of opportunities to reach more customers as new solutions come to market. 

The post Global Payments See a Profitable Path Forward  appeared first on PaymentsJournal.

Payment providers are continuing to operate with clunky legacy systems that could potentially curb profitability. A more sustainable solution is in order.  

An article from Finextra highlights a report From Capgemini, which found that the use of outdated systems was quelling digital transformation. Over 80% of payment executives said that substantial modernization of tools was necessary.  Some of the newest technologies that have made their way into the payment space include RPA, cloud, APIs, AI, DLT, as well as hubs. These tools offer a wealth of options for the consumer. However, the implementation of these new technologies could pose a significant cost for providers.

Regulatory compliance is also a major hurdle to overcome as there are substantial costs tied to this as well, and all technology must meet the current regulatory standards.  

It’s essential that providers manage their investments accordingly to keep up to pace with the newest payment technologies. It’s also key to funnel funds into efforts that will deliver the most value.   

There are many aspects of the payments system that must be looked at to ensure that the individual parts work together, making a more cohesive and sustainable model. We’ve talked about the necessity of enhancing payments, especially within the B2B space here.

The post Payments Must Be Looked at Holistically to Ensure Sustainability  appeared first on PaymentsJournal.

Fintech companies are seeing the value in payments collaboration, making payment capabilities more accessible through the latest technological innovations.

This type of collaboration has worked well for Amazon Web Services (AWS) and Plaid. In a recent conversation, Mark Smith, Head of Payments Business and Market Development at AWS, John Anderson, Head of Payments at Plaid, and Tim Sloane, Vice President of Payments Innovation at Mercator Advisory Group, discuss how AWS and Plaid are working to democratize payments for all.

Democratizing Payments

For nearly a decade, Plaid has been delivering account connectivity to its customers by securely connecting a preferred app with their bank account. That ultimately translates to as many as 12,000 bank connections.

“[Many] Americans and people in Europe are using Plaid to get access to products — from financial services including Robinhood to moving money like they would with Venmo,” said Anderson. “Oftentimes, our customers will use Plaid to connect [their] bank account and then use that connection to allow people to fund an account balance. That aspect has really taken off and started to grow.”

“There’s this interesting commonality between [Plaid and AWS],” said Anderson. “Both of us are democratizing super powerful capabilities and then opening that up to a vast ecosystem — from startups to Fortune 1000 companies.”

AWS’ Smith also agrees that there’s a big focus on democratizing payments, as well as a focus on developers and engineers. “We really try to help customers all over the world democratize things like artificial intelligence [AI] and machine learning [ML],” he said. “[You want to] make it easy and not have to have a team of data scientists to build, deploy, and improve their use of machine learning for various things around payments.”

“We see a lot around fraud prevention and credit extensions, but there’s just a ton of use cases and a ton of customers who have been able to benefit from it,” he added.

On the topic of collaboration, Smith noted it’s important for teams to figure out how to best collaborate when there are shared customers and shared partners. “How can we come together as an ecosystem and change the face of the industry together? And that’s just a couple of ways that we’ve been working together with Plaid,” he said.

Harnessing Data and Analytics to Create Impactful Customer Experiences

There’s been a lot of acceleration in the payments space, especially since the onset of the pandemic in 2020. As a result, companies and their partners are redirecting their focus on the end customer experience.

“We’ve been helping customers, from enabling new forms of payment to lowering cost payments,” said Smith. “Customers like Plaid are using all the data that comes along with the accounts and payment transactions to reduce fraud and false positives to create a good customer experience. And more companies are turning to AI/ML to manage the high volumes of data and provide valuable real-time insights and constantly improve these models to stay ahead of fraudsters.”

Payments are also becoming more contextual — this includes embedded finance, opening up new payment methods, or opening up credit at the point of purchase. “We’re seeing some savvy customers use modern data analytics to ensure that they’re targeting the right customers, at the right time, in the right channel, with the right product,” said Smith.

Digital Payments: New Use Cases

Anderson has personally seen a broad evolution of more internet-native capabilities and services working together to help people through a recent experience he had. “I’m trying to buy a car and prices have gotten really expensive,” he said. “I love to buy used cars and if I was going to Craigslist, or find[ing] someone to buy a car [from], I’m not going to show up with $10,000 or $20,000 in my pocket.”

“It gets really tricky, and I don’t even know if people still have money orders today,” he said. “You have these amazing products, like Carvana, who makes that shopping experience easier in terms of browsing online. But a huge piece of it is how they’ve been able to aid the actual transaction and the payment layer.”

According to Anderson, Carvana also use KYC (Know Your Customer) information for verification and to ensure a safe marketplace. This enables customers to move their money safely and efficiently in order to purchase a vehicle.

Anderson also detailed Plaid’s newest products: Signal and Transfer. Signal sees the patterns within the customer’s transactions, offering an opportunity to predict returns. This can be due to insufficient funds or customer-generated concerns. “We can then establish a very confident transaction connection through Signal, and then the last piece is actually moving in the money.” said Anderson.

And for companies and developers that have never initiated an automated clearing house (ACH) payment, there is a product called Transfer.  Transfer facilitates the onboarding onto Plaid — the connection, security, and authorization in order to move and settle funds.

Putting the Choice in Consumers’ Hand

Another shared philosophy both AWS and Plaid share is giving the customer a choice. Neither company dictates to its customers what partners they must work with. “What’s best for the customer is our focus,” said Smith. “Whenever possible, if they have a choice, you give them that choice.”

Indeed, many customers show up with certain needs as to how they choose to move their money and which specialized processing partners they prefer to work with. Plaid believes in having a deep integration with all partners to enable these connections to be safe and secure. What’s more, every vertical has its own needs. By catering to these needs, fintechs will be able to serve more customers.

“By delivering APIs [application programming interfaces] to make this all possible, it allows you to find the fintechs that are vertically oriented, that can modify the payment structure in order to be able to meet the specific needs of that particular vertical market or customer base,” said Sloane. “Each vertical has its own particular needs.”

The post AWS and Plaid on Democratizing Payments and Improving Customer Experiences appeared first on PaymentsJournal.

Payments modernization is a hot topic right now—and for good reason. New and innovative digital payment technologies and instruments are emerging constantly, sharpening competition across the payments landscape. Where do A2A payments fit in?

Innovation Paves Way for A2A Payments

The advent of open banking and Application Programming Interfaces (APIs) has unlocked access and connectivity options. It is creating links between banks, fintechs, and platforms. This is enabling the direct flow of money from one account to another. Innovation has paved the way for the rise of these account-to-account (A2A) payments. It is sharpening competition by introducing point-of-sale (POS) payments that no longer require credit card rails.

A2A payments have been around for a while in Sweden (Swish) and the Netherlands. iDEAL payments system was created in that area. It was created in response to the growth of online shopping by a group of Dutch banks. Since then, iDEAL has emerged as a dominant payment system. It is accelerating the uptake of real-time payments across the Netherlands. Real-time payments will grow in the coming years.[1] Elsewhere in Europe, the SEPA Credit Transfer (SCT) scheme enables the quick transfer of funds from one account to another within the SEPA zone.

Despite the success of iDEAL and SCT, real-time payment schemes are still relatively new in the rest of Europe and North America. So, what will it take for these fast, low-cost and versatile schemes to transform payments in the rest of the world?

A2A Payments and Regulations

A2A payments have the potential to dethrone card-based payments. They make the ecosystem even more competitive. But that will only be if regulations keep pace with the innovation. And if they create the right conditions for competition to flourish.

In simplest terms, issuing banks offer services that separate credit card transactions and A2A payments. The services that they offer that other banks can’t or don’t include: revolving credit, the ability to dispute transactions, and insurance against loss in the event of fraud.

Yet these services are extended at a steep price, requiring merchants and customers to pay high interchange fees in exchange for the promise of security and reimbursement of fraudulent transactions. Without regulation of A2A payments schemes, non-issuing banks simply won’t be able to offer the full range of services and guarantees—like security—that would allow them to compete with cards.

A2A payments are a much more efficient way to pay since the accounts settle in real time. In a truly competitive market, consumers would be able to access card-based payments and A2A payments for the same price. Friction would be removed. Interchange fees would decrease. And A2A rails could provide infrastructure. The infrastructure could enable new ways to pay using innovative technologies. These would include QR codes and wallets.

Regulation Aids Security

In Europe, Strong Customer Authentication (SCA) serves as a helpful illustration of how regulatory action can support A2A payment schemes. SCA was designed to reduce fraud and make online and contactless payments more secure. SCA requires that additional authentication via two methods be built into checkout transactions. A consumer must use at least two of the following: a password or pin, biometric identification, or hardware verification or a token. By requiring this additional layer of security, regulators have inadvertently allowed A2A payments to compete with card-based payments by providing frictionless payment experiences that are still highly secure.

The United Kingdom understands the need for regulatory action. It has undertaken two key initiatives to boost the use of A2A payments. The Treasury, Financial Conduct Authority (FCA) and the Payment Systems Regulatory (PSR) are creating a new regulatory body to oversee open banking and A2A payments. The PSR and FCA are also proposing new regulations aimed at curbing fraud for introduction into parliament.

The EU is not far behind, promising regulatory action for real-time payments in the coming months. The European Central Bank has also urged the European Payments Council to accelerate the updating of existing instant payments using the SEPA Instant Credit Transfer Scheme. Meanwhile, in the United States, the Federal Reserve is considering regulations to govern FedNow, its own RTP scheme.

It remains to be seen whether any of these regulatory actions will be enough. Will they be enough to give A2A payment schemes the leg up needed to topple the cards’ domination and level the playing field? Let’s hope so.

The post Competition in Payments: The Rise of A2A payments and the Role of Regulation appeared first on PaymentsJournal.

BOGOTA, COLOMBIA, September 27, 2022 – Volante Technologies, the global leader in cloud payments and financial messaging, today announced that ACH Colombia, a financial technology company, has gone live with a new banking portal featuring a superior digital payments experience aligned with the social media and ecommerce platforms customers use in their daily lives.

The deployment is part of a wider payments modernization initiative aimed at digitalizing ACH Colombia’s entire payments operation with Volante. As a result, customers can now be onboarded six times faster than before. They can also enjoy services with a higher level of personalization and receive funds twice as fast. Over time, ACH Colombia will also be able to offer customers an ever-increasing variety of domestic payment services through the portal.

“ACH Colombia is investing in the future to improve the quality of our services and continue to contribute to the integration of the country’s financial ecosystem. The initiative represents a complete digital overhaul that sees us transform into a fully hybrid and multi-cloud operation fit for modern times. Preliminary customer feedback has been overwhelmingly positive,” said, Luis Alberto Fernández Pulido, VP Operations and Technology, ACH Colombia.

ACH Colombia manages payments in Colombia’s social security system through its platform to make the settlement and payment: SOI, provides secure online payment and purchase options by debiting the resources online from savings, checking or electronic deposit accounts: PSE, and offers the possibility of making interbank transfers immediately with Transfiya. The company handles 95 percent of Colombia’s interbank transfers, and during the first half of 2022, more than 167 million transactions in Colombia went through its network, or over 27 million transactions per month. As the firm actively improves Colombian citizens’ quality of life by expanding digital financial inclusion, it expects that number to more than double, to over 35 million per month.

The initiative originated in ACH Colombia’s realization that, in order to deliver on this tall order, it needed to modernize its payments infrastructure and processes. Since it had already moved its entire operation to a fully hybrid and multi-cloud environment as part of a bank-wide digital transformation initiative, the solution needed to be cloud-native.

“We conducted a rigorous selection process and opted for Volante’s VolPay because of its superior cloud-native, low-code architecture, rich functionality, and ease of integration with our cloud-resident middle and back-office functions,” he added. “Our business models also go hand in hand, which is a prerequisite for short and long-term success,” said Fernández Pulido.

“Volante has provided us with a solid foundation to deliver on our strategy and roll out our customer-centric new business model. We’re well set up for the future, including ISO 20022 and real-time capabilities, and will be able to expand our product offering and add more payment service variety whenever customer demand changes or the market dictates it,” said Fernández Pulido.

“During the last three years, financial businesses have had to adapt to new ways of working and interacting with their customers, making for a heavy reliance on digital channels. In Colombia, 61 percent of consumers use payment services from neo banks. This digital shift means that banks must adapt and make smart investments in technology to support their customers and help them grow,” said Vijay Oddiraju, CEO, Volante Technologies.

“By digitalizing its entire payments operation, ACH Colombia is leapfrogging its peers,” Oddiraju continued. “It is the first financial services firm in Colombia to modernize its payments infrastructure in the cloud, and only the second in the entire region. We congratulate them on this momentous achievement and look forward to continuing our partnership with them as the region continues to accelerate towards a 24×7 real-time digital future.”

To read more about how banks in Latin America are leapfrogging their global peers, read Volante’s recent blog. You can also meet the Volante team in person at FELABAN Guatemala on November 14 to 15, 2022.  

Ends

Media Contacts:  

On behalf of Volante Technologies: 

Americas 

Chanda Shingadia or Tinne Teugels 

RISE-  Tel. +1 (866) 797-8701 
Tinne@risethrough.com
Chanda@risethrough.com

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Although card payments have been around for 80 years, little has changed within the industry to keep up with ever-changing customer demands for digital payments and the explosive growth of innovation within the fintech industry.

Many financial institutions that rely heavily on their legacy systems to offer their financial services are finding it more difficult to remain competitive amid the rapid changes within the card payments industry. Here to offer insights into these challenges is Vishal Pasari, Vice President and Global Head of Products & Partnerships for Euronet, and Mercator Advisory Group’s Sarah Grotta, Director of Debit and Alternative Products Advisory Service.

Significant Challenges Within the Card Payments Industry

With the advent of credit cards in the early 1930s — beginning with the air travel card, to the Diners Club, and then the Bank of America card in the 1950s — innovations within the credit card industry have remained stagnant.

Banking institutions as well as providers have also been lax in their evolution, leaving their legacy systems ill-equipped for any type of rapid innovation. Although their platforms were solid, they were no match for the agile financial solutions developed by fintech companies. This was especially true during the fintech boom in 2010.

Pasari expounded on this issue with the following analogy:

“It’s kind of tricky. I mean, you can’t just take an armored truck, slap on some spoilers and some race tires, and put on a track. On top of this, the card space is one of the most heavily regulated industries in the world, and this further challenges the ability of institutions to extend beyond the status quo, right? Whatever little bandwidth comes available is sucked up by the need to stay compliant. So this combination of legacy and regulatory headwinds is, in my opinion, the largest challenge in the cards world today.”

Another issue Pasari touched upon is that almost two billion people remain unbanked or underbanked. This population is not limited to those living in the emerging economies but extends to those living in the United States.

Although Pasari pointed out that this poses a significant challenge, he maintained that it also poses a significant opportunity for the potential adoption of card payments.

Grotta also commented on another challenge besetting financial institutions that are still using legacy solutions: the lack of data on their customers. Data that reveal an understanding of customer needs as well as how the institution is managing fraud are nonexistent.

Key Trends to Look for Within the Card Payments Industry

Pasari mentioned three significant emerging trends within the card payments industry: the ability to issue and accept tokenized wallet-based cards on mobile phones, embedded payment capabilities, and the expansion of the card user base worldwide.

• Issuing and Accepting Tokenized Wallet-Based Cards

Pasari mentioned the significant shift in customer expectations in just the last 20 years. Where in the 1990s it was the norm for consumers to receive a letter indicating they will be receiving their credit card within 10 business days upon approval, this situation is now unthinkable. With all products and services being delivered instantly with a single swipe on the phone, the device has become a sort of “magic wand” for the customer. The expectation is that the phone has become a “digital card” for the customer. Therefore, having the ability to issue and accept tokenized wallet-based cards by phone is a must-have in today’s digital age.

Grotta believes the instant-issuing capabilities serve both customers and financial institutions positively:

“I’ve always been a big fan of this capability because I think it serves customers so well, you know, both from a new issuance perspective, but sometimes I think even more importantly, from a service perspective, so that the consumer as well as the financial institution isn’t seeing any sort of interruption in that transaction activity. I think another thing I would point out is moving those activities toward digital also has [provided] not only a better experience for customers, but also achieves a lot of efficiencies for the financial institution as well. And I think you know, as for financial institutions who are looking at that, you really can’t forget to include the efficiencies   that are going to be driven by that … type of an upgrade to your card issuance solutions.”

• Embedded Payment Capabilities

Pasari shed light on another trend to watch for: embedded payments. He explained this as having the payment process “interwoven” within the user journey, which eliminates a separate step that customers will need to navigate during the payment process. Embedded payments remove all friction within the checkout process. The strengths of this capability are that it not only drives higher card transactions but it also lowers the ever-growing problem of cart abandonment.

• Expansion of the Card User Base

When it comes to underbanked and unbanked consumers, several countries are encouraging them to use prepaid cards or debit cards instead of using a bank. This, Pasari said, will boost the adoption of cards over the next few years.

Mastercard, in collaboration with The Partnership for Central America, has launched a financial inclusion program in Guatemala, El Salvador, and Honduras. According to Pasari, 60% of adults in these countries do not have a bank account. Of those who do, only one in four has a debit or credit card. To remedy this problem, Mastercard plans to invest $100 million in this initiative. It will be partnering with banks to help them offer financial services to the unbanked and underbanked.

How REN Solutions Enhances the Customer Experience

Pasari explained that REN Solutions’ key differentiation comes from the fact that it is a modern solution that has been built from the ground up. In other words, there was no preexisting legacy heritage or infrastructure. This type of solution facilitates the urgent need to address the many challenges previously mentioned. It is well-equipped to help institutions to not only innovate, but to also expedite the launch of card payment solutions.

Not only is REN Solutions the perfect choice for new banks and fintechs, but it is also a great fit for institutions that face the formidable challenge of migrating off their current legacy platform. REN Solutions is built in a way that allows customers to evolve their legacy systems at their own pace. This eliminates the need for a “rip and replace approach,” which exposes the institution to a lot of risk. Customers have the option of choosing specific parts of their payment stack to modernize, and the solution offers maximum flexibility with minimum risk as institutions navigate their way toward modernization.

REN is one of the few modern payment ecosystems that covers the complete end-to-end card payments solutions life cycle. The builders of this system have firsthand knowledge and experience in helping their clients overcome their challenges and take advantage of key trends to help ramp up their business.

REN is just one of many card payments solutions that the fintech industry continues to develop to move away from the processes of most traditional banking institutions and adopt more modern platforms, further driving innovation.

The post The Card Payments Industry Is Facing a Pivotal Shift appeared first on PaymentsJournal.

Digital transformation is top of mind for financial institutions of all stripes, yet many are cautious when initiating such projects and unsure where to begin due to the inherent risk associated with modernizing legacy systems.

This is especially true when it comes to modernizing payments systems. Today’s consumer wants to not only pay using traditional card-based methods, but also wants to use the vast array of digital payments available and new innovations such as buy now pay later (BNPL).

How financial institutions can successfully modernize their payments systems will be a focus of discussion at Diebold Nixdorf’s upcoming Intersect conference in Las Vegas on August 29–31. The annual conference is returning after a two-year hiatus brought on by the COVID-19 pandemic.

To hear more about what financial institutions will learn about modernizing, PaymentsJournal sat with Michael Engel, Managing Director & VP Payments for Diebold Nixdorf, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service for Mercator Advisory Group.

Overcoming Fear of Change

The biggest reason financial institutions put off modernizing their payments systems is the potential risk and fear of something going wrong. Engel noted the adage “no one ever got fired for buying IBM,” and said many bank and credit union executives hesitate to move from systems that work fine, even if the systems are decades old.

“Banks do understand that they need to future-proof,” he added. “But change is always associated with risk. Many feel soft and cozy with their legacy systems, and it feels safer to do nothing than to take a risk.”

Still, he noted that there are risks involved in simply staying the course. For one, financial institutions that do so can’t offer their customers access to the latest innovative digital products and services. Being able to do so is a matter of staying competitive.

“Fintechs will come in and provide these services and win customers if banks don’t change,” Engel said.

He added that the siloed legacy systems many financial institutions have in place are saddled with technical debt and are increasingly time-consuming to keep running smoothly.

Grotta agreed that many financial institutions are now reaching a tipping point when it comes to modernizing systems.

“I talk to a lot of banks about modernization, and to date, it’s mostly been a lot of talk, but we are now reaching the point where they are talking about when and where and how to modernize,” Grotta said.

Taking a Step-by-Step Approach

A major focus of the Intersect conference will be helping financial institutions answer those questions of when and how and where to modernize. Engel noted that for many institutions, getting started is the biggest hurdle; they simply don’t know where to begin.

“For so many individuals at financial institutions, finding a way to get started and just defining what modernization is, is the really hard part,” Grotta added.

That’s why Diebold Nixdorf usually proposes a phased, step-by-step approach to modernizing systems. Engel noted this is safer than a “big bang” approach where systems are all replaced at one time, and the step-by-step approach usually assuages risk-averse bank executives.

The conference will feature an in-depth workshop on how banks and credit unions can take this approach, with a workbook they can fill out to help make a business case and hearing case studies from institutions that Diebold Nixdorf has already successfully worked with on modernization.

“We’re looking to create a process that takes them step-by-step,” Engel said. “We’re going to look at the risk associated with changing systems and share best practices from real-life implementations and what worked and what didn’t work.”

A big key is to consider up-front the potential challenges that may arise throughout the project and make plans for dealing with them.

“A systems migration should not be rushed into, and no detail should be overlooked because it can create a burden at the end,” Engel said. “You should spend more time on analysis and planning at the beginning.”

However, Engel added that taking a measured approach does not necessarily mean that it will take a long time to roll out the new technology.

“It may sound contradictory, but if you keep that steady pace in a risk-minimized environment you can actually deliver new products faster than with any big bang approach,” he advised. “The key is to deliver value during each phase as it becomes available in this cloud-based native environment and ready to be consumed by customers.”

Grotta agreed, noting that “the big bang approach is fraught with risks” and a phased approach is easier to sell to internal stakeholders.

“The idea of a methodical and phased approach has got to be music to any bank executive’s ears,” she said.

Ultimately, no matter where any financial institution stands in its own modernization journey, it can benefit from the workshop and hearing learnings and best practices from other institutions that have went through the process already, Engel said.

“We want them to know that they are not risking one’s job or career by embarking on a modernization project,” he added. “It’s about how to approach change in a manageable way.”

Diebold Nixdorf – Intersect Las Vegas Event | Diebold Nixdorf

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