Visa and TikTok are launching a new “creator card” aimed at fixing one of the biggest pain points in the creator economy: getting paid on time.

The debit card, initially rolling out in the UK, will allow creators to convert TikTok Live gifts into income and access funds more seamlessly through a dedicated business account.

“The partnership is all about getting creators their funds faster, which for a small business is critical to cash flow and money management,” said Ben Danner, Senior Debit Analyst at Javelin Strategy & Research. “The other upside is to keep business expenses separate from personal expenses, which are often intermingled as creators utilize their personal bank accounts for their TikTok businesses.” 

“Visa has increasingly leaned into supporting the growing creator economy in the past few years by providing solutions like Visa Direct and card solutions,” he said.

Prompted By the Phenomenon

The rapid rise of the creator economy phenomenon has pushed leading financial services players to strengthen the payments infrastructure supporting it. For example, PayPal recently launched a feature for Canva’s roughly 265 million users that enables them to design content and accept payments in one place.

Previously, many Canva users had to build separate websites or storefronts to process transactions—often at a significant cost. These payment challenges are widespread. In a study commissioned by Visa, nearly half of surveyed UK content creators said late or inconsistent payments negatively impacted their ability to run their business.

An Appealing Combination

While more financial services firms are working to solve these issues, TikTok is also expanding its financial footprint. In China, its sister platform has launched the Douyin Pay digital wallet to facilitate in-app transactions. TikTok has also applied for licenses in Brazil that would allow it to hold user funds and potentially offering lending services.

Through these efforts, TikTok is positioning itself at the intersection of social media, e-commerce, and fintech. This convergence is particularly compelling younger adults, an increasing number of whom are building businesses within the creator economy.

The post Visa and TikTok Unveil Debit Card for Social Commerce Payouts appeared first on PaymentsJournal.

As small businesses flock to peer-to-peer payment apps, banks are facing a quiet but significant threat to one of their most valuable customer segments. If they can’t keep pace with the Venmos and Cash Apps of the world, they risk losing not just transactions, but long-term financial relationships.

In the Small Business, Big Debit Opportunity: The FI Counter to P2P Fintechs report, Ben Danner, Senior Analyst of Debit at Javelin Strategy & Research, looks at how banks are working to recapture this market. A key strategy is emphasizing the added value of full-service banking—particularly the suite of small business services that standalone apps can’t replicate.

The Battle for Small Business

Small businesses represent a massive market for banks, much larger than the consumer segment when it comes to payments. Yet banks are in danger of losing these relationships to fintech apps. Entrepreneurs building their businesses don’t want to juggle multiple payment systems, especially when they already use platforms like Venmo in their personal lives.

“It’s hard to beat the convenience of creating a business Venmo account and starting to collect payments on there,” Danner said. “You don’t need any knowledge about anything other than what you’re already accustomed to using in your personal life. The younger generation—the next generation of small business owners—already has Venmo accounts. The Venmo business account takes five minutes to set up, whereas if I have to go to a bank, I’ve got to set up a whole business bank account.”

Today, many small businesses can even accept card payments using only an app. In the past, microbusiness owners, such as vendors at farmers’ markets, had to open accounts with companies like Square and attach a card reader to their phones. Now, with Apple enabling NFC-based tap-to-pay, merchants can accept payments directly on their devices with no additional hardware.

These shifts have left banks concerned that small business transaction volume will migrate to P2P platforms, which are increasingly positioning themselves as pseudo-banks. In response, financial institutions are developing competing solutions. Some smaller banks now offer integrated tap-to-pay capabilities within business accounts, while instant payment tools like Zelle allow businesses to move money quickly—an essential feature for managing liquidity and cash flow.

Emphasizing Security

What might persuade a small business owner to choose bank-based services over Venmo or Cash App? Security is a major factor. Survey data consistently shows that financial institutions are viewed as the most secure option for storing and transferring money.

“When it comes to business payments, which are generally much larger than consumer payments, small businesses might want to stick with their bank,” said Danner. “There’s something about keeping my money in a traditional bank, like a Chase business banking account and the security and protections afforded to me through that, versus something like a Venmo business account.”

Zelle, created by a consortium of banks, was designed as a direct response to early instant payment platforms. Banks highlight its speed and reliability, both critical for small businesses that depend on timely access to funds.  

Cost is another differentiator. Zelle is typically free to use, although some banks charge small business transaction fees. By contrast, many fintech apps charge for instant transfers, and services like Square often include monthly fees and higher transaction costs. Over time, these expenses can add up signficantly.

“If I’m a really large business that’s doing a high volume, I don’t want to work with somebody like Square, because Square charges fixed-cost fees,” said Danner. “If I work with a traditional processor, they’ll offer volume discounts.”

Connecting Businesses to Bank Accounts

Tap-to-pay technology is also helping banks attract small business customers. Companies like Moov are introducing white-label solutions—such as Tap to Local—that allow smaller banks to offer tap-to-pay functionality directly within business accounts. This eliminates the need for third-party hardware or services like Square, enabling community banks and credit unions to compete more effectively in the payments space.

“If you already have a small business banking account, it allows you to collect card payments into that account without having to use any other middleman processes,” Danner said. “It allows those small banks a way to compete with the Venmos and Squares. They can collect card payments through their own tech, which is essentially offered as white label technology through the bank.”

A Full Range of Customer Service

Traditional banks also maintain an edge in customer support. When payment issues arise, business owners can work directly with bank representatives, often backed by large support teams. In contrast, resolving problems through app-based platforms can be more challenging, with many users reporting difficulties navigating customer service channels.

Additionally, major financial institutions offer comprehensive merchant services. For example, Chase provides payment technology solutions, including card readers and related infrastructure—through its merchant services division, giving small business access to a full ecosystem of support.

“The larger the businesses go, they tend to move more into the traditional bank merchant services because they need that level of support,” Danner said. “What tends to happen with this is businesses will start very small, like a micro merchant on Venmo. Once they scale into a larger size, they’ll move into more of a traditional business bank account, because there’s more services that come with that. If you want to open up a storefront, you’re not going to get a big enough loan through a fintech app. You’re going to need real money, not a thousand bucks.”

The post How Banks Are Competing with Fintech Apps for Small Businesses appeared first on PaymentsJournal.

Ahold Delhaize USA and Fiserv have partnered to launch pay-by-bank as a digital payment option for online grocery orders. If you’re unfamiliar with pay-by-bank, it’s all the buzz in the payment space as an emerging method to pay directly from a bank account, bypassing the traditional card networks.

The key selling point for consumers is convenience, as it eliminates the need to manually enter store card details. Some merchants—typically fuel merchants—are also incentivizing its use through loyalty programs.

Payment Options Galore

Last year, Fiserv partnered with major retailer Walmart to bring the technology to millions of customers, drawing renewed attention to it as a test bed for broader retail adoption.

So why launch a new payment method like pay-by-bank right now? Data from the Javelin Strategy & Research Buyer PaymentsInsights series shows that the grocery vertical has been a particular dominant area for debit cards.

However, credit cards—which pack higher merchant fees—have become increasingly popular among consumers. Pay-by-bank encourages more volume to run through lower cost instant and ACH rails which saves a significant amount of money for the merchant and presents customers with further choices in how they prefer to pay.

Ahold Delhaize USA reports that “tens of thousands of customers have enrolled” since launching pay-by-bank late last year. The technology is available for use at The GIANT Company, Giant Food and Stop & Shop.

The post Fiserv and Ahold Delhaize USA Bring Pay-by-Bank to Online Grocery Orders appeared first on PaymentsJournal.

Although new payments rails and formats continue to emerge, all signs point to ACH remaining the dominant payment network. In fact, volume on the network is expected to accelerate, placing a strain on many financial institutions’ longstanding payment infrastructures.

In a recent PaymentsJournal webinar, Finastra’s Radha Suvarna, Chief Product Officer, Payments and Mihail Duta, Director of Global Solution Consulting for Payments, along with James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the trends driving ACH adoption, the impact on banks’ systems, and why payments modernization has become essential in today’s financial services milieu.

Becoming Forward Compatible

The FedNow and RTP instant payments networks burst onto the scene, fueling speculation about the advent of real-time payments. However, even though these networks have been active for years, ACH continues to serve a critical set of use cases—such as bulk payments, payroll, and government disbursements—and is likely to do so for the foreseeable future.

A recent U.S. government mandate to eliminate paper check payments and adopt electronic disbursements will only drive even more volume to the network.

While this increase may not overwhelm banks’ systems immediately, the mandate signals several important implications: ACH as a payment method must be supported by banks for the long term with additional changes on the horizon.

“One thing that surprised a lot of folks in the payment space is the speed with which this mandate was put in place. The executive order was signed in March and it was in effect at the end of September,” Duta said. “The other question is, what’s going to happen next and how quickly is it going to be implemented? Today, I know about this mandate, but tomorrow there could be another that could throw off the capacity that I have left in my existing solution.”

This growing ACH volume, combined with the dynamic nature of the financial services landscape, highlight the urgent need for payments modernization—enabling financial institutions to adapt to changes with minimal disruption.

Unfortunately, many of the ACH platforms that banks rely on were built decades ago, are mainframe-based, brittle, and not forward-compatible. Maintaining these platforms and integrating with new channels—such as mobile, digital, or ERP systems—has become costly.

Perhaps more importantly, these legacy systems have stymied innovation.

“You have a situation where you have this very important payment method that serves very important use cases for corporates and consumers that will continue to grow, and it’s going to be around for the next decades,” Suvarna said. “However, on the flip side, the platforms are very old and legacy and it is critically important for the industry and for the banks and for the rest of us to come together and make them forward-compatible for the years to come.”

The Compelling Drivers

In addition to the external forces impacting ACH platforms, organizations must also consider compelling business drivers.

One key advantage of a modern platform is its ability to create more value for customers. Commercial clients often separate payments into different files, such as bulk payroll payments versus emergency payments, each requiring distinct routing. Modern platforms streamline these complex workflows, improving efficiency, and reducing errors.

“From a corporate customer perspective, if they could send a list of payments, and depending upon the execution date of the payment, they’re automatically parsed into appropriate rails. That would be the ideal experience, rather than the customer trying to figure out which rail the payment needs to go through,” Suvarna said.

“To deliver those enhanced customer experiences where we obfuscate the complexity of payments from the end customer, it is critically important that ACH is modernized,” he said.

Another important driver is the resiliency that modern payments platforms deliver. While disaster recovery is a critical component of this resiliency, cloud-based third-party platforms offer additional benefits, including scalability and flexibility as payment volumes increase.

Finally, forward compatibility has become essential for financial services companies. The payments industry has undergone a metamorphosis in recent years, driven by innovations like digital assets and real-time payments. Alongside these emerging payment types, new standards like the data-rich ISO 20022 payments protocol have rapidly become the international norm.

“Outside of ACH, most other rails in the U.S. are using ISO 20022,” Duta said. “What I hear more from customers—corporates especially—is asking for the ability of sending an ISO-formatted file that can be transformed and processed through ACH, and I can tell you that the legacy solutions can’t do that.”

“ACH doesn’t live on its own, it has to interact with other rails and ISO,” he said. “It’s a perfect example of how the need for modernization is now versus later, because ISO is present now. It’s going to continue to evolve, and customer expectations are going to continue to evolve. If my current ERP systems can only generate ISO files, I will expect my ACH solution to take in an ISO file and process it for ACH. Only a modern solution can accommodate that—the payments hub in most cases.”

Priority Number Three

Although more financial institutions recognize the need for these solutions, ACH modernization projects are still often relegated to the back burner.

“I think the problem with ACH is it just works so well and always has,” Wester said. “When you look at all the things that financial institutions must do when it comes to payments—whether it’s to connect to new rails, whether it’s to worry about new fraud—the problem with ACH is it always is the perpetual priority number three, where there is always a rotating number one and number two. You always have something that’s more important ahead of it.”

Despite the reliability of existing systems, ACH modernization can no longer be ignored. Fortunately, financial institutions now have solutions available to address these concerns.

Modern payments hubs can be tailored to the needs of businesses ranging from mid-market to enterprise. For mid-market companies, in particular, payments hubs can be transformative, allowing them to leverage the scalability and reliability of cloud-native software-as-a-service (SaaS) solutions.

This eliminates the need for organizations to build and maintain infrastructure themselves. When adjustments are required—whether due to changes in transaction volume or new regulatory requirements—these responsibilities fall under the SaaS provider.

Such advantages are prompting a shift in mindset across many institutions.

“Many years ago, mentioning the words ‘cloud’ and ‘payments’ in one sentence would have led to a very short conversation. Now it’s almost table stakes,” Duta said. “This way I can address the needs for increased volume, I can address the additional use cases that I need to deal with for my customers and I don’t need to worry about reliability.”

“ACH—even though it’s been present for a long time—doesn’t stay still,” he said. “New rules come into place; there are new proposals are out there. If you think of the fact that the Same Day ACH transaction amount has been increased and the fact that there is potentially an opportunity for another Same Day ACH window, all these things point to a modern ACH solution which is tied to a payment hub.”

The Latter Camp

In this landscape, financial institutions have increasingly fallen into two camps. One group has chosen to retain their core ACH processing systems, opting instead to modernize and build around them. While this approach carries relatively low risk in the near term, it doesn’t resolve the inherent challenges posed by mainframe-based monolithic platforms.

The other group is willing to migrate  from existing systems in search of forward-look capabilities.

“We at Finastra have a modern ACH platform which is built on microservices, it’s API-based, and scalable,” Suvarna said. “Just last month we took one very large US enterprise bank live, moving from the legacy platform to an API-based platform which is forward compatible. It’s cloud-native, therefore there’s connectivity to third parties and it’s going to be significantly simpler.”

“The other benefit is that ACH sits alongside of other clearings in the United States, which is RTP, FedNow, and Fedwire,” he said. “That brings an additional value proposition, a consistency of experience that each bank will have to make their own choices on, in terms of how important it is for them to modernize around ACH. When it comes to leaving ACH as-is or bringing ACH into the fold of overall payments modernization, we are seeing more banks on the latter side.”

The post ACH Is Thriving, and Banks Are Struggling to Keep Pace appeared first on PaymentsJournal.

Are people ready to borrow from their friends—and pay them back in installments? Cash App is betting they are. The popular payment app launched a feature that lets users split peer-to-peer (P2P) transfers into short-term installment plans, turning everyday money exchanges into mini loans.

While buy now, pay later options have surged in retail, Cash App is the first major U.S. P2P platform to bring pay-over-time capabilities to peer-to-peer payments. Users pay a 7.5% fee on the transfer amount, with weekly repayments stretching up to six weeks. The minimum transfer to qualify is $25, while the maximum varies by user.

A Younger, More Gig-Oriented Market

Cash App’s user base skews younger and lower-income—groups that may benefit from spreading out P2P payments. The feature could become even more valuable if current economic pressures persist.

In an interview with TechCrunch, Owen Jennings, Global Head of Business for Block, Cash App’s parent company, noted that many Americans now earn income less consistency than in the past. “They have side hustles, they’re working multiple jobs, so they have variable income streams,” Jennings said. That’s the market Cash App hopes to appeal to with the new feature.

Deferring Even Small Payments

Deferring payments has become increasingly common, even for relatively small purchases. Last year, Klarna partnered with DoorDash to let consumers split takeout orders into installments, sparking jokes about taking a month to pay for a burrito.

DoorDash’s plan allowed users to choose payment dates aligned with their paychecks—buy dinner on Tuesday, pay Friday. Cash App hopes for a similar response. Users could send money to friends before it even hits their own banking accounts.

The feature also lets eligible customers turn recent P2P payments into short-term installment plans, instantly receiving the amount back in their balance for an upfront fee and repaying it in weekly installments. Cash App rolled out a similar installment-payment feature a year ago for its debit cards, allowing users to retroactively apply BNPL financing to purchases.

The post Cash App Users Can Now Pay Over Time on P2P Transfers appeared first on PaymentsJournal.

As transformative payment types like digital assets and real-time payments have emerged, many have treated their eventual dominance as a foregone conclusion.

While these methods have gained rapid traction in some regions, payments inertia has proven difficult to overcome in others. In the U.S., a deeply entrenched financial services infrastructure has fostered a card-driven ecosystem where alternative rails have struggled to gain meaningful share.

In Switzerland, cash has long held a unique cultural and functional appeal. A key driver is the nation’s strong preference for financial privacy—perhaps not surprising for the country synonymous with the Swiss bank account.

This preference has not wavered even as new payment options have come to market. In fact, data from the Swiss National Bank (SNB) found that mobile payment apps like Apple Pay and Switzerland’s own Twint accounted for 17% of transactions last year, down one percentage point year-over-year.

Circulating High Values

Cash remains a defining feature of Swiss commerce. The country issues the world’s third-highest denomination banknote—the 1,000 Swiss franc note, worth approximately $1,250—and it extends even to large purchases, including automobiles.

That said, cash is no longer the leading payment method. According to the SNB, debit cards were used in 37% of transactions last year, while cash accounted for roughly 30%. Both figures were largely unchanged year-over-year.

For the Love of Cash

Despite Swiss consumers’ preference for privacy, there has been little catalyst to drive a shift from debit and cash toward digital alternatives. Even with the launch of the Swiss Interbank Clearing Instant Payments (SIC IP) system—and exploration of interoperability with the neighboring European Union’s TARGET Instant Payment Settlement service—adoption has been limited.

One possible impetus for change could come from merchants. While much attention has been paid to card interchange fees, cash handling also carries meaningful costs, including security, storage, and transportation.

This is why many EU merchants recently banded together to urge lawmakers not to mandate cash acceptance. They argued such requirements would force businesses to maintain costly cash-handling infrastructure.

However, the prevalence of cash in Switzerland suggests physical currency will continue to be a core part of the retail environment. Many respondents in the SNB survey said they feel a greater sense of control when paying with cash and value the tangible nature of the experience.

Further reinforcing this outlook, the SNB recently held a competition to design its next series of banknotes, slated to launch in 2030—a sign that Switzerland’s affinity for cash is unlikely to fade anytime soon.

The post Mobile Payments Stall as Switzerland Clings to Cash and Debit appeared first on PaymentsJournal.

The UK’s £100 limit on contactless payments is being scrapped this week, potentially allowing shoppers to tap for purchases of any size. But whether consumers will actually be able to do so depends on their banks—many of which appear reluctant to loosen the cap.

Currently, any contactless purchase above £100 is automatically converted into a chip and PIN payment. Allowing higher-value taps could expose banks to larger instances of fraud, so payment providers will need robust monitoring and security measures in place before lifting the cap.

Contactless payments have already become the dominant way UK shoppers pay in stores. According to Barclays, 94.6% of eligible in-store card purchases were contactless in 2024, suggesting that expanding tap-to-pay capabilities could benefit many players in the payments ecosystem.

“It’s a win for card issuers and certainly networks like Visa and Mastercard who are still very much tied to physical card products,” said Ben Danner, Senior Analyst of Debit at Javelin Strategy & Research. “It’s more convenient for those wishing to use a physical tap to pay. However, fraud monitoring will continue to be extremely important.”

Banks Likely to Keep Limits

Early indications show banks are wary of the added responsibility. While the elimination of the cap was announced in December, the UK’s Financial Conduct Authority (FCA) said feedback indicated that most banks and payment service providers are likely to maintain their existing contactless limits for the foreseeable future.

“I expect banks to still implement some type of trigger controls, especially for flagged transactions or payments that look suspicious,” said Danner. “However, it does encourage larger value physical card use more.”

No Caps on Mobile Phones

The £100 cap has applied only to physical cards, which typically require a four-digit PIN for higher-value transactions. Mobile payments, by contrast, have no such limits because devices usually rely on built-in authentication such as PINs or biometrics.

Data from UK Finance found that more than half of UK adults surveyed now use mobile wallets for both online and in-store purchases. Although physical cards lack these built-in defenses, consumers are protected because card issuers must reimburse funds in cases of fraudulent use.

The post UK Banks Wary as Contactless Payment Limits Are Lifted appeared first on PaymentsJournal.

India’s Unified Payments Interface (UPI) has grown into the dominant force in global instant payments, accounting for more than four out of every five real-time transactions worldwide. The system’s rapid rise has been fueled by strong government support, widespread consumer adoption, and acceptance across a rapidly expanding network of merchants.

According to MSN, India’s finance minister, Nirmala Sitharaman, said the network accounted for 81% of global real-time payments last year, cementing UPI’s position as the largest instant payments system in the world.

The total volume of retail transactions on UPI has skyrocketed, rising from ₹7,176.9 crore (around $77 million) in FY22 to ₹22,167.9 crore (roughly $2.39 billion) in FY25. Even as UPI approaches saturation in India’s immense payments market, the network has still found room to grow—transaction volume on the system increased by more than 35% last year.

The growth was fueled by several factors, including the prevalence of smartphones, broader financial inclusion, and improved transaction safeguards.

Biometric Guardrails

Among the most notable of these safeguards is biometrics authentication, which was launched on UPI last year. Previously, consumers were required to enter a PIN to authorize transactions. However, India’s regulators added biometric functionality to reduce checkout friction while strengthening transaction security.

This made biometric authentication available to users who opt in, with their data managed through Aadhaar, a digital identity program operated by India’s government. Aadhaar issues citizens a 12-digit number after they provide verifiable biometric and personal data.

Like UPI, Aadhaar is also the largest system of its kind in the world and has frequently been spotlighted as a gold standard for other digital identity systems to emulate.

Fighting Faster Fraud

Sitharaman credited Aadhaar authentication with improving UPI payments, but she also highlighted the persistent challenges of fraud. One reason biometric programs have been slow to gain traction in many parts of the world is that they require both consumer adoption and merchant investment in acceptance infrastructure.

While government backing for Aadhaar and UPI suggests that infrastructure deficiencies may not be a major obstacle in India, gaps in consumer awareness and adoption will likely remind. And since faster payments often equate to faster fraud, challenges related to fraud persist across UPI and other instant payments systems.

To combat this issue, Sitharaman noted that India’s regulators and financial institutions are also conducting frequent awareness campaigns via text messages, radio campaigns, and other platforms.

The post UPI Tightens Grip on Global Instant Payments Market appeared first on PaymentsJournal.

Three Irish banks are launching a new peer-to-peer (P2P) payment service Zippay, which is going live this week. The platform is designed to compete with Revolut, which already has around 3 million P2P users in Ireland.

Zippay will initially be available to more than 5 million customers served collectively by AIB, Bank of Ireland, and PTSB. The service is expected to expand later to other European financial institutions that offer IBAN-based accounts.

The launch echoes a similar strategy in the U.S., where seven banks joined forces in 2017 to form Zelle to compete with Venmo.  

Rather than requiring a standalone app, Zippay will operate within participating banks’ existing banking apps. Customers will be able to send up to €1,000 per day and request up to €500 per transaction. Like Zelle in the U.S., the service will offer consumers free access to instant payments. The underlying infrastructure is provided by the Italian payment technology provider Nexi.

“Digital and mobile payments are popular in Ireland, so we expect consumers are primed and ready for adoption of this new bank integrated platform,” said Ben Danner, Senior Analyst, Debit at Javelin Strategy & Research. “Zippay is a way for the banks to compete with fintechs like Revolut, who are grabbing a significant share of P2P payments in Ireland. It’s a similar story in the U.S. where Zelle competes with fintechs like PayPal and Venmo as well as Block’s Cash App.”

Second Chance

This isn’t the banks’ first attempt to build a shared payments platform. In 2020, the same three institutions—along with KBC Bank Ireland—launched a project called Synch to develop a standalone payments app known as Yippay. The initiative was abandoned in 2023 after KBC Bank Ireland closed.

The earlier effort also encountered regulatory hurdles. Requirements from the Central Bank of Ireland related to launching a new standalone app would have delayed the rollout by at least a year. By integrating Zippay into their existing banking apps, the banks avoided those additional approval requirements.

Facing the Competition

For consumers, Zippay may offer certain advantages over Revolut. As an e-money institution rather than a bank, Revolut operates under different regulatory constraints, including limits on customer deposits in some markets. Deposits held with banks participating in Zippay are protected by national deposit guarantee schemes, such as the Financial Services Compensation Scheme, which insures deposits up to £85,000 if a bank fails.

Zippay will also compete with SEPA Instant Credit Transfer, which has been available to consumers in Ireland for just over a year. Developed with support from the European Commission and the European Central Bank, SEPA Instant enables cross-border transfers of up to €100,000 in 10 seconds or less.

The post Irish Banks Launch Zippay, a Zelle-Like P2P Payment Service appeared first on PaymentsJournal.

The business case for adopting real-time payments in enterprise settings is compelling. Instant settlement drives efficiency in processes long built around paper checks, while also giving organizations unprecedented control over liquidity and cash flow.

The liquidity advantage is also fueling growth on the consumer side. The Clearing House recently reported that its RTP Network reported two million transactions in a single day and set a new single-day value record of $8.36 billion. The network attributed this growth to adoption across use cases like earned wage access (EWA) disbursements, gig economy payouts, and account-to-account transfers.

“Consumers expect money to move quickly, whether that be from their employer, paying a friend, or a biller,” said Ben Danner, Senior Debit Analyst at Javelin Strategy & Research. “EWA is built around faster access to funds and the same could be said for working gig economy jobs like ridesharing.”

“As budgets tighten, consumers are going to be moving their balances they may have built in wallets and P2P apps back into their banks checking account,” he said. “We’ve seen growth in core deposits suggesting consumers are increasingly relying on their financial institution, which is generally perceived safer than app-based payments.”

Seeking Payments Alternatives

Consumers, meanwhile, continue to navigate persistent inflationary pressures. Many have leaned more heavily on credit cards, but rising default or delinquency risks have prompted lenders to tighten underwriting standards, reduce credit lines, and focus more on affluent segments.

As a result, alternative payment methods have gained traction. Buy now, pay later (BNPL) services have skyrocketed in popularity, even as overall credit card debt levels remain elevated—both a signal of consumer strain and a growing concern for traditional issuers.

Keeping Funds In-House

These factors have made real-time payments an attractive alternative for debt-laden consumers. BY enabling consumers to hold onto funds until the moment a payment is due, these systems provide a powerful cash flow management tool. That dynamic helps explain why the RTP Network has continued to expand even after the launch of the Federal Reserve’s FedNow instant payments service two years ago.

In fact, both networks continue to post new volume and value records. While much of that growth has been driven by commercial payments adoption—particularly after transaction limits were raised to $10 million last year—the same liquidity and timing benefits that appeal to businesses are increasingly resonating with consumers as well.

The post RTP Network Sets Records After Consumer Cash Flow Demand Rises appeared first on PaymentsJournal.

Once the domain of luxury cardholders, metal cards have evolved into a global phenomenon. Ironically, one of the driving forces behind this momentum has been the rise of digital payments—prompting more consumers to seek out a tangible payment device that conveys prestige. A mix of cultural and behavioral factors is also fueling the worldwide demand for metal cards.

In a recent PaymentsJournal webinar, IDEMIA Secure Transactions’ Kate Eagle, Head of Growth and Innovation, Payment Services, and Hennie Duplessis, SVP of Payments Services, MEA, along with Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research, discussed the drivers of metal card adoption across different markets and the lessons global issuers can draw from regional trends.

Singing the Right Song

The global metal card market has been growing at leaps and bounds. Although regional dynamics vary, several overarching trends are shaping the industry.

Competition has intensified as more players enter the space. The rise of fintechs, telcos, cryptocurrency wallets, and embedded finance providers has prompted many financial services companies to rethink their strategies.

Amid this surge in digital payment options, there has been ongoing debate about whether digital payments will eventually replace physical cards altogether. Yet rather than signaling the end of physical cards, this evolution has reshaped consumer preferences.

“The need to stand out and differentiate is becoming increasingly important because the competition is changing, and the competition is growing,” Eagle said. “The context is very different now. If you look at the digital influence in the world, metal cards have got the unique ability to go viral. If you go to Instagram and type in metal payment cards, it’s everything from unboxing experiences to talking about the perks that you get with certain cards.”

“Whether it’s the travel perks, the loyalty rewards, or the concierge services, these are all projecting an aspirational lifestyle,” she said. “It’s not just reflecting a high-net-worth or an ultra-high-net-worth lifestyle, but it’s singing the right song to the people that have got this aspirational lifestyle that want to be able to show off.”

While the appeal of metal cards is nearly universal, certain aspects resonate more strongly in specific markets. For instance, in many Middle Eastern countries, metal cards have long been associated with prestige and trust—qualities that hold particular importance for consumers in the region.

“Markets like the UAE, the Kingdom of Saudi Arabia, Qatar, Kuwait, all are incredibly competitive when it comes to payments,” Duplessis said. “These are complex, layered societies where financial needs and expectations differ quite a lot—not just by wealth—but also by things like cultural background, status, professions, religion, and lifestyle.”

“Over the last five to 10 years, banks in the region have become very sophisticated when it comes to how they segment their customers,” he said. “They’ve moved away from these wealth tiers to include things like behavior and digital adoption and different kinds of insights. It’s quite an interesting dynamic and we see a lot of potential going forward.”

Carrying Weight Across Markets

Outside of the Middle East, less traditional markets like Pakistan, Southeast Asia, and several African countries have also become key players in the metal card zeitgeist.

“Let’s look at Pakistan,” Duplessis said. “It’s a country with a high level of financial exclusion, but the payment landscape is being transformed by digital banks and telcos. For the traditional banks to stay relevant within this fast-moving digital landscape, the conventional banks are using metal cards to get back some traction on getting customers.”

“Even in this market where you see that it’s very much a digital-first market, the physical plunk factor still matters,” he said. “The sound and feel of a metal card when it hits the surface, it does carry weight—literally and as a perception.”

In Southeast Asia, the tactile and premium feel of metal cards has been a major draw. Following the pandemic and its prolonged lockdowns, consumers in the region developed a strong appetite for tangible, sensory experiences, which has translated into growing demand for physical expressions of status and quality.

In Africa, the drivers have been quite different. Although the region is a diverse continent of over 50 countries, several overarching trends have shaped the rise of metal cards. It is home to one of the world’s youngest populations, with an average age well below many other regions. Urbanization continues to accelerate as more rural citizens move to cities, while rapid advances in digital infrastructure have further connected and empowered these young consumers.

Together, these factors have created a generation that is increasingly aspirational—seeking products and experiences that reflect both success and sophistication.

“These are all prime markets for standout metal cards that are coming bundled with rewards, tailored services, things that people can aspire to and show off,” Eagle said. “These are things they can share and use within their social media and for influencing, and for taking home to their families to show that they’ve achieved something in their lives.”

“It’s a significant shift away from metal cards just being for high-net-worth. It’s this targeted focus on segments that has been the key,” she said.

The One Piece of Real Estate

In contrast, card payments are the norm in the U.S., where credit and debit cards account for roughly $8 trillion in spending per year. Additionally, revolving credit card debt totals around $1.3 trillion, compounded by an average interest rate of 22%, creating a massive U.S. credit market.

This is the market where metal cards were born, and, in many cases, have become an expectation.

“For many of these high-net-worth people and those that are ultra-high, this is just table stakes,” Riley said. “This is what I expect out of a card, and I require it when I do business stuff. When you start looking at the development of luxury cards or high-ticket cards that exceed $300 and $400 in annual fees, that’s a basic core requirement. You don’t even think twice.”

Although metal cards are a core component of premium card offerings in the U.S., innovation in this space continues. There are now platforms that offer metal cards with various weights, compositions, and designs.

This personalization can have a dramatic impact in markets like the U.S., where physical card payments are prevalent. As consumers use their cards frequently, they develop a deeper connection with them.

“Payments are getting more digital every day, there’s no getting away from that fact, but the metal card holds a special place,” Duplessis said “There’s something powerful about this physical feel—the weight in your hands—and it signals trust, prestige, and belonging. It’s emotional; it’s not just functional.”

“Even if not entirely logical, many people still feel their money is somehow safer when there’s something tangible attached to it,” he said. “In a world where everything lives in the cloud, it’s that one piece of real estate that you have attached to the financial world.”

Because there are a range of reasons why global consumers are attracted to metal cards, financial institutions must consider these nuances when implementing their metal card strategies.

“What we’ve learnt over the years is that banks need to have flexibility in terms of what they can do with a metal card,” Eagle said. “What we’ve learnt is that we need to be able to offer a customizable metal card platform and not just a one-size-fits-all, where every metal card is the same composition with the same features.”

“Having this menu of things that you’re able to do with a metal card talks very well to the banks who want to be able to segment at a more granular level,” she said. “I’m in the UK, and we produce diamond-encrusted metal cards for royalty, and we have entry-level metal cards for the youth and aspirational segments. The point is that metal cards can serve many segments, not just the most privileged.”

The Origins of Money

One key lesson that financial institutions can take from global metal card adoption trends is the importance of customizability. Issuers should develop a portfolio that offers a variety of metal card designs, allowing them to differentiate between customer segments—from aspirational users to high-net-worth.

Financial services companies should take a tailored approach with the aspirational segment, which largely consists of younger consumers. These customers are more likely to join a waiting list and pay a premium for a distinctive metal card they can show off—especially if the card offers capabilities beyond traditional payments, such as digital or crypto functionality.

Rewards are another critical factor in the success of metal card programs. Banks should consider segmenting their loyalty offerings as well. For example, perks like fast-track concert tickets and concierge services may appeal to younger users, while older customers may prioritize air miles or cash-back rewards.

Banks that strike the right balance in their metal card programs can instill a sense of status, stability, and timelessness in their brands.

“It makes me think back to the origins of money, and what is a banknote?” Eagle said. “The original conception of a banknote was that it was a promise to pay. For me, that’s what (a metal card) is. It’s representing a promise—it’s a tangible link to your life savings or to your salary or to your ability to obtain credit and pay. it’s a promise to be able to live your life.”

“Everything the physical card represents is a lot more solid when it is, in fact, solid,” she said. “It’s a tangible direct link to the brand of the bank and the trust that we have in them, the promise that they are looking after our money safely, that they are going to pay, that they are going to back up all the things that we need to do in our daily lives. This is so important in this increasingly competitive financial services environment.”

The post Why More Global Consumers Are Aspiring to Unbox Metal Cards appeared first on PaymentsJournal.

In just eight years, Zelle has revolutionized the way people send money. And the best is yet to come—peer-to-peer payments are expanding to small businesses and cross-border transactions, opening up a world of new possibilities. 

In a PaymentsJournal Podcast, Tina Shirley, Senior Director of Product for Fiserv, and Brian Riley, Co-Head of Payments at Javelin Strategy & Research, discussed how Zelle has become a prominent part of the U.S. financial landscape and how it’s positioned for even greater growth.

A Strong Growth Story

The numbers for Zelle tell an impressive story. In the first half of 2025, it processed a record 2 billion transactions—a 19% increase over the same period in 2024—totaling nearly $600 billion. As a primary processing partner for Zelle, Fiserv is responsible for more than two-thirds of that volume.

This growth underscores the trust people place in Zelle. In less than a decade, users have become comfortable enough with this payment method to rely on it daily, across a variety of use cases and for substantial sums. 

“We see larger dollar amount transactions in Zelle as compared to other P2P applications,” said Shirley. “That shows that people are really comfortable with using Zelle through their financial institution.”

Real-Time Payments Driving B2B Growth

One area where Zelle still has plenty of room to grow is in the B2B space, where real-time money movement capabilities have become critical. Small businesses, in particular, represent the fastest-growing segment across the network, with more than 7 million accounts now enrolled. These users increasingly expect that transactions can be completed instantly, especially when it comes to moving money.

“There’s been some pent-up demand for small businesses to be able to onboard to the network so that they can pay—and probably more importantly get paid—instantly using Zelle,” said Shirley. “We’ve seen stats that there’s been 31% growth in consumer-to-business payments just through Q2 of this year. So there’s already been a lot of growth in that space.”

Strong demand on the consumer side is further fueling this expectation.

“Something that’s important to me as a consumer is that I’ve used Zelle for many years myself to pay local vendors like the pool guy and the garden guy,” said Riley. “Something I never liked about it is that I have a business relationship with them, and I prefer to deal with it through a business account, so moving into that arena is significant.”

FIs Embrace Zelle

Zelle discontinued its standalone app a year ago, encouraging users to access the payment platform exclusively through their banking apps and websites. As a result, users increasingly associate the service with their own financial institution.

“When consumers were notified that the common app would be going away, I can only imagine that they were calling their financial institutions and asking when they could access Zelle through their mobile banking app,” said Shirley. “Or they were finding another financial institution who offered Zelle and transitioned to that.

“We have definitely seen an uptick in financial institutions recognizing that they need to offer Zelle to satisfy their customers or members—especially in the community financial institution segment,” she said. “More of the smaller community-based financial institutions are looking for that option to bring Zelle to their consumers.”

Fiserv’s research has found that Zelle is a strong indicator of a primary financial institution relationship, regardless of whether the bank is large or small. The platform has also helped level the playing field between large and smaller institutions.

“My wife and I use a community bank by selection,” said Riley. “It’s not a big institution, but it will transact just like a large bank would. Across the network, the overall experience that consumers and small business have access to is the same, regardless of the size of the institution. It’s an equalizer in a way.”

The Future of Zelle

Zelle’s capabilities open the door to several new opportunities in the payments landscape. One of the most promising areas is bill pay, where the simplicity of Zelle could provide a clear advantage.

“If we look broader about the payments capabilities in general, we start to streamline the money movement capability and integrate it in other contexts,” said Shirley. “We’re looking at things like offering Zelle as a payment option within the bill pay mode. Say I am paying a small business or my monthly bills and I realize I also need to pay my daycare provider and my lawn service. Why not do it in context of that bill pay from that same place?”

Another exciting frontier for Zelle is stablecoins, which could enable cross-border payments by minimizing friction between different currencies.

Fiserv recently launched its own stablecoin to unlock additional money movement use cases for consumers and businesses, both domestically and internationally. Zelle is reportedly exploring similar initiatives. These use cases are likely to expand further as the global economy becomes more interconnected.

Wherever Zelle goes next, it will already have the trust of financial institutions, having demonstrated the reliability and security of its model.

“When you get into the trust factor, this is a very bank-centric model and you’re going bank to bank on these transactions through Fiserv and the vendors that do the clearance,” said Riley. “That’s a significant area for confidence.”

Shirley added: “At our recent client conference, I had a session to talk about what’s on the horizon for Zelle. I started by asking for a show of hands (from those) who already have Zelle—it was only about half. When I’ve done these sessions in the past, it was mostly existing clients who already had Zelle who wanted to hear what was coming. But there was a lot of interest in seeing what’s (ahead), especially from those who have not yet brought Zelle into their mobile banking app. We’re really seeing that interest grow.”

The post From Cross-Border Payments to Community Banks: The Future of Zelle® appeared first on PaymentsJournal.

More than a decade after the Dodd-Frank Act redrew the regulatory boundaries of the banking industry, two Republican senators are seeking to revisit one if its key thresholds—a move that could steer millions in additional debit card revenue to community banks, credit unions, and their fintech partners.

According to Bloomberg, the legislation, introduced by Sens. Ted Cruz (R-Texas) and Katie Britt (R-Alabama), would allow more community banks to avoid the cap on debit interchange fees by indexing the current $10 billion asset threshold to inflation.

The proposal, titled the Community Bank Relief Act, would also benefit credit unions and fintechs that partner with qualifying banks.

The Durbin amendment to Dodd-Frank capped debit card interchange fees at 21 cents plus 0.05% of the transaction amount for banks with $10 billion or more in assets. When the law was enacted in 2010, roughly 80 banks exceeded that threshold, the senators note. Today, that number is closer to 130, including regional institutions such as Live Oak Bank in Wilmington, N.C., and Bancfirst in Oklahoma City.

Companion legislation is being introduced in the House by Representative Andy Barr (R-Kentucky).

Credit Unions, Fintechs See Benefits

The trade group America’s Credit Unions swiftly endorsed the proposal, saying the higher exemption threshold would benefit its members.

“As credit unions grow by serving more members and keeping pace with the economy, many are swept into limits that were intended for much larger institutions,” said America’s Credit Unions President/CEO Scott Simpson. “Indexing the threshold to inflation provides needed relief and restores fairness for community-based credit unions.”

Fintechs like Chime and Dave also stand to benefit from the new limit. These companies partner with smaller banks to access debit interchange revenue, which represents a key component of their business models. Expanding the pool of exempt banks would greatly increase their market.

An Outdated Limit

The legislation would apply the inflation adjustment retroactively to the law’s 2010 enactment. After several years of heightened inflation, that would push the new cap to more than $15 billion in assets.

“Interchange income is a big deal with any debit program, and the idea of the $10 billion asset cap was to provide retailers some relief on debit swipe fees while at the same time not disadvantaging smaller banks trying to compete with the big guys,’ said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “It’s been 15 years since Durbin was passed, and like anything else, $10 billion doesn’t buy what it used to. It makes sense that the cap should be tied to a formula that increments it over time.”

The post Who Wins If the Debit Fee Cap Limit Gets Raised? appeared first on PaymentsJournal.

The ACH Network is reliable and ubiquitous. And over the past year, it continued to realize strong growth, both in the volume of payments and overall dollar amount. In 2025, ACH Network payment volume increased by roughly 1.6 billion, reaching a total of 35.2 billion, or an average of 141 million payments per day. In the same period, $93 trillion moved across ACH rails, up nearly $7 trillion from the prior year. While transaction volume grew by 4.9%, the total value of those payments increased by 7.9%.

This growth reflects the continued expansion of ACH use cases across the payments space. In a PaymentsJournal Podcast, Michael Herd, Executive Vice President of ACH Network Administration at Nacha, and Ben Danner, Senior Analyst, Credit and Commercial at Javelin Strategy & Research, analyzed the drivers behind this increase and explained why ACH is positioned to grow even further.

Embedded in the Economy

A highly efficient method for moving large volumes of payments, ACH continues to see growing adoption—including B2B payments, consumer bill payments, and account transfers. It remains a cost-effective option for high-volume payments between known counterparties.

ACH is directly embedded across a wide range of platforms, software providers, and business workflows, including invoicing and payroll. Businesses from Stripe to QuickBooks to ADP all offer ACH as a readily available payment option.

Because ACH is so deeply integrated across the economy, it tends to grow in lockstep with overall economic activity. How the ACH Network scales to support that growth has been an important factor in its recent expansion.

Moving on From Checks

Despite the government’s high-profile decision to move away from paper checks last year, federal ACH volume increased by just 1%. The commercial sector has been the primary driver of overall growth.

In the B2B segment, ACH volume exceeded 8 billion transactions in 2025, representing $63 trillion in value, and continues to grow at roughly 10% annually. This dovetails with findings from the Association for Financial Professionals, which reported last year that checks now account for just 25% of B2B payment volume.

“That calls out a success at the industry level in moving businesses from checks to ACH,” said Herd. “It also shows that there’s room left to continue that transition for the 25% of B2B payments left that are checks, and that could still move to ACH and other payment rails.”

Danner added: “Replacing paper checks has been an important development. The paper check is clunky, less efficient, prone to fraud, and you have to mail it. Why not use something like ACH? It’s safer, it’s automated, it’s cheaper, it’s easier to reconcile, improves cash flow, liquidity, and reduces manual processing.”

Another fast-growing B2B use case is healthcare claim payments, which flow from insurers and other payers. Last year, ACH processed 548 million healthcare payments, moving nearly $3 trillion directly to medical providers, hospitals, and pharmacies.

Consumer Growth in Same-Day ACH

As impressive as the growth of the overall ACH Network is, Same Day ACH has been expanding at an even faster pace. In 2025, Same Day ACH transactions grew nearly 17%, exceeding 1.4 billion payments. It’s increasingly becoming a routine part of consumers’ financial lives.

“We’re seeing Same Day ACH being deployed in consumer payments pretty broadly,” said Herd. “The use cases include account-to-account transfers between financial institutions, digital wallet loads where funds are being debited from a bank account, and credit card bill payments where the issuer has reasons to collect funds as quickly as possible.”

Online consumer ACH payment volume rose by about 650 million payments to reach 11.4 billion, representing 6% year-over-year growth. These payments cover a wide range of consumer bills—including mortgages, car loans, insurance premiums, utilities, student loans, and credit card bills. Essentially, any recurring payment that resembles a bill is a natural fit for online ACH.

Popular alternative payment methods, such as digital wallets, often rely on ACH either to move money to or from a user’s bank account or to settle transactions behind the scenes. Many credit card bills are paid via ACH, as are numerous settlement payments to merchants. The continued shift away from paper checks is also driving this trend.

Pay-by-Bank via ACH

The continued shift toward faster electronic payments has paved the way for Open Banking, also known as Pay by Bank. This approach lets consumers pay directly from their bank accounts, streamlining transactions and reducing friction. Younger generations, in particular, expect mobile-first, fully digital experiences, making Open Banking a natural extension of the ACH Network. Linking to a bank account through an Open Banking session to initiate an ACH payment fits seamlessly into this environment. Even major players like Walmart now offer Pay by Bank through their apps.

“I often talk about people in their 20s who have never had a checkbook, have never written a check, wouldn’t know how to locate routing and account information in order to pay a bill, or even sign up for payroll Direct Deposit,” said Herd. “They largely do that through their phones by Open Banking and linking their bank accounts.”

“It’s not surprising that these areas are growing, especially as consumers continue to embrace digital payment methods,” said Danner. “We’re in the early stages of adoption of true Open Banking in the U.S., and there’s still tremendous potential for ongoing and expanded adoption of that and its ability to enable ACH payments.”

“Younger generations of consumers and employees are enrolling in ACH payments for transfers and payroll Direct Deposit,” he said. “And there’s still a lot of potential there for it to become even more mainstream.”

New Rules for the New Year

Even with the rise of Open Banking and faster, more frequent ACH payments, Nacha also remains focused on safety and soundness. New Nacha Rules are set to go into effect to enhance the system’s value and security. In 2026, ACH participants will begin implementing upgraded transaction monitoring rules, with additional improvements—including for international transactions—also on the way.

These changes aim to support the growing volume and speed of payments while maintaining reliability for both consumers and businesses.

“Over the long run, we have better risk management across the entirety of the ACH system,” said Herd. “That creates an environment that is receptive to and encourages additional adoption and growth.”

“An example we’ve experienced in the past is account validation, which is a rule we added in 2018,” he said. “It created a whole new industry of account validation services that enabled better ACH risk management quality and therefore better adoption. That’s the kind of thing we’re looking for to contribute to even further growth in the future.”

Taken together, these trends show the ACH Network’s continued growth is the outcome of thoughtful integration, ongoing adoption, and continuous modernization. It continues to be well positioned for businesses and consumers who are moving away from paper checks and towards faster, safe electronic payments.

The post What’s Driving the Rapid Growth in ACH Payments appeared first on PaymentsJournal.

In today’s world, nearly anything a business or individual desires is available instantly. Yet, for most, receiving a payment still takes two to three days to clear, despite the availability of instant payments networks such as FedNow.

What will it take for instant payments to reach a tipping point and become a standard expectation? In a PaymentsJournal Podcast, Justin Jackson, Head of Enterprise Payment Solutions, Digital Payments at Fiserv, and Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research, discussed potential triggers for an inflection point for FedNow and other instant payment methods, and how financial institutions should be preparing now.

Looking for Hockey Stick Growth

Although instant payments have experienced steady growth and adoption, a defining moment that pushes them into the mainstream has yet to occur. Instant bank-to-bank transfers and digital disbursements platforms process payments in real time, but a breakthrough use case that drives significant volume has not emerged.

One likely catalyst for that critical moment would be the federal government. As the largest payor to both individuals and businesses, any major move toward instant payments could have a sizable impact on the U.S. economy. The government possesses the ability to shift the market.

Steps in that direction have already been taken. The federal government has largely stopped issuing paper checks—with a handful of exceptions—so recipients of government funds increasingly require bank accounts for direct deposit. It’s a small step from there to instant payments.

Europe has already completed a similar transition, with real-time payment methods integrated into everyday financial activity.

“I was in the EU earlier this week, and I met with a large bank that recently deployed instant low-value payments in their markets, the equivalent of a FedNow or RTP transaction here in the U.S.,” said Jackson. “They didn’t do a bunch of marketing fanfare, and they didn’t automate conversion of their low-value batch transactions into instant transactions. They just put it out there so that users could take advantage of an instant payment. Within a matter of weeks, they’ve already seen usage approaching 20% for the instant transaction instead of the batch-based transaction.”

Disaster Payments

A critical opening for government intervention is providing instant payments for disaster relief. Anyone who has experienced a hurricane or wildfire knows the urgent need for immediate funds to cover basic necessities, such as clothing or temporary lodging.

Receiving a check is often impractical in a disaster zone, as cashing it can be nearly impossible. While prepaid cards are sometimes used, they’re limited—recipients can’t pay rent or make other essential payments that require traditional banking access.

What people truly need is direct deposit into their bank account. If their FI can’t process the transaction instantly, recipients are effectively cut off from accessing and using the funds when they need them most.

“Having that instantly delivered transaction is critical, and being the financial institution that enables that is going to engender loyalty that you were part of the solution in their time of need,” said Hirschfield. “As opposed to, well, you weren’t ready, right? You weren’t at the table and able to take that transaction in real time. That’s a very different perception from your account holder as to the capability level for your institution, taking that instant payment at the moment when it was really important.”

Options for the Gig Economy

In the private sector, one promising use case is within the gig economy. Workers in this space are often paid irregularly. For example, someone who spends an afternoon driving so they can pay their rent may need to receive their earnings quickly. But that is not always possible.

“We’ve seen gig economy companies telling workers that because of where they bank, they can’t get their money for another three days,” said Jackson. “Now put yourself in the mindset of that worker. The whole reason they just spent an afternoon doing this work is they need that money right now because the rent is due. Being told to either wait three days or go to a different bank, it might make sense for them to think about a different financial institution relationship.”

The Challenge for Smaller Banks

Financial institutions and banks serving smaller communities have been the least likely to enter the instant payments fray, yet they may be the ones who need it the most. They can’t afford to have a competitor down the street offer this service while they can’t. As more government payments start to flow across instant payment rails, and as more agencies disburse or accept funds this way, nonparticipating FIs will face even greater pressure to join the networks.

That same dynamic will also spur the discovery and utilization of new use cases. Availability is the first step toward mass adoption, setting the stage for a critical mass of FIs nationwide to participate in the networks. As participation grows, so too will adoption and usage, ultimately making instant payments the norm rather than the exception.

Don’t Get Left Behind

So, what should smaller banks and credit unions be doing now to prepare for instant payments? The first step is to consider the implications for their own business. They should evaluate how their products can leverage instant payments—not just in terms of technology, but in how customers—from consumers and small businesses to commercial enterprises—actually want to use them.

Most importantly, don’t wait for the inflection point before taking action. Banks that hold off until the government mandates instant payments for key transactions risk being left behind.

“Social Security payments are not available as instant transactions right now, but don’t wait for that announcement to come out until you sign up,” said Jackson. “Otherwise you will have a whole list of customers asking, ‘Why can’t I receive my payment instantly?’ Because it’s guaranteed that someone else can.”

The post Getting Out in Front of Instant Payments—Before It’s Too Late appeared first on PaymentsJournal.

The costs of debit card fraud have increasingly tilted toward merchants, with retailers now bearing nearly half of the overall burden rather than banks or payment networks.

That shift is documented in biennial data from the Federal Reserve, which publishes its debit card fraud report every other year as a snapshot of transaction costs across the debit ecosystem.

Under the Dodd-Frank Act, the Fed is required to limit price-fixed debit interchange fees to levels that are “reasonable and proportional” to the cost of each transaction, including anticipated fraud losses. As a result, the report serves not only as a measure of fraud trends but also as a benchmark for how those costs are allocated among merchants, banks, and other participants.

The data shows that merchants were responsible for 49.9% of debit card fraud costs in 2023, up from 46.9% in 2021. Over a longer time horizon, the shift away from banks is even starker. Banks’ share of debit fraud losses fell from 59.8% in 2011 to 28.3% in 2023.

A Growing Concern

At the same time, overall debit card fraud has risen over the past decade. In 2023, fraud losses across all parties amounted to $17.63 per $10,000 in transaction value, up from $7.80 in 2011. A separate 2024 study from Federal Reserve Financial Services found that nearly three-quarters of financial institutions said debit card fraud was their most common type of fraud and one that resulted in the greatest losses.

The nature of debit card fraud has also evolved. After the introduction of chip-based EMV cards, fraud shifted away from in-person transactions toward card-not-present, or remote, fraud, changing both how losses occur and who ultimately absorbs them.

Despite these trends, merchants continue to pay interchange fees intended to cover banks’ expected fraud losses. Since Dodd-Frank took effect, merchants have paid banks roughly 0.05% of debit transaction value in interchange fees for that purpose. The Fed’s report also highlights that banks subject to debit interchange regulation continue to earn strong returns on debit transactions, garnering about 24 cents in revenue on costs of roughly 4.1 cents.

Merchants Take Action

As the burden has moved toward retailers, they are fighting back. The day before the Fed’s report was released, the Merchant Payments Coalition sent a letter urging the Fed to finalize new regulations that would reduce fixed debit interchange fees.

Chargeback fees—incurred when payments are reversed following customer disputes—were at the center of a recent settlement in which Visa and Mastercard agreed to pay merchants $199.5 million to settle a class-action lawsuit. Retailers alleged that Visa and Mastercard violated antitrust laws by coordinating to make merchants responsible for chargeback costs unless they updated their point-of-sale systems to include chip readers.

The post Merchants Are Bearing the Burden of Debit Card Fraud appeared first on PaymentsJournal.

The humble demand deposit account has been the cornerstone of the financial services system for decades. However, banking customers who manage all their finances through checking and savings accounts at a single financial institution are in short supply.

At the same time, more fintech companies have transformed from niche, one-off services to full-service financial ecosystems.

As James Wester, Co-Head of Payments at Javelin Strategy & Research, detailed in the 2026 Debit Payments Trends report along with Javelin Analyst/Content Specialist Craig Lancaster, the emergence of open banking, coupled with novel payment rails, has created an environment in which financial institutions must adjust their long-held strategies to stay at the forefront of their customers’ financial lives.

Accounts Under Threat

Open banking has gained significant traction in many of the world’s leading economies. However, the well-established U.S. financial infrastructure and a market-driven approach by its regulators have hindered the growth of a formalized system of open banking.

Although there may be some debate about how and when the final product will appear, U.S. open banking is inevitable.

“The idea of having open access via APIs to data and to accounts—that’s not going to go away,” Wester said. “It may change based upon the way regulations are crafted and the way the market develops, but at its core, that open-banking paradigm where you and I have access to our bank account and to the data—that’s going to continue. Customers want that, small business customers want it, and commercial clients want it.”

This demand for open banking has been driven, in large part, by the functionality and efficiency that fintech companies have delivered. Although the established banking paradigm isn’t likely to be replaced anytime soon, the traditional banking relationship is no longer an integral part of how many consumers interact with the economy.

For example, the traditional peer-to-peer model consisted of a consumer bank account linked to a P2P service like Venmo or Cash App. Now, fintechs like Venmo offer accounts with debit cards that can operate independently. Although many of these P2P companies don’t offer FDIC insurance, that may not be a dealbreaker for customers who are focused on convenience.

Although this trend may not be novel, it is accelerating. This means that the conventional bank account, and more important the customer relationship, has been jeopardized.

“As open banking has made financial services more modular for the retail consumer—the ability to have accounts that you pay out of, accounts that you save into, accounts that you pay friends out of, accounts that you pay bills out of, maybe accounts that you shop with—having all of that and that ability to immediately access that through open-banking standards means that the core DDA, that core relationship you have with your primary financial institution, is under threat,” Wester said.

Reintroducing Friction

Along with these new players, the debit landscape has been disrupted by the emergence of real-time payment rails. Instant rails like FedNow and the RTP network have gained traction in the United States, and the benefits of real-time settlement have become increasingly evident.

However, faster payments create a set of challenges that U.S. financial services providers must address.

“Traditionally, the idea of friction is that it is a bad thing in payments,” Wester said. “What we’re beginning to see, though, is that friction had some benefit. When you have batch processing—where all the transactions are batched together and cleared and settled overnight or over a couple of days—what it allows you to do is flag any suspicious transactions, fraud, accidental transactions, or mistakes.

“When you’re talking real-time gross settlement, it is immediately pulled from your account; it’s settled in real time. What we’re beginning to see is that as real-time payments mature, fraud exceptions are able to flow through the system just as quickly as real-time settlement.”

Because many financial institutions don’t yet have the proper fraud management tools to flag exceptions in real time, tension is rising between the growth of real-time payments and the need for customer protections.

This tension is likely to exacerbate as real-time payments take precedence in retail situations. Financial institutions could be forced to reintroduce friction points to ensure that consumers are fully protected.

Ripe for Exploitation

However, along with the challenges that arise from emerging payment rails, opportunities are also blooming. One of the main debit trends is that more financial institutions are likely to be involved in payouts.

Payouts from commercial and government entities have typically been conducted through the ACH protocol, but many debit rails have begun to gain traction in these use cases. For example, an organization could use Visa Direct or Mastercard Move to push money directly into a recipient’s bank account.

“The implications are big for ACH,” Wester said. “ACH does allow for certain faster settlement, but direct debit just puts money in consumers’ accounts quicker, and that’s what consumers want. Especially when you’re talking about things like insurance payouts when there’s been a disaster, people want their money.”

Because the payout market is substantial, more financial services companies are considering these services. This could cause a marked shift in the way financial institutions view debit products.

“It doesn’t mean ACH goes away, but it does mean there’s a significant pool of transaction volume that can go over those direct-debit rails,” Wester said. “I think that if banks are aware of that and start pushing for that—because they make more money off of that—then that’s an area that’s ripe for exploitation by banks. I think that’s going to be an interesting thing that happens over the next probably 12 to 24 months.”

Playing to Strengths

This dynamic landscape means financial institutions must adjust to ensure they meet customers’ expectations. While regulatory decisions may dictate some of these changes, open banking is about much more than a data-sharing standard.

Customers increasingly desire a connection with their bank. In the past, many financial institutions have taken the tack that consumers need their bank more than the bank needs them. Accordingly, many institutions have given less attention to less profitable accounts.

However, as consumers have been offered more options, the balance of power has shifted.

“Financial institutions need to do better at working to see customers over time,” Wester said. “In other words, lifetime value—recognizing that the consumers that stay with you, grow with you, and that their profitability grows as well. They start going from being just a simple DDA where they pay bills to credit cards, to car loans, to mortgages, and to 401(k)s.”

Banks shouldn’t gauge customers’ profitability based on a single moment in time but should instead seek to predict how a customer will grow, then proactively offer solutions.

“If I have my account through Venmo, Venmo doesn’t really have the ability to provide me with a car loan or a mortgage or a 401(k),” Wester said. “What banks need to do is play to that strength of being a core part of overall financial health, as opposed to just being a place that provides an account that is FDIC-insured and allows them to pay bills.”

Fighting for Deposits

As part of this mindset modification, many financial institutions will have to adjust how they view debit rails. The demand deposit account has long been the fundamental building block of financial health, and debit products have been largely unchanged for decades. This is no longer the case, as more consumers are opting out of the traditional bank account.

“It’s no longer, ‘I have money; I put it in the bank, and the bank is how I do all of my financial services,’” Wester said. “It’s now, ‘I have money; I put it where I want it to go; I can access it however I want—through a device, through my computer, through my phone. I’m more reliant on different interconnections than I am on a financial institution.’

“That could have some profound impacts on banks because they depend upon those deposits to be able to provide loans. What will accelerate that even more is as we start looking at things like stablecoins, deposit tokens, and crypto, and as people begin to pull their money out and put it into things like that for whatever reason. As those use cases develop, that’s going to have some profound impacts on financial institutions. They’re going to have to fight harder for those deposits.”

The post Open Banking Has Begun to Intrude on Banks’ Customer Relationships appeared first on PaymentsJournal.

As credit card companies expand their premium offerings, Klarna is introducing membership tiers that provide perks for a price.

The company’s two tiers—Premium and Max—are launching first in Europe, with a U.S. rollout planned in the coming weeks. Subscribers will be able to redeem cash back rewards directly with Klarna’s travel and airline partners and enjoy benefits like airport lounge access, a ClassPass fitness and wellness membership, subscriptions to magazines and newspapers, and even a metal card.

Unlike traditional credit cards that charge an annual fee, Klarna’s model is a monthly subscription. The top-tier Max plan costs €44.99 ($52.39) a month, yet Klarna claims it delivers more than €5,000 ($5822.17) in annual value through its perks.

“Loyalty programs are a great customer acquisition strategy,” said Ben Danner, Senior Credit and Commercial Analyst at Javelin Strategy & Research. “The idea is to bring customers into the Klarna ecosystem and reward them for using their Klarna balance, which can be loaded by way of a debit card or bank transfer.”

“This positions Klarna as more than just a buy now, pay later vendor, but more in line with Venmo, where balances are stored and drawn from like a bank account,” he said. “However, the monthly fees to belong to the program cannot be too expensive for the region’s consumers and will need to align with consumer interests—and Klarna will need to do its research before launching this program in the U.S.”

Perks Without the Debt

Other companies, such as American Express and Chase, have revamped their premium tiers to offer more benefits while raising their annual fees. Citi followed suit with the launch of its Strata Elite card, and Capital One has entered this market with its Venture X card.

All of these products target more affluent customers, who have become increasingly attractive to issuers as economic conditions have worsened and many consumers have racked up credit card debt.

The Go-To App

Klarna’s model is unique because it gives users premium perks that aren’t tied to credit. Instead, membership rewards are linked to the Klarna Card, which functions as both a debit and BNPL card.

This marks another step in Klarna’s evolution toward becoming a full-scale financial services company. Like many of its fintech competitors, the company aims to be the go-to super app for consumers.

“It’s a similar play to what Venmo is doing here in the U.S—bringing customers into their ecosystem, presenting a physical card option to spend funds, driving money into their app, and offering card rewards,” Danner said. “And the metal card makes it feel more premium.”

The post Klarna Launches Premium Memberships, No Credit Card Needed appeared first on PaymentsJournal.

Over a five-year period, the number of credit card transactions in India has doubled, while the total value of those payments has nearly tripled—even as debit card transactions have declined in both volume and value.

A study by the Reserve Bank of India (RBI) found that credit card transaction volumes increased from roughly 2.1 million in 2019 to around 4.5 million in 2024. Over the same period, debit card transactions fell from approximately 5 million to 1.7 million.

The RBI attributed this divergence to differences in usage. Credit cards are more often used for e-commerce purchases, credit access, and larger purchases, whereas debit cards are primarily used for cash withdrawals and everyday spending.

The Rise of UPI

Although debit cards may be more of a staple payment method, one key factor behind their decline in India is the rise of the Unified Payment Interface (UPI) real-time payments system.

The National Payments Corporation of India (NPCI), which operates UPI, now handles almost half of the world’s digital transactions. Transaction volume on UPI has surpassed that of Visa and Alipay, and the platform continues to expand its global footprint, as evidenced by UPI’s recent expansion into Qatar.

A Payments Mainstay

With real-time payments systems, users can pay-by-bank through their phone without the need for a card. However, this doesn’t spell the end of the debit card.

In fact, several factors have strengthened debit card usage across many regions. First, tough economic conditions have driven credit card debt to record highs, pushing many budget-conscious shoppers back toward debit.

Second, many debit issuers have taken a page from the credit card playbook by offering rewards or cash back. These incentives are mostly funded by merchants who prefer customers use debit over credit to avoid higher interchange fees.

Finally, the surge of fintechs has led to more debit cards in circulation than ever before. PayPal, Venmo, and Cash App have long offered debit products, and buy now, pay later giant Klarna launched a debit card earlier this year.

Add to that the fact that real-time payments in many regions—including the U.S.—have yet to replicate UPI’s success, and it’s clear that debit cards are likely to be a payments mainstay for years to come.

The post As Credit Card Usage in India Has Increased, Debit Card Use Declines appeared first on PaymentsJournal.

As dynamic technologies continue to revolutionize the payments space, conferences have become a critical way for payments professionals to stay informed and share their expertise. One of the signature events of the payments space is Nacha’s Smarter Faster Payments 2026, which will take place in San Diego from April 26-29, 2026.

In a recent PaymentsJournal podcast, Stephanie Prebish, AAP, AFPP, APRP, CTP, Senior Managing Director of Association Services at Nacha, and Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research, discussed the wide range of educational tracks and networking opportunities available at the conference—and how attendees can accomplish months’ worth of business in just a few days at Smarter Faster Payments 2026.

The Four Pillars

Nacha’s conference has become one of the most recognized events in the industry, thanks in part to its educational offerings, which provide an in-depth look at the timeliest topics in financial services.

“Our Payments conference is known in the industry as one of the best conferences out there and we’re planning another excellent year of education and networking and fun,” Prebish said. “We’re really just looking forward to it.”

With such a full event calendar, it is essential for attendees to come prepared with a plan. That plan should make room not only for networking opportunities and keynote speakers, but also for conversations with vendors on the exhibitor floor.

Amid all the activity—and the splendors of San Diego—there is more than enough to keep payments professionals engaged. Still, it is critical for attendees to review the agenda in advance and prioritize the educational sessions that matter most to them.

“We just finished up our first-round selections, and the sessions next year are going to be fantastic,” Prebish said. “We are on top of all the big, new, exciting changes that are coming to payments. We’re going to be talking about stablecoins; we’re going to be talking about fraud monitoring; we’re going to be talking about everything that’s happening with ISO 20022. It’s going to be an amazing conference.”

Defining the Audience

The tracks were carefully curated to span the full spectrum of the payments industry, highlight emerging innovations, shifting regulations, and strategies for mitigating fraud and risk.

New next year is a track dedicated to one of the industry’s most talked-about technologies: stablecoins. This track provides a detailed exploration of the opportunities stablecoins present for financial institutions, along with strategies organizations can adopt to harness their potential.

There is also a dedicated legal track designed specifically for attorneys working in the payments space. Additional tracks focus on artificial intelligence, compliance and regulations, cybersecurity, and ACH.

With such a comprehensive agenda, it can be challenging for attendees to identify the sessions most relevant to their role. To help, Nacha has developed a system designed to guide participants in mapping out the sessions that will deliver the greatest impact.

“We’re going to have personas dedicated to who you are in the payments industry, and with every session it will be indicated which persona will be the best choice for you,” Prebish said. “This is going to be really exciting for us because it’s not something we’ve done before, where we’ve defined audiences by session. In addition to the tracks, you can also look at these persona maps and decide where you’re going to be best spending your time.”

“Everyone goes to the Payments conference and affectionately calls themselves the rules geek, but that is actually going to be one of our personas—and also payments innovators, payment strategists, and FI leaders,” she said. “We’re really excited about the opportunities that the persona development has given us.”

Finding Like-minded Audiences

Along with innovations in its educational offerings, Nacha has also enhanced the networking opportunities at Smarter Faster Payments, while keeping long-standing traditions such as the Sunday Social.

“We’re still going to have our tried-and-true events like our Tuesday Night Out, which is going to be held on the USS Midway,” Prebish said. “We’ll have our accreditation reception, which next year is going to be super exciting because we’re adding the celebration of our AFPPs (Accredited Faster Payments Professionals).”

One of the best ways to maximize these networking opportunities is through the event’s mobile app. Attendees can use the app to locate and join meeting pods on the exhibit floor, see who else will be attending, and connect with colleagues to schedule time for conversations.

Another major initiative at Smarter Faster Payments is the development of the next generation of payments professionals. Two years ago, the organizers introduced their next-gen initiative, a “15 Under 40” program designed both to highlight emerging leaders in the payments industry and to foster their continued growth.

Across all these events and initiatives, Smarter Faster Payments provides opportunities for payments professionals from every background to connect, collaborate, and build lasting relationships.

“We’re doing a lot more in the hall, so we’re going to be working with our Payments Associations and offering what we’re calling a community corner, which is going to be a place for industry groups of like-minded audiences to meet up,” Prebish said. “We’re also going to have Coastal Coffee service in the morning and then we’ll have Pacific Pints beer in our beer garden in the afternoon. There is lots of fun stuff going on in the hall as well as our evening activities.”

Hitting the Three Criteria

Although the event doesn’t take place until next spring, early registration is now open for exhibitors, and attendees can take advantage of early-bird rates—including discounts for first-time participants and those under 40.

As this event has become the industry “who’s who,” Smarter Faster Payments 2026 is now a must-attend for financial services professionals.

“When I’m selecting conferences, one of the first things I look at is the sponsor, and Nacha stands out at the top of many of the things offered for the payments community today,” Riley said. “Also, the tracks are important and those are really well applied, and then the networking opportunities. From what I’ve seen at Nacha, this hits all those three criteria for me.”

The post What’s New at Nacha’s Smarter Faster Payments Conference appeared first on PaymentsJournal.

FedNow has continued to expand its network of financial institutions since its launch two years ago, and now PNC Bank is joining the real-time payments system.

The platform operated by the U.S. Federal Reserve now includes roughly 1,400 participating financial institutions. However, the addition of PNC is noteworthy—not only because the bank is one of the largest financial institutions in the U.S., but also because it was one of the last remaining holdouts.

JPMorgan Chase and Wells Fargo joined FedNow earlier, while Bank of America, Citigroup, and PNC had been more reluctant to participate. With Citi now on board and Capital One announcing its intention to follow suit, the number of major U.S. banks not participating in the platform continues to shrink.

Considering the Competition

One of the main reasons many banks were slow to adopt FedNow is that they are members of the Clearing House, a consortium of the world’s leading financial institutions. The Clearing House launched the RTP network in 2017, a real-time payments platform competes with FedNow.

Although PNC is a founding member of the Clearing House, the bank’s support for the FedNow system shouldn’t be interpreted as a lack of confidence in the RTP network. In fact, the RTP network recently set a new daily transaction record, processing over 1.8 million transactions, and continues to broaden the range of use cases on its platform.

Joining the FedNow Fold

While FedNow may have roughly the same number of institutions on its platform as RTP—or even more—it has not yet reached the payments volume of the more established network.

However, FedNow has continued to make strides. The system recently raised its transaction limits, first to $1 million and then to $10 million, positioning FedNow to handle high-value transactions like the B2B payments that have gained traction on RTP.

The addition of PNC Bank to the FedNow fold is another vote of confidence in the platform and could signal the future of U.S. real-time payments. As instant payments continue to gain ground, there may be room for both RTP and FedNow to coexist and thrive.

The post PNC Expands Real-Time Payments Footprint by Joining FedNow appeared first on PaymentsJournal.

Reward points for debit cards have largely fallen out of favor in the U.S. since Dodd-Frank passed in 2010, but fintech Revolut is reviving them in Australia. The company says this is the first time Australian consumers can earn rewards on debit card purchases.

Revolut’s new debit card features multiple earnings tiers through its proprietary RevPoints rewards system. The company launched a similar card in Europe in April.

Losing Interchange Fees

The offering arose from potential changes in Australia’s payment regulations. Credit card reward programs are typically funded through interchange fees. In the U.S., Dodd-Frank placed a cap on debit interchange fees, making it difficult for issuers to sustain reward programs from the reduced income.

Australia’s central bank is considering a similar move, which would ban customer surcharges on card payments and lower interchange fees. Local banks have warned that such changes could force them to scale back or eliminate reward programs to offset the loss of interchange revenue. Revolut Australia chief executive Matt Baxby said the prospect of banks cutting back on rewards has created an opportunity for an alternative in the market.

“Interchange is a big component to funding these programs, but another component is the annual fee to belong to a loyalty tier, which is the way Revolut is handling it,” said Ben Danner, Senior Analyst, Credit and Commercial at Javelin Strategy & Research. “Revolut is doing issuer funded rewards by having a points program akin to what a credit card would do. They are essentially footing the bill for the rewards program, which is why they need to charge account fees. Running a robust debit rewards program on tiny debit interchange fees is expensive.”

Scarce in the U.S.

Debit cards that earn rewards are scarce in the U.S., but a handful have been introduced in recent years. Earlier this year, Wyndham Hotels rolled out its own rewards debit card, targeted specifically at younger travelers. One recent trend is for peer-to-peer services like PayPal and Venmo to offer rewards cards as a way to attract more customers by creating a bank-like experience.

“A debit card is sticky, physical thing that ties customers to a financial institution,” said Danner. “It also gives users a physical way to use their PayPal or Venmo balances.”

The post Crikey! Revolut’s New Model for Debit Card Rewards Hits Australia  appeared first on PaymentsJournal.

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

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

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

Finding the Middle Ground 

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

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

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

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

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

Fragmentation and Interoperability 

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

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

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

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

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

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

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

In-Store and Proximity 

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

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

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

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

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

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

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

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

Routing the Path to NFC Payments 

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

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

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

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

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

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

Bridging Cards and Accounts 

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

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

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

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

Bill pay has been a core service for financial institutions for years. However, aside from the digital exterior, the nuts and bolts of bill pay have been largely unchanged since their introduction. This lack of modernization is beginning to show now that the open-banking model is gaining momentum.

As James Wester, Co-Head of Payments at Javelin Strategy & Research, detailed in The Great Bill Pay Reset: How Real-Time Payments and Open Banking Are Upending the Status Quo,  bill pay can be much more than a by-the-numbers financial service. What’s more, the same technologies that are reshaping financial services can transform bill payment into a service that keeps banks at the forefront of their customers’ financial lives.

Rethinking Technology

Although bills are necessary to keep day-to-day operations afloat, consumers and organizations would likely rather spend their money elsewhere.

Unfortunately, the tough macroeconomic climate has meant less money to spread around, and consumers have become increasingly creative in how they budget and pay bills. This cash management process requires ongoing attention, which can be a struggle for consumers with myriad other obligations.

This is where new technologies like event-driven architecture can make a powerful impact on the bill pay experience. Once a bill is issued and a due date is submitted, a bank customer can automate the payment so they can pay at the last possible moment.

Another powerful innovation is the application programming interface (API), which is a foundational technology for the open-banking system. APIs are the rails that allow third parties to facilitate services most banks aren’t equipped to provide. These third parties can reshape bill pay by shouldering certain aspects of the experience.

“All of these things are now possible, and what financial institutions need to look at from their consumer retention and satisfaction standpoint is rethinking bill payment,” Wester said. “That’s why we call it the bill payment reset, because it’s an important part of financial health and an important financial service that can now be rethought from a technology standpoint—in ways that are just better in every way.”

More Than a Money Vault

In the United States, many financial institutions have held off on tech updates because they were awaiting a clearer picture of open-banking regulations.

Last year, the Consumer Financial Protection Bureau finalized its rules governing open banking. These regulations were derived from Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted after the 2007-08 financial crisis.

However, the future of Section 1033 has been uncertain after a change in presidential administration stymied its implementation. After some speculation about whether the rule would be scrapped entirely, it now seems Section 1033 will be revised before it comes to fruition.

Regardless of the ultimate outcome of the rules, U.S. open banking is moving forward. The goal of the model is to leverage third-party fintech companies to give consumers the power to protect their data and to shift between financial institutions with ease.

Fintechs already play a substantial role in the financial services industry, so much so that many financial institutions are beginning to feel the pinch.

“Open banking is pushing toward data sharing where the consumer ultimately owns their data and access to their financial services data,” Wester said. “What that allows is the aggregators to work with billers and to work with other companies to link automatically into those bank services.

“So, I don’t need the bank necessarily to provide a payment. I can go to a third party. That third party can access that data and drive a payment, so what you’re beginning to see is the bank is taken out of that central role within a consumer’s financial world. That’s not where banks want to be.”

This means that open banking is a threat and an opportunity for financial institutions. The threat comes from the substantial number of digital-first challengers that have entered the market. However, the open-banking opportunity can be far greater.

“It’s an opportunity to say, ‘These are the things you expect from all of these partners that you may be bringing in touching your accounts,’” Wester said. “’Why not come to us? We’ve got products that can do all of that for you, but we can also do it from the perspective of we’re the center of your financial world. All that stuff is here, and you trust us because we’re your bank.’

“In other words, banks have been repositioned now as being nothing more than a money vault. Well, they don’t want to be that. They want to be a place that’s now a part of their consumers’ financial services world, so that a consumer continues to come there for mortgages and car loans and credit cards and financial services products.”

Delivering the Message

Because of the powerful benefits of a modernized bill pay process, a consensus is growing in the financial services industry that bill pay is long overdue for a redesign.

“I’ve been pleasantly surprised at the level to which we have had so much interest from the vendors who have said, ‘We’ve been trying to deliver this very message,’” Wester said. “Anytime that you have a product that consumers can access, it’s something where you want to make it as good as you possibly can. But I think that a lot of bill payment has languished over the last few years because banks look at it as something they have to deliver, not something they have to deliver well.

“On the vendor side, we’ve had many of them reaching out saying, ‘This is exactly what we have been telling banks for a long time, which is to rethink that product.’ It’s a service that has been something banks had to provide before, and now they are being told by their vendors that there’s more here.”

The post Why a Bill Pay Redesign Should Be a Higher Priority for FIs appeared first on PaymentsJournal.

In just the first half of the year, ACH payment volume grew by 5.5% on a daily average basis, reaching roughly 17.25 billion payments. The growth is even more pronounced in terms of dollar value, with the ACH Network processing $45 trillion in the first half of 2025—a 6.8% increase compared to the same period last year.

In a recent PaymentsJournal podcast, Michael Herd, Executive Vice President of ACH Network Administration at Nacha, and Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research, examined the state of ACH, the payment types that are driving growth, and the future of the pay-by-bank.

Hitting on All Cylinders

According to Nacha, the ACH Network is experiencing substantial momentum and is on track to add two billion payments in 2025.

The persistent growth signals that the ACH Network is poised to maintain its upward trajectory.

“When I look at the metrics and consider ACH, quite often you’re just looking for general growth,” Riley said. “I look at the total volume of payments and that was solidly up, and the dollar value was significantly up. When you compare that to debit volumes in the U.S.—which only grew by 1%—it’s really significant. I see everything hitting on all cylinders.”

Continuing Long-Standing Trends

This shift is especially notable because it’s spread across multiple payment types.

First, there are Same Day ACH payments—transactions that clear and settle on the same day they’re initiated. Volume rose by 15% year-over-year in Q2, putting this format on track to reach 1.3 billion same-day payments this year.

“The second area I wanted to call out are business-to-business payments,” Herd said. “B2B volume on the ACH Network increased by over 10%, and this is a long-standing trend in ACH. While there are still pockets of check payments that are in use in the B2B space, I think it’s also clear by now that ACH is the predominant payment method in B2B. They tend to be much larger dollar payments and so that boosts the dollar volume that is moving through the ACH.”

The third area seeing increased activity is consumer payments, which were up nearly 6% year-over-year.

Together, these three segments have significantly expanded overall ACH volume and reinforced its role in the broader payments landscape.

“It’s something that’s really been built into the economy,” Riley said. “When I think of myself as a consumer working professionally since 1980, I don’t think I’ve seen a physical paycheck since then. One way or another, I’m probably doing seven or eight in or out transactions on ACH just personally in a month, so I can imagine how those numbers stand out.”

Growth Across the Board

Within each of these segments, new use cases for ACH are continually emerging.

For example, in the B2B payments space, ACH is gaining traction in healthcare claim payments—transactions made by health insurance payers to medical providers like hospitals, doctors, and dental practices. This area has seen a year-over-year increase of 10% in ACH usage.

“I think there’s a pretty clear use case and benefits there for medical providers to get paid electronically, instead of waiting for a check to arrive in the mail,” Herd said. “I think that’s a clear benefit where even a standard ACH is a much faster payment than that check that will follow at some future date. We’re seeing strong growth there in that B2B vertical.”

On the consumer side, the growing popularity of subscription-based services has led to broader adoption of ACH for recurring payments, including bill payments and donations.

Consumers also frequently rely on ACH for account transfers, both one-time and recurring. The rise of online bank accounts, digital wallets, and other fintech solutions has further fueled the use of ACH for these types of transfers.

Collectively, these segments and use cases also present strong opportunities for the continued growth and adoption of Same Day ACH.

“We’re still seeing good growth in Same Day ACH across all the major ACH use cases,” Herd said. “That includes Direct Deposit of payroll and other consumer disbursements. It also includes consumer payments to businesses and other kinds of account transfers, and B2B payments.”

A Unique Factor

Amid this adoption, a significant development will impact the ACH Network this year: an executive order signed in March instructing the U.S. Treasury to eliminate paper check disbursements. With limited exceptions, the order directs a full transition to electronic payments for federal disbursements by Sept. 30, 2025, to the extent permitted by law.

“It’s been a long time coming,” Herd said. “We should see additional migration of some volume of federal government check payments to ACH. Financial institutions should be assisting existing account holders that still receive federal government checks with options on how to enroll to receive those payments by Direct Deposit.”

“One other lesson is that with no checks, there can be no check fraud,” he said. “That’s been a driving reason for the federal government to pursue this policy—paper checks have become probably the single largest source of fraud committed within the space of federal government payments.”

Another major factor influencing the ACH Network is the growing adoption of pay-by-bank and open banking technologies. In this emerging model, consumers no longer need to manually enter their routing and account numbers for each transaction. Instead, they simply authorize a business or organization to securely access their banking information directly from their financial institution.

“That should make enrollment for ACH easier and more seamless to the consumer, particularly in an all-digital or a mobile-first environment,” Herd said. “Many younger generations of consumers who’ve never had a checkbook don’t know what those routing and account numbers are.”

“This is a method that should overcome that barrier to being able to enroll to use ACH payments, so we’re going to see that continue to expand,” he said. “Nacha currently has a work group that is looking at potential benefits and risks of using pay-by-bank in the marketplace.”

Decades in the Making

The transition from paper checks to digital payments has long been a topic of discussion in payments circles, with the shift unfolding over several decades. However, there are signs that this momentum is now accelerating.

“In the federal government space, it’s been official policy to mandate the use of electronic payments since 1999,” Herd said. “In fact, one of my first assignments when I joined Nacha was to participate in the in the campaign around EFT ‘99 use. Without getting into all the dirty laundry, it’s taken a long time to get to the point where just about 99% plus of federal benefit payments are made using Direct Deposit or Direct Express card.”

“There’s that last mile to go to get as close to 100% as possible, so it’s exciting to think that may actually happen,” he said.

The post Exploring the Factors Driving Continued ACH Growth appeared first on PaymentsJournal.

This is a happy story: I recently bought a travel trailer, a lightweight, 16-foot model I dubbed Tony Roamo, a nod to the quarterback-turned-TV analyst, with a spelling that reflects what I intend to do with my new toy.

This is a common story: I threw in a down payment and financed the rest. The most attractive loan offer came from a credit union where I live, which made me happy. I’m a big credit union guy. I think they’re important. I love to give them my business.

This is a sad story: By the time I got from loan approval to active, operational loan, I’d been through paperwork, a series of phone calls, and an in-branch visit, every bit of it unnecessary from my vantage point not only as a consumer but also as someone who works for a firm that advises financial institutions on avoiding the very issues this credit union inflicted on me.

This is a story of avoidable friction.

You Have a Loan; Now, Prepare for the Gantlet

Once the loan approval was in hand and a delivery date on the rig was set, I drove down to the dealership to sign the contract.

In paperwork terms, an RV purchase is more like a car loan than a home mortgage, and though I’m always a little surprised these days by paper processes that could, and should, be digitized, it was no big deal. A little analog, yes, and a hidebound practice, certainly, but the giddiness associated with my impending new vehicle outweighed all that.

Among the pieces of paper I filled out was a direct-debit form authorizing payments from my primary checking account (at a different credit union) to the loan account. Name, checking or savings, routing number, account number. I plugged in the applicable information and signed my name. Boom!

Imagine my surprise when, a couple of weeks later, I fished a packet of payment coupons from the mail. The lending credit union expected that I would fill out a coupon (no), write a check (absolutely not), stick both in the mail (are you kidding me?), month after month.

I called in protest, saying I’d filled out a form to authorize direct debit. Well, whoever I talked to said, you’re set up for payments by check. Yes, I said, clearly, but I don’t want that. I haven’t written a check in years. OK, she said, I’ll have the person who put together your loan call you.

The loan officer called the next day and left a message, the gist of which was that I could open a checking account at the lending institution and set up direct debit from there. I called back and left a message: I already have a checking account. I’d like to draw from there, not onboard into a new account for the sole purpose of making my loan payments.

She called back and left a message and said, sure, just come into the branch, bring your ID and your banking information, and we’ll set that right up.

(Feel free to pause here and scream. I’m certain that’s what I did.)

None of This Was Necessary

I’m going to assume a few things:

1. No one I dealt with at the credit union is incompetent or prone to harboring bad intentions.
2. The process I was subjected to wasn’t designed to waste my time or the time of credit union employees.
3. I’m not unreasonable to be so put off by how it all unfolded.

And yet:

1. I filled out paperwork that went unused, only to fill it out again, in person, at the branch.
2. My time, and the time of the credit union employees I dealt with, was most certainly wasted.
3. Testy and sarcastic? Absolutely. Unreasonable? No.

Avoidable friction comes in many flavors. When we talk at Javelin Strategy & Research about removing friction from processes, whether it’s onboarding, setting up alerts, initiating payments, or virtually anything else, this is what we mean.

It’s not difficult to imagine or engineer a seamless, all-digital process by which a loan is applied for, initiated, funded, and paid back. Even if a little friction must intercede—for know-your-customer checks, for example—I think we can agree that unused paperwork, four phone calls, and a branch visit don’t just border on the excessive; they storm the battlements and assault the castle.

To not root out this friction and find a better way is to risk disintermediation by lenders that specialize in quick and frictionless processes. For a local credit union, a loan like mine should be a coveted jewel—a moneymaker, a vehicle for establishing an ongoing relationship, a testament to providing needed services to the community where the institution resides.

As it is, I’m left cold by the experience—unlikely to recommend this institution to a friend and certain to look elsewhere the next time I need a loan.

My stance isn’t punitive. It’s just business.

The post The Quagmire of Avoidable Friction appeared first on PaymentsJournal.

Most people carry at least one debit card, but the number in each wallet is growing. As banks, fintechs, and even retailers roll out their own branded cards, consumers are stacking up multiple debit options—sometimes tied to different accounts, sometimes to the same one. This shift raises questions about how people actually use these cards, whether they spread spending across them, or if a few end up collecting dust.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: Consumer Debit Payment Choice: Understanding Debit Card User Preferences

Number of Debit Cards Owned by Consumers

• 59% of consumers own 1 card
• 21% of consumers own 2 cards
• 15% of consumers own 3-5 cards
• 6% of consumers own 6 or more debit cards

Source: North American PaymentsInsights, 2024

About Report

In today’s evolving payments market, debit continues to stand out as a reliable option, powering millions of day-to-day purchases. Shifting consumer habits—shaped by both economic pressures and rapid innovation—mean that banks, fintechs, and merchants must adapt quickly to stay aligned with customer expectations.

This report from Javelin Strategy & Research explores debit’s position across different payment scenarios, its performance relative to other payment methods, and the impact of new technology on how people use debit cards. It also outlines strategies for issuers and merchants to strengthen their connection with debit users through enhanced features, rewards, and forward-thinking solutions.

The post How Many Debit Cards do Consumers Own? appeared first on PaymentsJournal.

Venmo entered the mainstream sphere in 2015. At the time, there was genuine doubt that consumers would adopt a digital payment platform as their primary means of transferring money and making payments. Ten years later, Venmo hosts 92 million active users, and most people keep an average balance of more than $200 in their accounts. Once the public embraced it, digital payments quickly became a standard financial tool.

The next iteration in digital payments adoption is real-time payments. Today, companies have the ability to issue immediate, instant payments to workers—a valuable tool in the gig economy and a necessary one to attract and retain talent. Although about half of U.S. companies are already using a real-time payment network to issue payments, most companies aren’t realizing their full potential. For many gig workers, instant payments remain a myth. But just like the digital payment movement, real-time payments are the future, and companies need to embrace these networks now before they are left behind and suffer a competitive disadvantage. Here are three ways that companies can deliver the promise of instant payments to workers.

Increase Corporate Buy-In

The real-time payment market is already substantial. While the concept of issuing an instant payment to a worker is still new, companies are quickly adopting the technology. ACI Worldwide and Global Data forecasts the market to grow 63% annually through 2027, reaching $511 billion in annual transactions. Despite healthy adoption, more is needed. When more companies implement instant payment technology, the entire business community can reap the benefits. Increased adoption means ubiquitous updates to payroll systems and cash flow management, as well as a more universal customer experience.

Venmo is, again, a good example of the importance of buy-in. Venmo generates revenue as a payment processor for merchants, but the platform wouldn’t be able to process payments without widespread consumer buy-in. Real-time payments will function the same way, when more companies utilize real-time payments, it enhances the experience for everyone.

Companies also benefit from increased adoption. Gig workers and affiliates want instant payments, and they will prioritize the companies that can truly deliver them. Companies that can actually deliver that experience—meaning earned wages of any amount are delivered on-demand, once the worker has completed a job—will see increased retention and worker loyalty.

Why the Right Tech Matters

Instant payments are not always instant. Many workers report delayed payments due to things like minimum earning requirements or data processing errors. When the promise of an instant payment isn’t fulfilled, it can weaken the worker relationship and actually increase payment friction. This is, of course, the opposite of what instant payments should accomplish. Instant payments solve the friction and pain points of traditional payment systems, but the system only works when businesses have opted into the right technology platform to support the payment.

A quality real-time payment network will allow the business to make an immediate payment in any amount, even as low as $0.99, and allow the funds to be automatically available to the worker through a digital card or wallet. In addition, because digital companies operate on a global scale, the platform should have the ability to make cross-border payments in the local currency. Companies should work with a third-party payments provider that can deliver this experience to ensure that workers receive payments instantly upon request. The wrong technology will hinder payment processing and delay worker payments.

Ensure Compliance

The most common roadblock to instant payment adoption is regulation. To issue a payment, companies need to comply with Know Your Business (KYB) and Know Your Customer (KYC) standards. Unfortunately, many companies don’t have the capacity or experience to manage regulatory compliance in-house. The payments processing partner, however, should ensure global compliance on every transaction by running a sanctioned check of every person using the platform as well as full check based on the location or region where the transaction is delivered. Compliance is a significant burden, and many companies delay the adoption of new payment systems because they don’t want to navigate through the regulatory challenges. It is a heavy lift. However, the payments network provider should take on that responsibility to ensure compliance as part of the payment infrastructure. 

Adopting real-time payments will certainly be a transition, like any technology revolution—but businesses need to get through the transition. Workers are demanding instant, on-demand payments, and companies must adopt the tools to provide a frictionless payment experience and deliver truly instant payments to remain competitive. It may seem like a significant change, but once you are past the learning curve, your company can reap all of the benefits of real-time payments.

The post Fulfilling the Promise: Making Real-Time Payments a Reality appeared first on PaymentsJournal.

The debit card may be the workhorse of payment methods, but that hasn’t kept the product behind the scenes. In fact, debit has become the product du jour, with recent releases from fintech heavyweights like Venmo and Klarna. There have even been debit card launches by companies as diverse as Wyndham Hotels and Kraken crypto exchange.

As Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, found in the report Consumer Debit Payment Choice: Understanding Debit Card User Preferences, macroeconomic conditions, emerging features, and new players are likely to keep debit cards top of mind for years to come.

A Balancing Act

Though debit cards may be largely unchanged as a product, the way consumers use them has become more strategic. Inflation and interest rates have combined to put consumers under immense pressure in recent years, and supply chain issues and tariff concerns have added to their worries.

In years past, consumers tended to use debit cards for items like groceries or gas and credit cards for larger purchases. However, the tough macroeconomic environment is shifting behaviors.

“With fluctuation in prices and mostly rising prices, we’ve seen some consumers have to switch from debit to credit cards to pay for goods that they used to pay for every day with debit cards, mostly out of necessity,” Tavilla said. “There is a segment who don’t have the funds readily available, so therefore they have to resort to using credit, whether it’s to pay bills or to put dinner on the table.”

Conversely, another consumer segment has been forced to shift from credit to debit.

Credit card debt has hit historic highs, and annual percentage rates have been elevated. This mounting debt has caused many consumers to explore other payment types, such as buy now, pay later (BNPL) plans, but it has also caused more families to budget more strictly, live within their means, and rely on debit cards.

In some cases, consumers don’t have any other recourse. In response to the pressure on consumers, many credit card issuers have tightened their lending standards to mitigate the risk of default. This means some consumers can’t secure the credit lines that were available a few years ago.

Shouldering the Rewards Load

Merchants have also played a role in driving consumers to debit. Retailers have long considered credit card interchange fees to be a burden on their businesses, and many have steered their customers toward alternative payment types.

However, credit cards continue to be the dominant U.S. payment method, in part because consumers are attracted to the rewards and incentives. Historically, debit cards haven’t been able to compete with the array of travel and dining rewards that credit card issuers provide.

This is changing. There has been an increasing trend of debit card providers offering rewards. While these may not be as extensive as credit card rewards, the gap between the two is narrowing.

“In our study, we see that over 40% of debit card users say that they have cash back,” Tavilla said. “I was wondering: If there are only a handful of issuers that are offering debit cashback rewards where are these 40% of consumers getting cash back? What I found is these are often merchant-funded cashback rewards.”

For example, a merchant-specific reward could be that a user gets 5% cash back if they use their debit card at Lululemon.

This model differs from the credit card rewards model, in which issuers fund their rewards programs with the revenue they receive from interchange. Because the debit interchange has been so low, it hasn’t been profitable for issuers to offer cashback rewards.

As merchants shoulder the rewards load, it will likely cut into their profits to return revenue with cashback offers, but these incentives could pay off in the long run.

“It makes sense because often the cost associated with debit cards for merchants is less than credit card transactions, so merchants would have an incentive to offer discounts,” Tavilla said. “There is an incentive for the merchants to pass those along to consumers to influence them to use debit over credit.”

Becoming More Debit-esque

Influencing customers, particularly younger generations, is one of the main reasons for the recent flood of debit card launches.

Peer-to-peer companies like PayPal, Venmo, and Cash App have provided debit products for years, but Venmo has sweetened its debit card rewards with15% cash back at retailers Sephora, Walmart, Lyft, McDonald’s, and Walgreens.

Additionally, many prepaid solutions are expanding to become more debit-esque, including features by which users can load funds onto the cards through cash or check deposits and check balances in a mobile app or on a website.

Finally, BNPL companies have also offered more financial products as they seek to expand their footprint, as evidenced by Klarna’s recent debit card launch.

In all these instances, fintech companies are reaching out beyond their roots with the goal of becoming full-service financial providers.

“I think we’ll see more diversification of debit products; it seems like there’s lots of crossover,” Tavilla said. “It’s a good strategic move, especially with younger consumers. Gen Z and Millennials are used to using debit cards, P2P payments, BNPL and other digital payments.”

A One-Stop-Shop Mentality

Many Gen Z consumers are digital natives who established relationships with fintechs like Venmo and Cash App early on. Gen Z is also a heavy user of BNPL, so it is a sensible step for those firms to try to capture more market share with younger users.

“I think it’s a practical and good strategy to expand and build upon those products and try to get consumers to adopt and cross-sell other products,” Tavilla said. “I think with that generation, they’re more open to using nontraditional bank products like Chime, Dave, Venmo, and Cash App.

“In their mind, it’s like a one-stop shop where previously these options might not have been available. You would just go to the bank to do a certain type of transaction or certain institutions offer a specific product, and that’s who you would go to, whereas nowadays with digital technology, it’s easier to offer a broader variety. Consumers tend to think in the super app or one-stop-shop type of mentality.”

The post As Payment Types Proliferate, Debit Cards Still Go Strong appeared first on PaymentsJournal.

Digital wallets have become an integral part of the modern payments ecosystem, offering consumers a fast, convenient, and secure way to make transactions both online and in person. As mobile adoption increases and contactless payments gain traction, digital wallets are replacing traditional methods like cash and physical cards for many users.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: 2025 Digital Issuance Provider Scorecard

Top 4 Digital Wallets Used in the Past 12 Months

• 61% – PayPal
• 36% – Apple Pay
• 31% – Google Pay
• 29% – Cash App

Source: Javelin Strategy & Research North American PaymentsInsights, December 2024

About Report

Galileo earns the top spot in Javelin Strategy & Research’s first-ever Digital Issuance Provider Scorecard, recognized as the Best in Class among eight evaluated companies. Its robust Digital First platform—designed for flexibility, security, and scalability—set it apart from competitors by enabling innovation across the payments and financial services landscape. Thales and FIS followed closely, earning Overall Leader distinctions.

The evaluation forms part of Javelin’s broader research on debit payments, specifically within its Instant Issuance and Digital Issuance Provider series. This scorecard delivers a detailed comparison of offerings from Alviere, B4B Payments, CPI Card Group, Entrust, FIS, Fiserv, Galileo, and Thales. Each digital card issuance solution was measured against 25 criteria across three categories, using data supported by proprietary consumer survey research.

The post What Digital Wallets Are Consumers Using? appeared first on PaymentsJournal.

As part of its continued transformation into a full-fledged financial institution, Klarna is launching a Visa debit card for U.S. users.

The Klarna Card will be piloted with a select group of consumers ahead of a nationwide rollout and a planned European Union launch later this year. The debit card is linked to an FDIC-insured account that functions effectively as a bank account.

The Klarna Card will be facilitated by Visa Flexible Credential, which allows users to toggle between services such as buy now, pay later, credit, and debit using a single card.

“Klarna and other payment service providers are collaborating to diversify their product offerings and provide consumers with more choice and flexibility,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “For example, Affirm and FIS recently partnered to integrate BNPL options into debit card programs. Consumers can convert purchases into installments directly through their existing debit cards within their digital banking or mobile app.”

“This offers shoppers the option of payment deferral with debit cards that credit cards routinely provide,” she said. “By partnering with Visa and leveraging Visa Flexible Credential, Klarna is enabling shoppers to choose their preferred payment option through a seamless and flexible digital experience.” 

Making Waves Overseas

Expanding its services beyond BNPL has been a top priority for Klarna, as the company added balances and cashback rewards last year. It has already obtained a full banking license in the European Union, but has yet to secure one in the U.S.

This hasn’t stopped the company from making waves overseas. Klarna has forged a series of partnerships as it works toward an initial public offering in the United States. Though the IPO has been shelved due to macroeconomic concerns, deals with eBay and Walmart should go a long way toward helping Klarna expand its footprint.

Changing the Perception

While most of these deals have hinged on BNPL, Klarna’s growing U.S. presence should position the company to offer a broader range of financial services products in the future.

“We want Americans to start to associate us with not only buy now, pay later, but the PayPal wallet type of experience that we have, and also the neobank offering that we offer,” Sebastian Siemiatkowski, CEO of Klarna, told CNBC. “We are basically a neobank to a large degree, but people associate us still strongly with buy now, pay later.”

The post Klarna Launches Debit Card to Move Beyond BNPL appeared first on PaymentsJournal.

The ongoing race between credit and debit card issuers to claim the title for the most transactions carried out on their payment cards continues. In past years, credit and debit often flip-flopped in a close race.

With an unstable economy plagued by inflation, interest rates, and now tariffs, it turns out that credit has dominated U.S. consumer spending.

According to the Federal Reserve’s recently published Survey and Diary of Consumer Payment Choice, here are three factoids for you to know.

1. For 2024, the Survey and Diary of Consumer Payment Choice found that the share of transactions made with cash continued to decline. U.S. cash payments now account for only 14%, down from 16%.

2. Consumers continued to move away from paper methods. Significantly fewer consumers reported using cash and paper checks in the past 30 days. Only 36% of consumers used checks in 2024, down from 40% in 2023.

3. Of the two-thirds of payments made by consumers, credit cards accounted for 35%, and debit cards only accounted for 30%. The last time debit outpaced credit was in 2021, when debit held a 29% rate and credit held 28%.

What’s the Big Deal About Credit Being More Active than Debit?

It’s more than just the bravado of saying my card product is bigger than yours. There are two essential readings from this metric.

First, it illustrates that household budgets continue to deal with liquidity issues. As debt continues to grow and revolving credit reaches a historic high, people are increasingly relying on their credit cards to offset budget shortages. That is good news in the short term for lenders, as it generates incremental revenue. And through the wonders of accrual accounting, revenue continues until the account is charged off. In short, it is a front-end gain that kicks off back-end credit risk.

Next, it says that debit rewards continue to be limited. There are instances where issuers are attempting to revive debit rewards, which were previously shut down after Dodd-Frank reduced interchange fees. Credit card rewards typically yield a return of about 1%-2% at most issuers. If you do it right and select the best-in-class reward cards, such as the American Express Blue Preferred card, you will earn 6%, or my personal favorite, the Chase Amazon Visa, which fills all your needs at the world’s favorite e-commerce solution.

And for the consumer, sure it is best to extinguish your everyday expenses, but it will not help you build your cherished FICO score, like a good, up-to-date credit card payment.

What to Expect in 2026?

I’ve witnessed numerous business cycles over the many decades I’ve spent in credit. I say it’s going to get ugly very soon. Ugly means charge-offs will surge, credit will tighten, and collection queueswill swell to the point that card issuers will need more sophisticated strategies. 

You can read about it in Javelin’s recent reports: Seven Credit Card Warning Signs in 2025: Don’t Stop Lending, but Watch Out | Javelin and Riffing on Tariffs: Now is the Time to Build Your Small Business Card Portfolio | Javelin.

The post Three in a Row: Credit Beats Debit appeared first on PaymentsJournal.

As debit cards continue to play a central role in everyday financial transactions, understanding how many cards consumers hold offers valuable insight into spending habits and banking preferences. With the rise of digital wallets, neobanks, and reward-linked checking accounts, many individuals now carry more than one debit card to manage different aspects of their finances. This trend reflects not only increased consumer choice but also evolving strategies for budgeting, rewards optimization, and digital banking engagement.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: 2025 Instant Issuance Provider Scorecard

Number of Debit Cards Owned

• 59% of consumers who own debit cards have 1 card.
• 21% of consumers who own debit cards have 2 cards.
• 15% of consumers who own debit cards have 3-5 cards.
• 6% of consumers who own debit cards have 6 or more cards.

About Report

Fiserv leads the field in Javelin Strategy & Research’s first-ever Instant Issuance Provider Scorecard, recognized for its strong, fully integrated solution that spans the full customer journey. Entrust and Thales also achieved top-tier rankings, placing among the top three providers evaluated.

The scorecard is one of two evaluations in Javelin’s broader analysis of Instant and Digital Issuance Providers, covering eight major vendors: Alviere, B4B Payments, CPI Card Group, Entrust, FIS, Fiserv, Galileo, and Thales. This particular scorecard focuses on instant issuance offerings, rating them across 28 performance indicators within three key areas. These assessments are informed by Javelin’s extensive consumer research to reflect market needs and expectations.

The post How Many Debit Cards Do Most Consumers Have? appeared first on PaymentsJournal.

Cryptocurrency exchange Kraken is launching its own crypto debit card in collaboration with Mastercard. The card will allow Kraken customers in the UK and Europe to spend their crypto assets at more than 150 million merchants worldwide.

This launch also marks another milestone in the expansion of the recently introduced Kraken Pay platform, which offers instant, borderless payments in more than 300 cryptocurrencies and fiat currencies. Additionally, Kraken is reportedly developing its own stablecoin in response to the EU’s Markets in Crypto-Assets (MiCA) regulation, which came into effect in January.

Rather than converting digital assets into fiat currency before making a purchase, Kraken users will be able to pay directly with their crypto holdings at checkout, just as they would with a traditional bank card. To build anticipation, Kraken is offering users the opportunity to join a waitlist for the new debit card, set to roll out in the coming weeks.  

Failing to Gain Traction

Crypto debit cards have been launched in the past, but none have gained significant traction with the wider public. These cards have typically been issued by crypto entities such as Coinbase and Crypto.com. Mastercard has previously partnered with some of these organizations for earlier crypto debit card offerings, including its collaboration with MetaMask last year.

The biggest concern surrounding these cards is whether crypto holders will be willing to spend their digital assets on everyday purchases.

“It’s been a tough one to crack,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “A debit card, just like with other remittances, makes more sense when you use something that’s less volatile, like a stablecoin. Accounts debited are great when you have crypto that has increased in value, but once the value of those tokens decreases they don’t want to use the debit card. Time will tell if they’ve cracked it, but I think they need to leverage something less volatile.”

Gateway to Kraken Pay

Kraken’s effort appears to be less focused on catering to the needs of crypto-spending consumers and more on expanding the appeal and functionality of its Kraken Pay service. Introduced in January, Kraken Pay allows users to send over 300 fiat and digital assets to anyone worldwide for free.

The service’s Kraktag feature enables users to send funds through short text messages, similar to peer-to-peer services like Venmo and Zelle. In addition to supporting crypto, Kraktag enables cross-border asset transfers. According to Kraken, Kraktag has attracted more than 200,000 users within its first 90 days of operation.

The post Kraken’s New Digital Crypto Debit Card Broadens Its Footprint appeared first on PaymentsJournal.

Over the past 12 months, consumer spending habits have continued to evolve, and so has the way people pay. We look at which payment cards—credit, debit, and prepaid—have been most commonly used. By breaking down the data, we get a clearer picture of what’s driving consumer choices and which types of cards are gaining or losing ground.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: 21st Annual U.S. Open-Loop Prepaid Card Market Forecast, 2024-2028

Top 5 Payment Cards Used in the Previous 12 Months

• 82% – Major credit card usable anywhere
• 66% – Major debit card usable anywhere
• 35% – In-store gift card
• 31% – General prepaid gift card (non-reloadable)
• 29% – Store-branded credit card

Source: Javelin Strategy & Research

About Report

Javelin Strategy & Research’s latest annual report on the open-loop prepaid card market outlines key developments and forecasts across several major categories. It highlights projected growth in areas such as general-purpose reloadable cards, payroll and benefits cards, and corporate expense cards. The report links these trends to broader economic indicators, noting that improvements in the economy and regulatory landscape are creating favorable conditions for certain card types. For example, lower inflation and evolving financial regulations are helping drive interest in benefit and general-purpose cards, which can serve as alternatives to higher-interest credit options. On the flip side, factors like a stronger job market and shifts in government aid programs are slowing growth in areas like unemployment-related cards.

The research also shows that consumer sentiment toward prepaid cards remains strong. Buyers are continuing to use these cards frequently, especially in high-volume categories, with many planning to maintain or increase their usage. This year’s findings build on previous trends, confirming that prepaid solutions are becoming a stable part of how Americans manage and spend money.

The post What Payment Cards Have Been Used in the Previous 12 Months? appeared first on PaymentsJournal.

Wyndham Hotels is expanding its lineup of rewards credit cards by introducing a debit card, reportedly the first of its kind from a major hospitality brand in the U.S.

In some ways, the Wyndham Rewards Debit Card transforms the hotel chain into a financial institution. There is no minimum balance required to open an account, but cardholders who maintain an average of $2,500 can waive the $6 monthly fee. Like most bank accounts, Wyndham accounts are insured by the FDIC for up to $250,000.

A Market of Younger Travelers

Wyndham is marketing its debit card specifically to younger travelers. Research has shown that Gen Z is the cohort most likely to prefer debit cards over credit. Some 70% of Gen Z consumers use their debit cards at least once per week, according to a study from EY.

Young travelers, in particular, are emerging as a lucrative market. Separate data from PMG shows travel as a key spending category for Gen Z, with two-thirds planning to spend more on travel in 2025 and nearly 60%  considering loyalty programs essential when booking their travel. JetBlue’s recent decision to add Venmo as a payment option for airline tickets is widely seen as an effort to attract younger travelers.

Enticing Spenders Away From Credit

The Wyndham card is not the first debit card focused on travel—others include Truist’s Delta Airlines debit card and the Hilton Honors Debit Card, which is available in the UK.

Consumers typically use credit cards for travel purchases, such as flights and hotels, primarily for rewards, purchase protection, and financing options. However, industry experts suggest there may be room for debit cards in this space.

“Most debit cardholders would be motivated to use their cards more frequently if they were offered rewards,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “The Wyndham Rewards card could incentivize consumers to pay for their hotel stays with a debit card instead of credit. As a decoupled debit product, it also allows merchants like Wyndham to fund debit rewards with savings from lower interchange costs.”

The post Wyndham Introduces Debit Rewards Card, Targeting Young Travelers appeared first on PaymentsJournal.

Three years after eliminating them, India’s government is considering reinstating merchant charges on UPI (Unified Payment Interface) and RuPay debit card transactions.

“A formal proposal to bring back MDR [merchant discount rate] on UPI payments for large merchants was sent to the Union government by the industry and now the concerned departments are considering it positively,” a senior banker told India’s Economic Times.

Currently, businesses in India do not incur any fees when customers use either type of payment. Before 2022, merchants were required to pay a MDR of less than 1% of the transaction amount to the processing bank.

A Bid to Boost Adoption

To encourage digital payments, the government removed these charges, which  boosted UPI adoption, making it the most widely used payment method in the nation. However, this also eliminated a key revenue stream for banks and payment service providers.

The Indian government now plans to introduce a tiered pricing system, where larger businesses will pay higher charges than smaller ones. Large businesses already pay MDR for credit card payments. According to India Today, major retail merchants handle more than 50% of their transactions through such cards.

The Government’s Role in Payments

The fact that UPI has become the most popular retail payment method in India lends credence to the argument that the waiver should no longer apply. Payment companies further contend that compliance costs have increased, and many businesses rely on the UPI fee to remain profitable.

This contrasts with the situation in the U.S., where many local governments have made moves toward curtailing interchange fees. One difference in India is that the national government has played a key role in developing and promoting the payments network.

“Indian banks argue that since merchants already pay a fee to accept credit cards, a similar fee should be applied to debit cards to end the cost to taxpayers of operating the debit networks,” said Don Apgar, Director of the Merchant Payments Practice at Javelin Strategy & Research. “This is an interesting parallel for U.S. businesses, whose trade group the National Retail Federation has long argued that debit card payments should be free to merchants since banks are not extending credit when consumers spend their own funds.

“Of course, this argument ignores the costs of operating the network and related settlement infrastructure,” he said. “Debit networks cannot operate for free and would require taxpayer subsidies if fees to merchants were eliminated.”

The post India Weighs the Return of Debit Fees appeared first on PaymentsJournal.

Consumers have become increasingly aware of the benefits of emerging payment methods and are accustomed to using different payment mechanisms in various scenarios. Gen Z, in particular, is especially payments-savvy—one of the reasons Mastercard is launching its One Credential platform.

One Credential allows customers to choose from multiple payment methods like debit, credit, buy now, pay later (BNPL), and prepaid, all within a single interface. Users can manage their selection of payment options through Mastercard’s online platform or app.

The payments giant believes this solution will appeal to younger consumers, who are digital natives and prioritize personalized experiences. This preference for experiences has fueled a resurgence in shopping at physical malls among younger consumers. However, Gen Z hasn’t abandoned e-commerce; instead, they are blending aspects of in-store and online shopping to create a hybrid shopping experience.

Structuring Credit

Another key aspect of One Credential is that it will provide structured credit solutions aimed at helping Gen Z build their credit scores and improve their creditworthiness.

Gen Z consumers haven’t been hesitant to embrace credit cards. A recent study by the Federal Reserve of Dallas found that younger consumers in Texas are more likely to own credit cards than previous generations at the same age and tend to use them more frequently.

Roughly 60% of Gen Z respondents reported having at least one credit card in their early 20s, with nearly a third saying they had a credit card that was 75% or more of its credit limit.

Filling a Role

Mastercard’s latest effort represents a growing trend in the financial services industry, where organizations are adapting their models to align with Gen Z’s preferences. Just as Gen Z adults are becoming more active with credit cards at an earlier age, younger consumers are also starting their investment journeys sooner. The digital-first mindsert of Gen Z investors has driven a shift toward AI tools and self-directed platforms.

Gen Z is also influencing a shift toward mobile and digital banking solutions at traditional financial institutions. While technology solutions are important, many younger consumers are also looking for guidance—an opportunity that financial institutions can seize.

“Gen Z consumers often have to rely on free financial education and advisors because they don’t have any alternative,” Gregory Magana, Digital Banking Analyst at Javelin Strategy & Research told PaymentsJournal. “Older generations, which are more financially established, have an easier time getting in-person help. There could be a significant return on investment from offering Gen Z consumers Finance 101, so they can boost their financial confidence.”

The post Mastercard Launches One Credential in Play for Gen Z Consumers appeared first on PaymentsJournal.

There have been remarkable strides toward U.S. real-time payment adoption in recent years, driven by growing demand among businesses and consumers. As the long-awaited ubiquity of instant payments draws closer, the financial institutions that have yet to adopt this nascent payment method face tremendous downsides.

In a recent PaymentsJournal podcast, Justin Jackson, Head of Enterprise Payments at Fiserv, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, discussed the concerns many institutions have about instant payments support, the benefits of real-time payment adoption, and the steps institutions can take to stay competitive.

Real-Time Concerns

There are approximately 9,000 banks and credit unions in the U.S., and roughly a quarter of them are active in instant payments. While financial institutions are often separated into adopters and non-adopters, the actuality is a bit more complex.

“We often speak as though the other 75% are one homogeneous group that all look and think and act the same, but that’s not the case,” Jackson said. “They’re all individual businesses. They have their own strategies and their own goals and concerns. Each of them has factors that influence their decision of what they’re going to do with real-time payments.”

Some institutions are concerned about potential technology challenges when implementing instant payments. They aren’t sure about the magnitude of the change, its impact on operational processes and existing systems, and whether it will require additional staff.

Cost is another major concern for many banks and credit unions, as they worry that instant payments could introduce incremental expenses beyond their control. For example, if an originator were to come online and the volume of received instant payments increased by 10X or even 100X overnight, it could lead to unforeseen ramifications.

Additionally, many banks remain uncertain about the fraud risks associated with instant payments. These concerns—spanning technology, fraud, and cost—are weighing on institutions to varying degrees. However, as more organizations adopt instant payments, many of these worries will subside.

“They’re thinking through these concerns, and they are seeing what their peers and their colleagues are doing and they’re deciding that maybe it’s time,” Jackson said. “We’re nascent in the adoption of instant payments within the U.S., with FedNow being live for about a year and a half and we’re not even at a decade with the Clearing House’s RTP network. We have about 25% of the industry live and that’s tremendously fast for a totally new payment mechanism like this.”

Table Stakes: Powering Deposits and Efficiency 

For all the concerns about adopting instant payments, the disadvantages are mounting for financial institutions that lag behind. Consumers have quickly become accustomed to real-time experiences, such as instant access to vast libraries of music and movies.

As these experiences become the norm, both consumers and businesses are increasingly perplexed as to why moving money still takes so much longer.

“Retail goods are an example that comes to mind, where you can order something on your phone and sometimes receive it the same day,” Tavilla said. “There is also the precision and the transparency with my packages, where I know exactly where the UPS guy is. But when you move your money, it takes multiple days, and you don’t have the precise information as to when and where the money is in terms of the process.”

The increased demand for real-time money movement means instant payments are becoming a table stakes offering for financial institutions. However, real-time payments are much more than an obligation—they are a transformative force that delivers substantial benefits.

“There’s one credit union that we worked with to take live on the instant payments networks,” Jackson said. “In the first couple of days after going live, incoming transactions hit the 1,000-payment milestone. After a few months, they got to the point where they were processing 10,000 transactions a month for their members, who were receiving these real-time payments from originators outside of their institution.”

The resulting deposit growth at the credit union was almost $60 million in net new deposits, simply due to taking their real-time connection live.

Other advantages of real-time payments are more efficient controls and better risk management processes. When an institution initiates a payment, it knows exactly what the balance of the account is. The financial institution secures funds instantly when its user makes a payment, and it can restrict unauthorized use of those funds. In addition, the bank doesn’t carry the risk that the funds aren’t there.

The institution is also immediately ready to process a payment at any time, and it is guaranteed credit. If a bank receives a transaction and posts it to an account, it doesn’t face the risk that comes with a return window of two to three business days, where a payment could be clawed back. This extra control is a significant benefit that isn’t available with non-instant payment methods.

There is also a less obvious benefit to the acceptance of instant payments: customer retention. For example, after many gig economy workers perform their food-delivery or ridesharing services for the day, they want to cash out their earnings immediately to pay for groceries or bills.

Many fintech companies that facilitate gig economy platforms have touted their ability to pay out instantly to attract talent. However, that real-time payment capability is only available if the worker’s financial institution supports it.

In some instances, if a contractor requests instant payment but their bank isn’t eligible, fintech companies have encouraged them to switch to a competing institution that supports real-time payments.

“That’s huge, when someone else is marketing against you and encouraging your customers to go to another institution because you don’t offer the service,” Jackson said. “That attrition risk is something that just kind of comes out of left field. It’s easy to solve for—just accept the instant payment—but it’s something that isn’t often thought about. It’s becoming more of a problem for the institutions that have decided not to get into instant just yet.”

Business Impacts

In addition to mounting consumer demand, recent research indicates that 90% of businesses consider instant payments to be important or very important.

“As a business owner, one of the things that’s most important is cash flow and access to working capital,” Jackson said. “The nice thing about instant payments is they are 24 hours a day. There is no availability window, they are seven days a week. There’s no weekends or holidays, they are 365 days a year. At any time, a business owner can receive or send a payment and know that within 15 seconds it’s available and it’s confirmed.”

These transactions could include payments to vendors and suppliers or incoming payments from customers or investors. Immediate access to money movement is tremendously valuable to business owners, as it increases efficiency. Business owners know exactly where their payments are, and once received, there are no exceptions—no two-day return window and no risk of a clawback.

Real-time payments allow organizations to use funds immediately and confirm that an obligation has been satisfied. They also give business owners more time to focus on running their company and serving customers.

“The improved customer experience that I get from my bank or my credit union as a result of the instant payment goes a long way,” Jackson said. “There is a lot of impact to the business owner by having access to instant payments and that is going to become more of a drag on the institutions that haven’t gotten into this space. Businesses are starting to think about where they bank based on the availability of instant payments functionality.”

Getting Into the Game

The demand from businesses and consumers means real-time payments adoption is going to continue to grow by leaps and bounds. As adoption accelerates, there will be increasing pressure on banks and credit unions to become real-time. Though these institutions have a myriad of concerns about implementation—and no two banks are the same—there are solutions for every situation.

Some financial institutions may want to manage all the network integrations and run software in their own data center. Others might prefer to outsource the whole operation and buy instant payments support as a service from a provider. Still others might want to integrate instant payments via API directly into an app that they or a third-party has built.

“At all ends of the spectrum, regardless of what you want to do with instant payments, there’s a solution out there,” Jackson said. “I would say for any financial institution that’s not yet in this space, talk to your provider, whether it’s Fiserv or someone else. Ask them what they have, tell them what you’re looking to do, and get into the game here.”

The post The Downside of Not Offering Real-Time Payments appeared first on PaymentsJournal.

The introduction of the Federal Reserve’s FedNow in June 2023 presented many financial institutions with a dilemma: should they adopt the new system, or stick with The Clearing House’s RTP, which has been in use since 2017? As many banks are discovering, the best answer might be to embrace both.

In a PaymentsJournal webinar, Anoop Basavarajaiah, Head of Payments at Volante Technologies, Matthew Brazda, Head of Real-Time Payments Product at BNY, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, discussed the future of both instant payment systems, the emergence of critical use cases, the role of ISO 20022, and the challenges of fighting fraud in real time.  

 The Current State of Instant Payments

Since many U.S. banks already have a relationship with the Federal Reserve, the FedNow network has been able to scale slightly faster than RTP. FedNow currently has more banks live on its network, though this still represents less than half the account reach in the United States. Overall, 70% of accounts can currently receive a payment on RTP, compared to about 30% on FedNow.

The Fed aims to bring that 70% closer to 100% as quickly as possible, with a particular focus on onboarding the long tail of smaller community banks and credit unions.

“I like to say FedNow was the tide that lifted all boats for faster or instant payments,” said Tavilla. “It’s pretty impressive how FedNow went from 35 participants that launched to over 1,100 FIs.”

Since 2017, fintechs have been pushing banks to enable instant payments in 15 seconds. They’re challenging banks: if you can’t offer this, let us know where we can go.

“Everybody wants to reach each other through instant payments and provide that interoperability,” said Basavarajaiah. “There could be somebody on RTP and someone  else on FedNow. How do you make sure that if I can’t send through FedNow, I can send it through RTP. And If I can’t send it through RTP, can I send it through FedNow?

“In the next two to three years, it could be exactly like the European market, where most banks are already on instant payments. The same thing is going to happen here.”

Critical Use Cases

Most real-time payment use cases are business-to-business (B2B) or business-to-consumer (B2C). The new transaction limit for RTP of $10 million (FedNow’s is $500,000) will enable many new B2B or corporate use cases in areas like real estate, merchant settlement, invoices, and payroll. It will provide flexibility for payments that might have previously depended on conventional business hours.

There are also some emerging peer-to-peer use cases, such as when someone wants to send money to their nanny. But the greatest growth may be in B2C, which could allow individuals to receive a loan or an insurance claim in 20 seconds.

“If a customer is booking travel, the bank may offer them 2% cashback to pay through instant payment,” said Basavarajaiah. “Banks want to make sure that it’s all instant so it’s risk-free, and they don’t have to go through the traditional wire or ACH.”

Another promising use case is Request for Pay, which has been a feature of RTP since its inception. Any business purchasing commodities from a seller can make the payment without having to use checks or wires. In these cases, the goods would be delivered before the money arrives, leaving the seller at risk.

“We will hopefully see a lot of bank adoption on Request for Payment received next year, particularly from retail banks,” said Brazda. “We’ll also hopefully see enablement of additional use cases for using Request for Payment.”

Recently, Walmart announced plans to enable pay-by-bank using real-time payments for online transactions. However, e-commerce and recurring payments have yet to be approved by the network. Once approved, these will open the door to increased volume and monetization opportunities for banks and fintechs, benefitting their end customers.

The Role of ISO 20022

The ISO 20022 messaging standard is starting to make a significant impact on U.S. payment systems and instant payment. RTP was the first truly domestic payment network toadopt the messaging standard, and FedNow launched with ISO 20022, migrating their specifications for Fedwire from the legacy forum to ISO 20022.

The types of messages used to send and request payments are very similar. One key similarity is that when banks join either network, they are required to receive a real-time payment message. Many banks are looking to combine access to both networks into one solution to offer to their customers.

“I like to think of ISO 20022 as the lingua franca between the different payment systems,” said Tavilla. “When the FedNow payment rail was being developed, even though the ISO 20022 messages weren’t identical between FedNow and RTP, the Fed team worked closely with The Clearing House to ensure that the messages were close, to ensure compatibility even though the systems aren’t interoperable today.”

Faster Payments + Fraud Prevention

Along withfaster payments, there’s also been an acceleration in faster fraud. Most banks expect the sending bank to handle sanctions and fraud, so the receiving bank doesn’t have to worry about them. However, everything must happen in real-time.

The primary responsibility lies with the institutions that originate these payments. The receiving bank has only five seconds to respond to the payment and post the funds, which isn’t enough time to conduct a comprehensive risk management check.

As a result, the Know Your Customer (KYC) and due diligence aspects of the onboarding process become absolutely critical businesses.

“I’ve had the privilege of working with multiple institutions who prioritized the KYC and due diligence aspects of bringing these clients on, because real-time payments are instantly revocable,” said Brazda. “If you haven’t vetted your customer before that, that’s the risk you run. Those are the things can impact other customers, other financial institutions, and even other non-financial institutions.”

Both RTP and FedNow have what’s called account activity thresholds, which are daily limits that banks can configure by account for sending payments. Any bank participating in FedNow can also add specific combinations of account routing numbers, and the FedNow system will automatically reject payments originated with those accounts.

24/7 Availability & Flexibility with Payment-as-a-Service

With payment-as-a-service, consumers gain the flexibility of a payment system that’s available around the clock. The payment network, regardless of its architecture or software, is offered as a 24/7 service, ensuring constant connectivity to FedNow and RTP.

With PaaS, that’s one less thing the bank needs to worry about. All they have to do is get registered with FedNow and RTP.

“There’s no preference at the end-customer level to choose between the networks,” said Brazda. “They don’t really even see that you’re sending a real-time payment. All they want is for their money to get from point A to point B fast. That’s the main objective for both networks.”

The post RTP or FedNow Instant Payments? The Answer Is Both  appeared first on PaymentsJournal.

As the Trump administration continues to dismantle the Consumer Financial Protection Bureau, Republican lawmakers have set their sights on reversing a major CFPB rule. Two key legislators have introduced a resolution to repeal the $5 cap on bank overdraft fees, which was enacted last December and set to take effect this October.

The regulation would have required banks to either charge a $5 overdraft fee or limit the fee to an amount that covered the lender’s costs. It would apply to banks and credit unions with at least $10 billion in assets.

The CFPB adopted the rule in the final months of the Biden administration as part of its campaign against junk fees. House Financial Services Committee Chairman French Hill (R-Ark.) and Senate Banking Committee Chairman Tim Scott (R-S.C.), co-sponsors of the resolution to overturn the rule, argue that contractually agreed-upon payment incentives promote financial discipline and responsibility. 

Although the CFPB reported that overdraft fees average $35, some large banks have already reduced or eliminated such fees in recent years. For example, Bank of America lowered its overdraft fees from $35 to $10 in 2022, and Ally Bank eliminated them entirely in 2021.

“In the past, many large banks made significant changes to their overdraft and NSF programs due to increased consumer backlash and competition from new nonbank companies, despite there not being new regulation,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “Market pressures continue to be an important factor in shaping financial institutions’ strategies.”

Other CFPB Rules at Risk

A similar rule, passed last March, would cap most credit card late fees at $8, down from the current average of $32.

However, the rule is currently in limbo. A federal judge in Texas blocked it from taking effect until a lawsuit contesting the rule is resolved. The trade associations that brought the suit argue that the rule violates the Credit Card Accountability and Disclosure Act, which allows card issuers to impose reasonable penalty fees.

Another potential reversal is the rule banning the inclusion of consumers’ medical debt on their credit reports, set to take effect on March 17. Rep. Hill has said the rule “will drive up costs to any American seeking medical care and have a devastating impact on consumers’ access to healthcare.”

The post GOP Moves to Repeal Cap on Overdraft Fees appeared first on PaymentsJournal.

As part of Mastercard’s plan to remove the 16-digit number from its credit and debit cards by 2030, Australia’s AMP Bank is rolling out the first numberless debit card for small businesses.

AMP, a mobile-first bank, is introducing the cards to both its small business and personal banking customers. Other Australian banks plan to launch similar cards over the next year.

Mastercard is promoting the cards as a way to provide AMP Bank customers with seamless and secure payment technology. It claims that removing the 16-digit number from debit cards will help stamp out identity theft and fraud. The traditional card numbers will be replaced with a mix of tokenization and biometric authentication.

Customers would still have physical cards for in-person payments, but Mastercard’s plan is to replace static 16-digit credit card numbers with tokens generated by the customer’s banking app, ensuring that actual card information is never shared. Roughly 25% of worldwide Mastercard transactions are already tokenized, and the company reports that these transactions are growing at a 50% year-over-year rate.

AMP customers are encouraged to use Face ID and fingerprint ID to access the debit card app. The bank also recommends recording a video selfie during sign-up to help prevent identity theft.

A Slow Rate of Development

Mastercard’s first numberless card isn’t technically the first of its kind, though the development of such products has been slow. In 2019, Mastercard partnered with Apple to launch an iPhone-integrated credit card that didn’t feature a traditional 16-digit number. At the time, the lack of a number wasn’t as noticeable, since the card largely functioned through the Wallet app. The physical card, which lacked both a number and a CVV, was seen more as a backup.

This shift toward numberless cards became more evident as other companies began to follow suit. After expanding to the UK, Chase introduced its first product: the Chase UK numberless debit card, which has yet to be launched in the U.S. Similar cards have also been offered in regions like Mexico and the Middle East.

However, the uptake of numberless cards across the industry has been slow. While some consumers may prefer the sleek esthetics of a card without numbers, the security benefits seem to have been overshadowed by other fraud-prevention measures.

“Numberless cards can help reduce fraud, but I don’t think it’s a key factor,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “There are so many other security tools that exist today.”

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

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

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

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

The Power of Debit

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

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

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

Learning from Experience

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

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

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

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

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

Developing Intelligence

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

Some of these business include:

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

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

How It Works

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

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

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

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

The Bottom Line

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

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

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

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

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

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

‘At Every Level of Society’

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

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

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

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

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

A Matter of Inclusion

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

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

Real-time payments can eliminate the barriers caused by fees and delays in payment timing and reduce the late fees that often occur amid payment lags. This means that apps, QR codes, and mobile wallets can be the portals for previously unbanked and underbanked citizens to access products that could transform their lives.

Fees have a particular impact on unbanked or underbanked populations. For example, a recent U.S. Consumer Financial Protection Bureau report on overdraft and non-sufficient funds fees found that the median fee amount was $35. Roughly half of consumers in the CFPB study were not prepared for the overdraft fee, and those who incurred fees were more likely to come from lower-income households. In addition, lower-income households are more likely to experience income volatility or live paycheck to paycheck. This makes certainty about the timing and availability of funds even more critical.

“In some areas, the barrier to becoming banked has likely been cost,” said Elisa Tavilla, Director of Debit Advisory Services at Javelin Strategy & Research. “You usually have to maintain a minimum balance in the account or pay maintenance fees. Maybe they weren’t in proximity to physical branches, which used to be the primary way to access banking services. Now, with digital and mobile, banking is a lot more accessible no matter where you are.”

The Financial Uplift for Merchants and Banks

The dramatic effects of real-time payments go far beyond consumers. Merchants also experience reduced transaction fees—or none at all—when they accept real-time payments. Receiving funds in seconds rather than days can be crucial for businesses that rely on daily cash flow. Instant settlement also helps merchants keep better tabs on their inventory and reduce their overhead.

The ACI Worldwide report indicated that real-time payments generated $116.9 billion in savings for consumers and businesses in 2023, mainly due to lower transaction fees and reduced settlement float times. These savings are predicted to grow to $245.8 billion by 2028.

The effects of real-time payments can also be seen in the most basic marketplace meetings. Tavilla noted that she had recently been in Thailand (No. 9 on ACI Worldwide’s list of the top markets for financial inclusion uplift) and saw that “street vendors who used to accept only cash now have a QR code posted.”

“When the money gets deducted directly from a bank account, the merchant immediately knows they’re getting paid,” she said. “It’s just convenient, and everybody seems accustomed to using it.”

These remarkable efficiencies—coupled with the surge in financial inclusion—present significant opportunities for banks. The report identifies the top markets for increased profit opportunities by 2028 through accountholder growth aided by real-time rails. Again, Pakistan takes the top spot ($173 billion), followed by Argentina ($3.4 billion), with major economies like India, China ($21.2 billion), the United States ($18.9 billion), and Brazil ($8.9 billion) also in the top 10.

That influx of newly banked citizens brings opportunities to build new products and services and grow new generations of customers.

As the report notes, “Real-time payments have asserted their role as a powerful enabler for societal transformation.”

*All data contained within this article comes from the Real-Time Payments: Economic Impact and Financial Inclusion Report

Dive into the complexities of real-time payments modernization with ACI’s recent research.

The post Transforming Economies: The Global Impact of Real-Time Payments appeared first on PaymentsJournal.

Amid constant speculation about the future of payments technology, the ACH Network had its best year yet. The ACH Network processed more transactions, moved higher dollar values, and established more use cases for businesses and consumers. With new initiatives on the way designed to increase security and foster innovation, the ACH Network’s impressive growth could just be beginning. 

In a recent PaymentsJournal podcast, Michael Herd, Executive Vice President of ACH Network Administration at Nacha, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, discussed the growth areas for the ACH Network, the continued rise of Same Day ACH, and the future of the platform.

Milestone Growth

The ACH Network is a firmly established payment network that connects to nearly every U.S. bank account, making last year’s growth even more impressive. In 2024, the ACH Network added more than 2 billion payments to its annual volume, reaching a total of 33.6 billion payments. ACH’s 6.7% growth rate significantly outpaced the previous year’s 4.8% increase.

The scope and scale of the ACH Network are highlighted by its remarkable dollar volume: more than $86 trillion was moved on the ACH Network last year, representing a 7.5% year-over-year increase.

Nacha also reported that consumers are increasingly making bill payments and account transfers online. In fact, online ACH payments grew by 8.4% last year to exceed 10.7 billion payments, making it the single largest category of ACH payments.

The second-largest growth area for ACH was business-to-business payments, which increased by 11.6% in 2024, reaching a total of 7.4 billion payments. Within this segment are healthcare claim payments, where insurers compensate medical providers, including doctors, dentists and hospitals. This category grew by roughly 5%, surpassing 500 million payments.

“The third-highest growth area was Direct Deposit transactions, which have been the bread-and-butter ACH transactions over the years,” Herd said. “That includes payroll, benefit payments, and other types of consumer payments. We continue to see growth in that segment at 8.6 billion payments, which was a 3.7% year-over-year increase. Overall, there was across-the-board growth in anything that begins life electronically and digitally, and a sharp decline in anything that started off based on a paper check.”

Renewed Interest

The declining usage of checks accelerated during the pandemic, when staffing an office to issue, receive, and deposit high volumes of checks became a challenge. Since then, there hasn’t been a reversion to paper checks, even among small businesses. Security, cost, and convenience concerns have driven the shift to alternative payment methods.

“Several retailers stopped accepting paper checks in their stores last year, including Target and Petco,” Tavilla said. “Primarily, this is because there’s very low consumer demand to pay with checks anymore. More retailers are offering decoupled debit or their private label debit cards, which the consumer can use to pay with funds from their checking account, and they can also take advantage of rewards and loyalty incentives that are offered by that retailer.”

For years, large mobile carriers like Verizon, T-Mobile and AT&T have offered autopay discounts to incentivize their customers to move away from paper payments in favor of ACH. In addition, the ongoing push for eco-friendly, low-cost solutions has spurred interest in one of the original ACH use cases: recurring bill payments.

“We’ve seen interest in recurring ACH for things like donations and subscriptions, where you have a repeat payment scenario between a known payer and payee that looks a lot like a bill payment,” Herd said. “It’s not quite literally paying a bill, but the payment characteristics look almost exactly like it. That’s a sweet spot for recurring ACH debit in those use cases.”

The peer-to-peer space is another area of growth for ACH. Many P2P users fund their accounts using ACH rails, and several platforms use the ACH Network as their infrastructure. As these services have gained adoption, there has been corresponding growth in ACH usage.

A Lighter Lift

For all of last year’s success, the most significant news from 2024 was the rapid adoption of Same Day ACH. For the first time, total Same Day ACH payment volume surpassed a billion payments for the year—a 45% year-over-year increase.

Roughly 20% of all new ACH payment volume is same-day payments, and Same Day ACH is being utilized in many of the same use cases as standard ACH. There has been volume growth in consumer online payments like bill payments, account transfers, wallet loads, and in B2B transactions.

“It’s no surprise to see such significant growth this past year, the most to date,” Tavilla said. “ACH is already ubiquitous, so all the financial institutions who can currently send and receive standard next-day ACH can also easily accept Same Day ACH, making it a relatively lighter lift. The infrastructure is in place operationally and the financial institutions are already enabled to do that, so I anticipate that the growth will continue in both volume and value going forward.”

Though there has been speculation that faster payments will eventually eclipse more conventional payments, a more likely scenario is that both payment methods will continue to flourish. Depending on the use case, not every payment must be same-day or instant. Many of the core ACH use cases like payroll or bill payment are scheduled payments with known due dates and counterparties, and there may not be a good rationale for utilizing same-day settlement capabilities.

“Even within a standard use case area like payroll, you’ll have cases like payroll errors or payments to temporary workers, hourly workers, and gig workers, where it does make sense to take advantage of faster settlement speeds,” Herd said. “In bill payment, you may have bills that are late or overdue and service is scheduled to be cut off. These are one-off use cases where it may make sense to take advantage of a faster settlement speed.”

Areas of Focus

In addition to driving standard and Same Day ACH adoption, Nacha has three areas of focus for the upcoming year. The first is risk management. The organization’s members adopted a new set of rules that are designed to reduce the growing prevalence of credit push fraud, such as business email compromise.

These rules will require a base level of transaction monitoring on all parties in the ACH Network, except for consumers. While the major provisions won’t go into effect until 2026, Herd recommended that ACH Network participants, including financial institutions, work on implementing their protocols this year to be compliant when the rules go into effect.

A second area of focus is a pay-by-bank project created within Nacha’s Payments Innovation Alliance membership program. Pay-by-bank has become a common industry term over the past several years, but there’s no commonly agreed upon definition among industry stakeholders.

“There is also virtually no consumer recognition of the term, even though consumers are seemingly willing to use and link their bank accounts to make payments and conduct transfers,” Herd said. “The project is intended to forge a participant consensus on what pay-by-bank actually means, to describe use cases, and to identify any novel risks that pay-by-bank transactions might present.”

The last initiative will expand the capabilities for account validation services that Nacha provides through Phixius, their information network. These services can help financial institutions and their customers comply with the Nacha account validation rules for Internet-initiated payments.

“That can help with de-risking ACH payments for a wide variety of use cases, including validating vendor counterparties in the B2B space, and even in payroll in validating accounts for payroll Direct Deposit,” Herd said. “Watch this space this year for news and announcements about the expansion of Phixius account validation services.”

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California’s ban on overdraft fees at ATMs went into effect at the start of the year. Coupled with the Consumer Financial Protection Bureau’s new rule last month limiting overdraft fees to $5, this could signal the beginning of the end for these charges.

The new California law prohibits state-regulated banks and credit unions from imposing fees when consumers attempt to withdraw money but are declined due to insufficient funds. While the federal Electronic Fund Transfer Act already prevents banks from charging overdraft fees on ATM and one-time debit card transactions unless consumers have explicitly opted in, the California law takes this a step further by completely eliminating such fees.

“Consumers receive no service at all in exchange for the fee,” said California State Senator Tim Grayson upon proposing the bill last April. “The fees themselves, which average $34, do not represent the marginal costs to institutions for declining the transaction.”

Banks in California can still charge overdraft fees in other circumstances. Starting 2026, however, credit union overdraft fees will be capped at $14, unless a lower federal limit is set.

The CFPB Pushes Forward

That lower limit may soon become a reality. The CFPB rule capping overdraft fees would apply to banks and credit unions with at least $10 billion in assets. According to the CFPB, this measure is expected to save consumers $5 billion annually in overdraft fees.

The CFPB’s overdraft rule will take effect on October 1. However, the Consumer Bankers Association has filed a lawsuit against the CFPB in Mississippi, claiming that the agency exceeded its statutory authority.

Banks argue that overdraft fees offer protection to their customers. They claim that turning all overdrafts into returned payments could result in late payment fees and potential negative impacts on credit ratings. The CFPB counters that overdraft coverage functions as a loan to the customer, akin to credit cards, and should therefore be subject to the Truth in Lending Act. This law requires the disclosure of all applicable loan costs to borrowers.

Several major U.S. banks, including Ally Bank, Capital One, and Citibank, have already eliminated overdraft fees. Although the rule applies only to larger banks, the industry recognizes that cost pressures may also extend to smaller financial institutions.

“While the rule targets institutions with more than $10 billion in assets, the realities of the marketplace mean that overdraft programs at all credit unions are endangered,” Virginia Credit Union League President/CEO Carrie Hunt said last year. “CFPB again misses the point that not all fees are abusive. They are the cost of doing business.”

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In a dynamic payments market, debit cards can be a bit staid. However, consumers continue to favor their reliability over cash, making them an increasingly popular choice for digital payments in mobile wallets. This year, debit payments are set to advance their digital capabilities, adopt real-time payment use cases, and drive pay-by-bank adoption.

In the 2025 Debit Payments Trends report, Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, explores the evolving use cases for debit cards and examines their role in the future of real-time payments and open banking.

The Digital Option

Integrating debit cards into mobile wallets will be one of the most important trends in the space in 2025. Issuers will need to support digital debit payments, and offering rewards can help sweeten the deal for loyal debit card users.

“As an issuer, being able to provide your card instantly through digital channels to your customers is important, especially to maintain top-of-wallet positioning, meaning being the primary card that the customer uses,” said Tavilla. “Unlike credit cards, most consumers only have one debit card because it’s typically linked to their primary checking account. Debit cards continue to be the primary way to access funds in their checking account.”

It’s inevitable that these cards will increasingly make their way into digital wallets. With push provisioning technology already in place, customers can add their debit card to a digital wallet.

With the growing use of digital wallets, half of issuers plan to adopt the emerging technology of digital debit card issuance. Digital issuance enables issuers to push debit card credentials directly into customers’ digital wallets, providing instant access to their primary account number, expiration date, and CVV. This allows customers with lost or stolen cards, as well as new customers, to immediately use their debit cards for online and in-person purchases.

In addition to improving customer satisfaction, issuers benefit from savings on expedited shipping for new plastic cards, retaining top-of-wallet status, and gaining incremental spending.

The Lure of Real Time

Real-time payments will continue to expand their influence in everyday transactions. As FedNow and RTP adoption expands, financial institutions are discovering more use cases for instant payments. Consumers and businesses alike now expect real-time payment services that improve how they transact and move money. 

“People are used to immediacy and convenience in everything,” said Tavilla. “Having to wait multiple days to have your money moved from one account to another account seems inconvenient.”

Consumers are responding positively to faster options, whether for paying bills or transferring funds between investment accounts. A Fed study found that younger customers see the value of expedited services and are willing to pay for them.

Moving into Open Banking

Open banking has the potential to drive a transformation in pay-by-bank and account-to-account (A2A) payments. Pay-by-bank has already been revolutionizing the A2A payments experience by eliminating manual processes and providing a seamless, secure, and potentially lower-cost payment option for consumers and merchants.

Pay-by-bank allows merchants to deepen relationships and tailor loyalty rewards with personalized customer data. Additionally, merchants are eager to reduce the fees associated with card payments.

However, for consumers to adopt this technology, they need a compelling value proposition. Consumers place high value on and expect loyalty rewards, especially those offered with card payments.

Open banking gives financial institutions greater visibility into customers’ payment behavior and transactions. FIs can efficiently aggregate critical customer data from multiple sources to enhance their product offerings, create new services and solutions, and improve their customers’ financial needs.

Instant payments significantly improve the customer experience. ACH transactions, which can take several days to process, often create friction for customers. They face the risk of insufficient funds in their accounts and must plan more carefully around their available balance, as the process is not necessarily real-time.

Walmart’s Gambit

Walmart has begun offering real-time pay-by-bank options for its online customers. Customers using pay-by-bank will see the transaction reflected in their account balance instantly, and Walmart will receive the funds immediately. The system could become a bellwether for other retailers to provide this service.

“The Walmart real-time payment option provides a better user experience than previously with ACH, but unless there’s any kind of incentive like cash back rewards or discounts that can drive adoption, I don’t really see a compelling reason that people would be running to use it,” said Tavilla. “If someone like Walmart can pull it off, it could have significant influence. As an industry leader in the retail space, if they can do it, other merchants of varying sizes can follow suit.”

Pay-by-bank is gaining traction in other markets, particularly in the UK. Major card networks, like Mastercard and Visa, are making further inroads into pay-by-bank as well. Tavilla recently returned from Thailand, where instant pay-by-bank payments have become widely popular, even among street vendors, via QR codes.

This adoption was driven by very practical concerns. Due to hygiene concerns arising from the pandemic, people were hesitant to handle cash with their bare hands. Additionally, the government provided disbursements to help citizens through the pandemic. To receive these payments, Thai citizens were required to set up a bank account, and funds were directly deposited through PromptPay, Thailand’s real-time payments rail. To support the process, the government offered subsidies to merchants to incentivize accepting instant digital payments.

“I was very impressed,” said Tavilla. “Everybody was using it, from my teenage cousins to my octogenarian aunt and uncle.”

This example shows how quickly debit payments can evolve if the landscape is right. “There’s a lot of potential in improving customer experience and opportunities for innovation in debit payments,” Tavilla said.

The post Debit Payments Could Drive the Future of Open Banking appeared first on PaymentsJournal.

In today’s fast-paced digital economy, instant payments have become a game-changer, redefining the way individuals and businesses move money. Whether it’s splitting a bill, paying a freelancer, or settling invoices in real time, instant payment systems offer speed, convenience, and efficiency like never before. As financial institutions, fintech firms, and regulators push for broader adoption, understanding the benefits, challenges, and future of instant payments is crucial.

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Data for today’s episode is provided by Javelin Strategy & Research’s Impact Note: U.S. Real-time Payments: Full Speed Ahead After Year 1 of FedNow

Instant Payment Use Cases With Best Revenue Opportunities, by Percentage of FIs Selecting Them

• 85% – Loan disbursements
• 73.5% – Invoice payments
• 69.4% – Loan repayments
• 61.2% – Instant funding of newly opened accounts
• 46% – Payroll processing

Source: U.S. Faster Payments Council and Finzly survey, May 2024

About Report

On July 20, 2024, FedNow marked its first anniversary, solidifying its role in revolutionizing instant payments across the United States. Over the past year, this highly anticipated Federal Reserve initiative has not only accelerated the adoption of real-time payments but also contributed to record-breaking transaction volumes across networks like RTP and Same Day ACH. Financial institutions of all sizes are increasingly prioritizing real-time payment capabilities, signaling a fundamental shift in the industry.

Consumers and businesses alike are embracing faster payment solutions at an unprecedented rate. Recent Federal Reserve Financial Services surveys reveal that 74% of consumers and 86% of businesses used instant or faster payments in 2023. Additionally, 79% of consumers and 74% of businesses expect their financial institutions to offer these services, with over half of consumers (57%) planning to expand their use of real-time payments. This surge in demand underscores the necessity for financial institutions to keep pace with evolving expectations.

This impact note explores FedNow’s first-year progress, examining its influence on financial institutions, businesses, and consumers. It also highlights key use cases and challenges shaping the future of real-time payments in the U.S.

The post Which Instant Payments Drive the Most Revenue? appeared first on PaymentsJournal.

In an increasingly digital world, the way we manage money is evolving rapidly, and mobile wallets are at the forefront of this transformation. From paying for a morning coffee with a tap of a smartphone to splitting dinner bills effortlessly through an app, mobile wallets have redefined convenience in financial transactions. But beyond the simplicity of use, what drives consumers to adopt these digital payment solutions?8

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: Imagining a Cardless U.S. Payments Landscape, Part 1

Consumers’ Top 5 Reasons for Using Mobile Wallets, by Percentage

• 44% – It makes checking out quicker
• 41% – It is safe to use
• 32% – I have all my payment info in one place
• 29% – I don’t have to carry all my cards
• 28% – I like to try new technologies

Source: Javelin Strategy & Research, 2024

About Report

Exploring the possibility of a cardless future in U.S. payments begins with understanding what’s at stake. The focus isn’t on the underlying card network systems, which are expected to remain dominant for the foreseeable future due to their widespread adoption, security, and rewards structures. Instead, the question is whether the physical cards themselves—long a staple of point-of-sale transactions—will endure. The U.S. payments ecosystem is both fragmented and highly innovative, with numerous emerging players vying for even small slices of the market. While no single innovation has yet displaced cards, the cumulative impact of these alternatives may eventually signal a shift.

This report from Javelin Strategy & Research examines the evolving payments landscape, leveraging data on consumer behaviors and attitudes toward emerging payment methods. It also highlights how the fragmented nature of U.S. payments offers a measure of protection for traditional cards, which remain the dominant method of payment despite increasing competition.

The post Why Do Consumers Use Mobile Wallets? appeared first on PaymentsJournal.

When it comes to financial advice, teens are increasingly turning to diverse sources that reflect the digital age and their unique life stages. From parents and teachers to influencers and online platforms, young people are navigating a complex web of financial guidance.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: Cultivating Financial Savvy and Customer Loyalty: Debit Products for Kids and Teens

Teens’ Preferred Sources for Financial Advice

• 70% – parents
• 40% – social media
• 27% – other family members
• 23% – friends
• 19% – teachers

Source: T. Rowe Price, 14th Annual Parents, Kids & Money Survey, 2022

About report

Debit products designed for kids and teenagers are a valuable financial tool, enabling parents to guide their children toward healthy financial habits while strengthening the connection between families and financial institutions. Major banks, fintech companies, and peer-to-peer platforms are actively competing in this space, differentiating their offerings through features like account setup, fees, funding methods, and robust parental controls.

A recent report by Javelin Strategy & Research evaluates these products, highlighting their advantages and areas for improvement. This space presents a significant opportunity for financial service providers to support parents in nurturing sound financial practices in their children, fostering stronger family relationships, and engaging younger users with tailored, age-appropriate features.

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In an era where consumer expectations and environmental consciousness are reshaping industries, payment cards are also undergoing a transformation. With an increasing shift toward sustainability, financial institutions and card issuers are rethinking the materials and designs of their cards. From recyclable options to customized designs that reflect consumers’ values, this trend not only minimizes environmental impact but also enhances customer engagement by allowing individuals to make choices that align with their personal and ecological preferences. How many cards to consumers have?

As payment card programs evolve, sustainability is becoming a key differentiator in an industry that traditionally relied on single-use PVC cards. Financial institutions are moving away from this outdated material, instead exploring alternatives like recycled plastics, biodegradable options, and even digital wallets as they embrace greener solutions. Beyond materials, customizable designs offer consumers a unique way to express their values, aligning their financial tools with their personal beliefs. This shift not only reduces waste but also encourages a more responsible consumer culture, with cardholders now empowered to support sustainable practices through their everyday transactions.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: Eco-Focused Payment Cards: It Pays to Be Green.

Mean Number of Cards per Customer, by Type

• 2.6 – Major credit card usable anywhere
• 2.3 – Store branded credit card
• 2.2 – General-purpose prepaid reloadable cards
• 1.8 – Major debit or check card usable anywhere
• 1.7 – Co-branded credit card

Source: North American PaymentInsights, 2023

About Report

As financial institutions and card issuers commit more fully to sustainable practices, they’re introducing card programs that prioritize environmental impact. This includes the use of innovative, recyclable materials for physical cards and unique, customizable design options that allow consumers to express both individuality and eco-conscious values.

The recent report from Javelin Strategy & Research examines how traditional single-use PVC cards, which have long dominated the market, are giving way to more sustainable alternatives. It also explores how card issuers are appealing to environmentally aware consumers through card features that emphasize eco-friendly benefits and personal expression.

The post Top 5 Payment Card Types used by Customers appeared first on PaymentsJournal.

To alleviate the inflationary pressure on consumers and small businesses, the Australian government has announced plans to ban interchange fees on debit card purchases.

The Australian central bank estimated that debit card surcharges cost customers A$1 billion ($671 million) per year. Debit card usage has picked up steam in the country since the pandemic, with the central bank reporting that less than 12% of retail transactions in Australia are made with cash.

These transaction fees cost small businesses in the long run. The Australian government identified instances where smaller merchants were charged twice the amount that large retailers paid for the same transaction.

Sending a Message

It will likely take over a year before the interchange fee ban is implemented, as the rule is still subject to review by the Reserve Bank of Australia. However, the government felt it was the right time to send a message to payment providers that unfair and excessive debit card surcharging must be eliminated.

Australia’s move follows the European Union’s lead, which banned  debit card interchange fees six years ago. Not long after, the UK instituted its own ban on both debit and credit card surcharges.

Seeking Clarity

In the U.S., debit card interchange fees are governed under Regulation II of the Durbin Amendment, which caps the fees at 0.05% of the transaction amount plus $0.21, with an additional $0.01 for fraud prevention measures.

Last year, U.S. regulators voted in favor of a proposal to lower debit interchange fees to 0.04% plus $0.144, as well as an increased fraud prevention rate of $0.013. The changes sparked controversy among merchants and issuers. Many merchants felt the reduction didn’t go far enough, while some issuers were concerned about the potential loss of revenue. Despite  a flood of commentary, there has been no ruling on the reduction yet.

Fees have long been top of mind for merchants, especially credit card interchange fees. After a highly publicized $30 billion settlement between Visa, Mastercard, and merchants was recently shelved, there is still no clarity on when U.S. merchants might see a reduction in credit card interchange fees either.

The post Australia Announces a Debit Card Interchange Fee Ban appeared first on PaymentsJournal.

The U.S. Department of Justice’s pending antitrust lawsuit against Visa follows years of investigation into the company’s business practices. The charges, which may soon be filed, allege that Visa engaged in anti-competitive agreements and monopolistic conduct, primarily within its debit card business. Visa has been a target of DOJ since at least 2021, when it disclosed in a regulatory filing that the antitrust unit had requested information on potential violations.

Visa reportedly controls about 70% of the U.S. debit card market. In a statement to Reuters, brokerage TD Cowen noted: “The concern appears to be that Visa is using volume-based discounts to discourage merchants from diverting debit volume to other networks.”

The DOJ initially launched its debit card probe after Visa’s attempted takeover of Plaid in 2020. At the time, DOJ said that Plaid was planning to launch an online debit product that would compete with Visa at a lower cost to merchants. The acquisition would have presumably derailed those plans.

“Plaid, a financial technology firm with access to important financial data from over 11,000 U.S. banks, is a threat to this monopoly: it has been developing an innovative new solution that would be a substitute for Visa’s online debit services,” the DOJ announced at the time. “By acquiring Plaid, Visa would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers.”

Visa dropped that acquisition in 2021, but it wasn’t enough to ease DOJ’s scrutiny. Since them Visa has acquired several other fintechs, including Tink, an open banking platform and Pismo, a Brazilian cloud-native issuer processing and core banking platform.

Other Issues Arise

That’s not DOJ’s only complaint against Visa. It is also investigating whether Visa used security tokens to prevent other debit cards from competing in online payments. The company reportedly charged retailers higher fees if they didn’t use Visa’s own proprietary tokenization technology. The Dodd-Frank Act requires banks to allow vendors a choice of at least two unaffiliated payment networks.

As is often the case with these charges, Mastercard recently faced a similar situation. Last year, the Federal Trade Commission successfully charged Mastercard with intentionally blocking vendors from routing transactions through third-party payment networks, such as virtual wallets.

The post What Visa Did to Attract Antitrust Charges appeared first on PaymentsJournal.

Youth banking accounts have grown in popularity, and many financial institutions have conducted extensive research to understand kids’ opinions on banking. However, these studies are frequently inaccurate because they overlook the most important factor in kid’s lives: their parents.

In his latest report, Youth Banking That’s Built for Parents, Dylan Lerner, Senior Digital Banking Analyst at Javelin Strategy & Research, analyzes the way financial institutions approach youth banking products and delivers insights on how banks can build youth products that are designed with parents in mind.

Parental Differences

Every year, Javelin conducts a survey of trends in youth banking, but this year there was spotlight on parents’ financial philosophies.

“Javelin surveyed over 3,000 parents and legal guardians about kids’ financial services and had an overwhelming response,” Lerner said. “With so much going on in their lives and so many financial offerings, parents are turning to their banks for help. They want to rely on their financial institution to make relevant recommendations and give them control to introduce each product or service to their child.”

When parents were asked about the appropriate age to introduce various financial services to their children, responses varied widely. The key takeaway is that every parent and child is different. For this reason, banks and financial institutions should be careful when categorizing youth products solely on age.

“There is a major financial institution that offers a savings account for kids under 16 that is themed to Sesame Street,” Lerner said. “Could you imagine a 14- or 15-year-old who is excited to get their first bank account, then they log in and see Sesame Street? It’s completely missing the mark.”

Crawl, Walk, Run

Many youth offerings include features like chore tracking, allowances, and financial literacy lessons. While parents value these aspects, their highest priority is a platform that allows them to send and receive funds easily. Their next priority is having controls in place to prevent their children from making financial mistakes or falling victim to scams.

Along with security and simplicity, parents want a program that helps ease their child into financial responsibility one step at a time, under supervision, before granting full independent access. For that reason, a graduation model like Javelin’s “crawl, walk, run” program is a better solution.

In this model, a parent might start their child with a savings account and teach them how to manage cash. Next, they could move to a prepaid card, followed by a checking account. Eventually, parents can introduce a secured credit card to their child, which reduces the need for parental supervision. Finally, parents can guide their child in building credit with traditional credit cards.

“The ‘crawl, walk, run’ model is about creating a more relevant framework for parents that recommends age-appropriate products for their children through digital functionality,” Lerner said. “It’s about creating a program where parents can guide their children’s financial lives and futures.”

Owning the Strategy

In addition to offering a “crawl, walk, run” model, banks who intend to build lifetime loyalty through youth banking products will have to adjust their strategy. This is partly because of the increased competition in the youth banking space, which includes traditional banks, neobanks, and fintechs like Greenlight and GoHenry.

Greenlight recently made headlines with its deal with U.S. Bank. While the partnership checks the youth banking segment for the bank, the fintech ultimately holds the deposits and manages engagement. Therefore, U.S. Bank does not own these youth banking relationships.

“It’s well integrated and very convenient as far as parents are concerned,” Lerner said. “But it prompts a question as youths reach adulthood: Will they stick with the financial institution or rely instead on the outsourced youth banking player?”

The Power of Starting Early

Another issue with kids’ banking accounts is that they are often free—so long as the child is under 18. Once the child transitions into adulthood, they typically continue using the same account and access, but with a monthly fee.

“Many financial institutions congratulate youths in reaching adulthood by reinstating monthly fees,” Lerner said. “This widespread strategy feels more like punishment than graduation, and it invites young adults to consider other banks, credit unions, and fintechs.”

However, because of the amount of data that young consumers are inundated with, it can be hard for them to figure out their best financial moves. They want guidance, and banks who want to establish loyalty should position themselves as trusted financial advisors.

“That strategy gives banks the best chance of retaining youth customers as they age into adulthood,” Lerner said. “Then as one thing leads to another, a bank can be there in a few years when that customer is looking for their first auto loan, shopping for a mortgage, and all the way into retirement. That’s the power of starting early.”

The post Youth Banking Accounts Should Cater to the Voice of the Parent appeared first on PaymentsJournal.

Italy’s UniCredit has acquired a 9% stake in Germany’s Commerzbank and indicated its intention to seek a merger between the two financial institutions.

UniCredit purchased its shares from the German government, which had been a stakeholder in Commerzbank since the financial crisis. There has been some pushback against the unexpected move by observers who deemed the overnight purchase a clandestine move.

On the other hand, many analysts have applauded UniCredit, believing it could lead to more cross-border bank mergers in the European Union.

“European countries might be partners, but they are still competing sometimes,” said Arnaud Journois, Senior Vice President of European Financial Institution Ratings at Morningstar DBRS, in an interview with CNBC. “I know that from an EU standpoint—policymaker standpoint—there is appetite for more consolidation to happen. However, we think that there are a few hurdles that make that difficult, especially on the regulatory side.”

Facing Resistance

In addition to the standard challenges of moving assets across borders, UniCredit could face resistance from local government officials. Deutsche Bank, the largest financial institution in Germany, might also work to prevent the cross-border merger. Deutsche Bank was previously considered a top contender to acquire Commerzbank, but currently lacks the resources to pursue it.

UniCredit hopes to get approval from the European Central Bank to acquire up to a 30% stake in Commerzbank. The ECB is unlikely to object, as it has been calling for EU institutions to consolidate for some time. EU leaders want to strengthen the region’s financial institutions, which have struggled to keep up with banks in the U.S. and China.

An Ambitious Growth Strategy

There have also been calls among financial leaders for the EU to strengthen its relationship with the UK. Since Brexit, EU merchants, payments processors, and financial institutions have struggled with the regulations and fees associated with doing business in the UK. These appeals followed a meeting between Britain’s prime minister met and Germany’s chancellor to develop an economic growth strategy.

UniCredit’s growth strategy has been ambitious; a merger with Commerzbank would be the largest cross-border merger in the EU since the financial crisis. The move is also strategic for UniCredit, as it acquired its shares in Commerzbank after the German bank struggled and its valuation dipped.

The post UniCredit’s Commerzbank Purchase Could Prompt More Cross-Border Bank Mergers appeared first on PaymentsJournal.

Peer-to-peer (P2P) payments have become a popular method for individuals to transfer money quickly and easily, often in real-time. These transactions are typically facilitated through digital platforms like mobile apps, which offer various payment methods to fund them. From bank transfers and debit cards to digital wallets and cryptocurrency, the ways users can fund P2P payments are expanding.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: Room for One More? Global Real-Time Pay-by-Bank Lessons for the U.S.

Top 4 Payment Methods Used to Fund P2P Payments

• Debit Cards – 46%
• Checking account(s) – 44%
• Credit card(s) – 36%
• Prepaid card(s) – 10%

Source: Javelin Strategy & Research: North American PaymentsInsights, December 2023

About Report

Pay-by-bank solutions are known by various names, including bank transfer, direct debit, and account-to-account payments. In countries like Brazil, India, and Thailand, where real-time, interoperable bank transfers are common, these payment methods have gained widespread popularity due to their ease of use and lower costs for merchants. However, in markets like the United States, where payment cards are more dominant, adoption has been slower.

This Javelin Strategy & Research report examines the rise of real-time pay-by-bank systems across different countries, the key growth opportunities for these payments, and the challenges and potential for expansion in the U.S. market.

The post What Payment Methods Are Used to Fund P2P Payments? appeared first on PaymentsJournal.

The ATM industry has undergone a dynamic shift that has taken automated teller machines far beyond cash dispensation. As the number of bank branches has declined, both banks and consumers expect ATMs to provide a wide array of services that were once only offered at a teller’s counter.

In response to the increased demand for ATM services, financial services company NCR recently split into two separate entities—NCR Atleos and NCR Voyix—with NCR Atleos overseeing the company’s substantial ATM ecosystem. Shortly thereafter, NCR Atleos reached an agreement with BHMI to resell the Concourse Financial Software Suite® as part of its software portfolio.

In a recent PaymentsJournal podcast, Robert Johnston, Product Marketing Director at NCR Atleos, Casey Scheer, Director of Marketing at BHMI, and Elisa Tavilla, Director of Debit at Javelin Strategy & Research, discussed the NCR Atleos/BHMI partnership and its impact on a shifting ATM landscape.

Mirroring Functionality

In addition to the services of a brick-and-mortar bank, consumers increasingly expect ATMs to mirror the functionality of the digital banking environment. Some banks have reached the point where they can replicate their entire mobile banking experience on their ATMs.

“Even as payment and banking behaviors have shifted, ATMs have stayed relevant,” Tavilla said. “About three-quarters of respondents in Javelin’s annual North American Payments Insights Survey said that ease of finding and accessing an ATM significantly affects their satisfaction with their bank.”

Meeting these rising expectations is easier said than done—it requires creating connectivity to systems beyond conventional ATM rails. For example, to give consumers access to all their accounts, the ATM must connect to a bank’s core banking system.

Platforms like Authentic from NCR Atleos can serve as the hub that connects core banking systems, other services within the bank, and even third-party services provided by companies like fintechs.

The Front-End

Authentic is part of NCR Atleos’ ATM Management Platform (AMP) which offers a cloud-based suite of ATM management modules that includes the entire software stack required to operate an ATM. This includes the customer-facing application within the ATM, as well as cash management, device management, and security management software.

A cloud-based solution, Authentic gives banks a high-performance transaction processing and payment settlement solution that’s scalable. It’s also agile, with productivity tools which allow for rapid adoption of new services and products.

“Many of the traditional companies used to embed an ATM terminal handler within their product and now they’re stepping back from that,” Johnston said. “The Authentic platform provides one that’s not just a replacement; it’s a completely new level of technology for that function. We’ve also launched a new card management system based on Authentic that gets us closer to an end-to-end processing environment.”

The Back Office

The functionality of a platform like Authentic is substantially enhanced when paired with a back office processing software solution like BHMI’s Concourse Financial Software Suite. In this model, once a transaction is authorized by a consumer, it flows into Authentic for authorization.

Once authorized, the transaction is immediately loaded into the Concourse transaction repository, along with any corresponding data from card networks like Visa and Mastercard. Concourse operates on a continuous-processing architecture, so it begins processing as soon as this data arrives in the system.

This includes automatic reconciliation of transactions from disparate data sources, the assessment of fees and commissions based on transaction data, and the creation of settlement distributions and funds movement instructions. Additionally, it manages the entire workflow for chargebacks and disputes. 

To give an example, when a customer makes a withdrawal from an ATM, the transaction is authorized by Authentic within seconds. By the time the customer walks away from the ATM, Concourse has already loaded the data from Authentic and determined the settlement impact of the transaction.

Concourse identifies which businesses are to be debited and credited, along with the amounts to be settled for each. It then determines which settlement account and distribution should be used and it creates the funds movement instructions.

“The continuous processing in Concourse is a huge advantage for financial services companies because it ensures they meet the strict service-level agreements and reporting requirements they have with their clients,” Scheer said. “It also gives companies a much-needed real-time view of their transaction data, so they can see the effects on their financial position within seconds of a transaction being authorized.”

In addition, the platform has a configurable rules engine, which gives organizations the ability to make alterations within the system without ever modifying code. That could include altering equivalency checks for reconciliation, changing a settlement distribution, adding a new fee, or modifying the workflow for managing disputes.

Three Segments

Increasingly sophisticated technology solutions in the field have had a dramatic impact on the ATM industry. NCR Atleos has evolved to address three main segments: self-service ATMs, ATM-as-a-service, and retail ATM networks.

The self-service segment includes the  ATM hardware and the range of software services that support it. While ATM hardware might mostly look the same, it is changing, with an increasing uptake of cash recycling technology. Meanwhile, the  software side has not only become more sophisticated, but it has also shifted to a subscription and SaaS (Software as a Service) model.

ATM-as-a-service is a relatively new concept, but as the demands on financial institutions have increased, more banks are adopting it. It allows them to focus on their core activities while leaving their ATM estate to be run by a trusted partner.

“Many banks have partners that run their entire ATM fleet for them, and the stability and predictability of the reoccurring revenue model suits them,” Johnston said. “They like the pace at which new updates and products can be deployed, which wasn’t possible under the traditional capital purchase and perpetual license models.”

The NCR Atleos retail ATM networks are a powerful differentiator, especially for smaller banks and credit unions. After signing up with a network, a bank that previously had a regional chain of ATMs can now have national reach.

Overcoming Processing Bottlenecks

As the ATM industry moves forward, there will be an increasing need for solutions that can deliver the experience that financial institutions and customers demand. One of the biggest issues with current technology is that many front-end authorization systems hit a processing bottleneck in the back office, because most back office systems are batch-oriented and require code revisions when changes are needed.

“That’s not the case with Authentic and Concourse. Concourse’s continuous-processing and rules-based architecture can even keep up with a high-throughput platform like Authentic,” Scheer said. “In a nutshell, combining Concourse with Authentic means that financial institutions can get an integrated, end-to-end payment processing solution.”  

The post As ATMs Do More, Financial Institutions Require Sophisticated Solutions appeared first on PaymentsJournal.

PayPal is continuing its expansion from the digital marketplace to the physical world with the announcement that its PayPal Debit Card can now be used in brick-and-mortar stores. Cardholders can also add the debit card to their Apple Wallet and make purchases through Apple Pay.

This move aligns with PayPal’s broader strategy under new CEO Alex Chriss to position the payment service as a competitor to Visa and Mastercard. Among the user-friendly options available are an auto-reload that automatically tops up the linked PayPal account when the balance drops below a set amount, and 5% cash back on up to $1,000 in purchases in the user’s selected category.

Since joining PayPal from Intuit in 2023, Chriss has introduced several new initiatives. Last October, PayPal announced that customers could now add their PayPal or Venmo credit and debit cards to Apple Wallet. Another addition, PayPal’s Advanced Offers platform, uses artificial intelligence to sift through customer data and give users personalized promotions and cash back rewards. Additionally, in January, PayPal introduced Fastlane, a one-click checkout feature that could purportedly accelerate checkout speeds by nearly 40%.

There have also been stratagems that were less consumer-focused. In May, PayPal revealed plans to use its massive repository of user spending data to create an advertising sales network.

New Ways of Offering Value

Twenty years ago, when retailers struggled to secure merchant accounts for online sales and fraud prevention was almost nonexistent, PayPal offered a secure way for consumers to pay that also helped merchants reduce fraud.

“Those advantages have largely eroded, leaving PayPal struggling with where to go next,” said Don Apgar, Director of Merchant Services at Javelin Strategy & Research. “As it looks for ways to stay relevant, the company is trying to find ways to become more valuable to both consumers and merchants.”

However, focusing on enhancing its consumer-facing offerings now appears to be the more important avenue for the company’s long-term success.

“PayPal has been working for a while to make themselves more of a financial destination for consumers,” said Apgar. “It has struggled to get consumers to view them as a good place to store money, and that’s gotten more challenging with the demise of fintech Synapse and other non-bank account providers.”

“Most consumers only need an account to deposit their paycheck and pay bills and make purchases,” he said. “This new offering brings PayPal closer to matching bank-like functionality, and the aggressive rewards are needed to encourage consumers to give it a try.” 

The post PayPal Continues to Seek Surer Footing in the Physical World appeared first on PaymentsJournal.

Kids under 17 made fewer transactions this summer, though the average spend per transaction was 3.8% higher than last year. According to data from USAA Bank, the average number of transactions per youth checking account decreased by 26% in June and 7.8% in July year-over-year. It’s also worth noting that June had two fewer business days compared to last year.

Though kids might be spending more, they are largely doing so in predictable places. Some of the top 15 retailers for children included gaming providers Steam, PlayStation, and Microsoft and big-box retailers such as Walmart and Target. Other popular summer spending destinations for kids were restaurants like Chick-Fil-A, Starbucks, and Chipotle.

One of the most significant insights from the report was the increased use of peer-to-peer payment platforms like Venmo and Cash App. The average Venmo payment in July was up 8.9% year-over-year, and total spending via Venmo increased by 12.9%.

“Summer is typically one of the busier seasons for youth spending, youth deposits and new youth account openings,” said Lemont Williamson, Product Manager for Youth Product at USAA Bank. “In 2024, we saw continued spending, but, just like with mom and dad, teenagers are being a little more intentional with how often they reach for that debit card or payment app.”

Fraud Risks

Parents are often hesitant to give financial tools to their children, especially as fraud cases continue to rise. P2P apps have been frequent targets for criminals who send manipulative notifications about fake rewards or tech support issues.

Additionally, criminals frequently impersonate many of the popular brands that younger consumer frequent, like Microsoft and Best Buy. According to the FTC, Microsoft impersonation scams cost consumers a total of $60 million in 2023.

Healthy Spending Habits

While fraud will always be a concern, there are substantial benefits to giving children their own cards and accounts. Youth debit accounts provide parents with an opportunity to discuss healthy spending habits with their children, and most accounts for kids come with robust parental controls.

Beyond traditional bank accounts, fintechs like GoHenry and Greenlight offer youth-specific debit products that include interactive lessons on spending. P2P platforms also offer youth products, and though they may not include financial education tools, they can be a great way for introduce kids to the world of digital banking.

The post Summer Spending Trends Show Kids Shopped Less, Spent More appeared first on PaymentsJournal.

The Consumer Financial Protection Bureau evaluated eight national retailers and found that three of them—Dollar General, Dollar Tree, and Kroger—charged their customers fees when requesting cash back at the point of sale.

The CFPB is concerned that these fees disproportionally affect lower-income or rural consumers who may not have limited access to a bank branches or ATMs. The cash-back fees range from $0.50 to $3, but the CFPB views them as another way to “nickel and dime” consumers who are already under enormous economic pressure.

Spokespersons from Dollar Tree and Dollar General responded to CNBC and said their cash-back services were a valuable offering for their customer base, and that they were forced to charge cash-back fees to offset the fees banks charge on those transactions.

A Daily Fixture

Before PIN-based debit cards, grocery stores and discount retailers conducted a significant portion of their business in cash. This meant that armored cars were a daily fixture at these stores, transporting cash deposits to the merchant’s bank. For retailers, this was expensive, as they had  to pay both armored car service fees and the banks’ cash deposit fees.

“Offering consumers cash back on debit purchases was a convenience for consumers, but, more importantly, it reduced the amount of cash merchants had to send to the bank every day,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “Even though merchants were paying higher fees for cash-back transactions, they were saving more on armored car and bank fees.”

Aligning With Demand

As digital wallets and electronic payment methods have proliferated, stores now keep much less cash on hand. However, merchants still need to maintain enough cash to provide change for customers and offer cash back.

“The armored car fees and bank fees become minimal if a store reaches a point where their daily cash inflow and outflow is balanced,” Apgar said. “Of course, no retailer wants to disburse more cash than they take in, thereby incurring armored car fees to have cash brought into the store. In general, merchants levy a cash-back fee to keep demand aligned with supply, and to keep the merchant’s cash handling costs at a minimum.”

Environmental Factors

A retailer’s decision to charge a cash-back fee can be influenced by environmental factors. For instance, if a local bank closes in a small town, it can create a cash demand on local stores that exceeds their cash inflow.

Debit card processing fees can also come into play. Merchants in larger metro areas will see a higher percentage of debit cards that are issued by Durbin-regulated banks, which have over $10 billion in assets. Customers in rural areas are more likely to carry cards from banks that aren’t subject to Durbin pricing and are more expensive to accept, particularly in cash-back transactions.

“Retailers want to provide cash-back availability to their customers, but they also want to optimize both the costs of card processing and the costs of cash,” Apgar said. “These decisions are generally made on an individual store or region level, not at the chain or brand level.”

An Emergency Feature

Some retailers might not charge a fee, but they could limit the amount their customers can receive to $40 or $50 to minimize the cost of cash-back transactions. Regardless, in most cases, merchants aren’t simply tacking on an additional fee.

“With Dollar General specifically, the CFPB notes that lower-income consumers pay what it believes to be a disproportionately high $1 cash-back fee,” Apgar said. “It might seem like the store is stiffing rural, low-income consumers in small towns where the local banks have closed, but it’s more about protecting the store and their employees.”

“Dollar General has made headlines for its often-messy stores, because they usually only have one employee on a shift who has to both stock shelves and ring up customers,” he said. “The last thing the store wants is a register full of cash to meet demand for cash-back transactions. At the same time, they still want to offer the service, so they have priced the transaction so consumers will think of cash back as an emergency feature, not a go-to feature.”

The post CFPB Voices Concerns About Cash-Back Fees at Discount Retailers appeared first on PaymentsJournal.

Science Card has developed a platform that allow UK consumers to fund university research in healthcare, computing, and climate change by making purchases with a Mastercard-powered debit card.

Users can set up a free account and select the projects they want to support. As they make transactions, Science Card will automatically round up the amounts and contribute these funds to the selected projects. Customers can increase their contributions up to 10 times and customize their donations for each project.

“The UK is a world leader when it comes to research and development, with huge potential to advance the areas of health, technology and combating climate change,” said Daniel Baeriswyl, PhD, Founder of Science Card in a prepared statement. “Our mission is to bridge the gap between science and financial services, empowering people to shape our sustainable future, and enabling them to drive game-changing breakthroughs and innovations in science and tech, all by just going about their everyday spending.”

Ambitious Plans

Some of the healthcare projects available through Science Card include research on kidney transplants and cervical cancer treatments. The company also announced support for a research project focused on neurodegenerative diseases like dementia and Alzheimer’s at University College London’s Department of Mechanical Engineering, with a funding goal of £499,955.

For a platform that launched earlier this year, Science Card has ambitious plans—it aims to reach over two million customers and fund millions in scientific research by 2028.

The company hopes to expand its model to Europe and the U.S. and establish partnerships with top universities worldwide. In addition to user contributions, 10% of Science Card’s profits are directed towards its sourced research projects.

For its part, Mastercard continues to partner with businesses that are pushing the envelope on multiple fronts. The credit card giant just announced a crypto debit card it launched in collaboration with Baanx that can convert the crypto in MetaMask’s self-custodial wallets to fiat at the point of sale.

The post Science Card Launches Mastercard Debit Card to Propel UK Scientific Innovation appeared first on PaymentsJournal.

Gen Alpha is expected to top two billion people, making the children born between 2010 and 2025 the largest generation ever. They are also projected to have significant spending power, with Gen Alpha already earning $5,200 annually and having $45 per week in disposable income. Their earning potential will continue to grow as they mature. With this money in hand, Gen Alpha has a use for card products.

While debit products designed for children might make some parents uncomfortable, they can be an effective tool for instilling healthy spending habits at a young age. As Sophia Gonzalez, Debit Payments Analyst at Javelin Strategy & Research, found in her new report, Cultivating Financial Savvy and Customer Loyalty: Debit Products for Kids and Teens, debit cards can also be a way for banks to forge lifetime ties with young customers.

Learning Spending Habits

Gen Alpha will be the most tech-savvy generation, with more resources at their disposal than ever. However, children of all ages still strongly prefer to learn about financial topics through one-on-one sessions with their parents.

“While many parents might want to delay those discussions, there is value in having those conversations early,” Gonzalez said. “As children reach their teenage years, they are more influenced by social media platforms like TikTok and Instagram. While there may be good financial advice on those platforms, many parents would likely prefer to teach life lessons to their children themselves.”

This means the most successful debit products will create an interactive experience that includes parents. Since every family is different, debit accounts should also offer varying degrees of parental involvement in their children’s finances.

Some apps simply notify parents when their child makes a purchase, while others go further by launching interactive lessons for families after a child makes a purchase. This creates opportunities for parents to discuss best spending practices with their children.

Depending on the account, a variety of parental controls are available, like spending limits and real-time notifications. In some instances, parents can restrict a child’s purchases to certain stores or online retailers, or even limit spending to  certain days of the week.

In many of these products, parental controls loosen at age 13 to the give the child more independence and privacy. However, even with high school checking accounts, parents will still receive purchase notifications and a monthly bank statement detailing their child’s transactions.

There are three main types of organizations who offer debit cards for kids. The first are traditional banks like Bank of America, Wells Fargo, and Chase. Next, there are fintech companies like GoHenry, Greenlight, and Jassby that offer kid-specific options. Finally, peer-to-peer platforms like Venmo, CashApp, and Apple Pay also have debit accounts for children.

Traditional Strategies

Traditional banks each have their own strategy when it comes to youth debit accounts, which are typically designed for children under 18 and generally split into two age groups. Some accounts are tailored for tweens and teens ages 12 to 13 and up, while others offer debit products to children as young as six years old.

“While most traditional banks don’t charge fees for youth debit accounts, parents should be aware of any minimum balances, fees, or other restrictions,” Gonzalez said. “Some banks require the parent to have their own account, while others don’t, like Capital One. That type of account could be a compelling option for a parent who banks at a small bank or credit union that doesn’t offer a product for children.”

Fintech Features

Fintechs aren’t traditional banks, but most of the major apps are FDIC-insured and their debit cards are issued by financial institutions. Unlike traditional banks, which transition kids to a standard checking account once they turn 18, fintechs like Greenlight and GoHenry are solely intended for children. Once the debit card expires, the account is terminated.

Since these apps are designed with kids in mind, their debit products offer substantially more features than traditional banks. For example, they allow kids to customize their debit card, a feature that is highly favored by children.

Parents can also enable an investment platform on apps like Greenlight, which creates an opportunity to teach children about stocks and ETFs. Kids can also donate to charity directly from the apps.

“The biggest differentiator for fintechs is they include financial education tools like quick videos or in-app lessons, which children can complete independently or with their parents,” Gonzalez said. “However, with those features comes fees. Each of the fintechs charge a monthly subscription, so it’s up to parents to decide if the features are worth it.”

Navigating Digital Payments

Unlike fintechs, major P2P apps don’t charge fees for their youth debit products. The trade-off is that apps like Venmo and PayPal lack the financial education tools provided by some fintech platforms.

However, these apps do offer investment platforms. Kids receive a physical, customizable debit card, and all P2P debit cards are compatible with mobile wallets.

“One of the compelling reasons to choose P2P platforms is that children learn how to navigate the digital payments world,” Gonzalez said. “If a parent Venmos a child their allowance, the kid learns how to send money to their peers and becomes comfortable on the platform. When they turn 18, they aren’t likely to use PayPal or Apple Pay as their primary bank account, but they will still use it like adults do.”

Deepening Relationships

Youth debit accounts present a compelling opportunity for financial institutions to expand their customer base to the next generation. Additionally, they can strengthen the relationship between a bank and the entire family—as parents are less likely to switch banks if their child also has an account there.

“It’s a way for institutions to become fully enmeshed with families and provide a product that helps to develop a generation of more informed consumers,” Gonzalez said. “If a bank delivers a successful debit product early on, there would be no reason for the young customer to switch to another bank in the future.”

The post Debit Cards for Kids Can Build Healthy Spending Habits and Banking Relationships appeared first on PaymentsJournal.

MetaMask, a popular crypto wallet for users who prefer to manage their assets themselves, is launching a debit card that converts crypto to fiat at the point of sale through partnerships with Mastercard and crypto payments company Baanx.

Lorenzo Santos, Senior Product Manager at Consensys, explained the process in a statement to Cointelegraph. First, users must store their crypto on the Linea network. When the MetaMask debit card is swiped, an on-chain transaction is created, transferring tokens from the customer’s wallet to the “Crypto Life” smart contract.

Once the merchant authorizes the transaction, the smart contract performs the fiat-to-crypto conversion, finalizing the payment over Mastercard’s payment network. Customers will be able to select the type of crypto they want to use for each transaction.

Expanding Reach

The MetaMask card is not the first crypto debit card, but other options have been launched by custodial platforms like Coinbase and Crypto.com. With the MetaMask card, users retain control of their private keys until the time of purchase.

The company will initially launch the new card for a select group of users in a pilot program in the UK and Europe, with plans to expand the product’s reach soon.

According to Cointelegraph, one of the objectives of the project is to foster financial inclusion. The new debit card gives unbanked and lower-income consumers another way to make everyday purchases.

Center of Commerce

Some of the largest financial institutions in the world have made substantial investments in products built on decentralized finance concepts like tokenization and blockchain. Mastercard has been a key player in many of them, including a previous collaboration with Baanx and a  global crypto cross-border payments system in Latin America and Europe.

“Mastercard’s position at the center of commerce affords us a unique vantage point to identify real-world challenges and opportunities to solve for them,” said Raj Dhamodharan, Executive Vice President of Blockchain & Digital Assets at Mastercard in a prepared statement. “We saw a significant opportunity to make purchases for self-custody wallet users easier, more secure, and interoperable.”

The post Consumers Can Spend Crypto at Checkout with Card from MetaMask, Mastercard appeared first on PaymentsJournal.

A recent analysis of debit trends found that active cardholders made an average of 34.6 debit transactions per month last year. The study highlighted a 4% year-over-year increase in both the number of debit transactions and the dollar volume associated with them.

According to the report from Discover-owned PULSE, the majority of debit payments occurred at the point of sale. On average, consumers conducted 30.7 point-of-sale transactions, two account-to-account transfers, and nearly two ATM transactions per month in 2023.

Consumers are also spending more, with the average debit purchase increasing to $46.89, up 3.4% year-over-year. The adoption of digital debit cards is rising, as card-not-present transactions accounted for 36% of debit transactions in 2023. Additionally, Both debit payments initiated by mobile devices and the number of debit cards linked to digital wallets rose last year.

Debit Industry Trends

One of the key trends in the debit industry is digital issuance, where a financial institution delivers a user’s debit card credentials to a digital wallet before a physical card is issued. Digital issuance provides consumers with a debit card they can use immediately, and cuts costs for financial institutions.

Though the debit industry is growing, Discover highlighted three trends that could impact debit issuers. These include the pending reduction in debit interchange fees for issuers with over $10 billion in assets, increased competition from both traditional financial institutions and digital-first upstarts, and the growth of instant payments systems like FedNow and RTP.

Steering Toward Debit

These trends are unlikely to slow the shift toward debit card payments in the short term. With fewer customers carry cash, merchants have begun to steer customers toward debit card payments as an alternative to credit cards, which often come with high interchange fees. Many retailers prefer debit card payments over cash because consumers tend to spend more in card transactions.

As a result, some retailers have begun to offer customers discounts if they use debit cards at the point of sale. That trend has been echoed by cellphone carriers like Verizon and T-Mobile who have steered their customers toward autopay using a debit card or bank account.

While efforts from retailers likely play a part, the most compelling drivers for the increase in debit payments could be the soaring APRs and increasing potential for delinquency that comes with credit cards.

“The PULSE report has intriguing data, but it leaves out the consumer sentiment,” said Sophia Gonzalez, Debit Payments Analyst at Javelin Strategy & Research. “Debit payments could be gaining popularity because consumers would rather use their liquid funds than accrue debt on credit cards.”

“It’s a given that merchants will look for ways to reduce their overhead expenses, including any interchange fees, but it’s not a given why consumers are opting for debit over credit,” she said. “It’s quite likely that the tough economy is deterring consumers from racking up debt, but more research is needed.”

The post As Credit Card Debt Skyrockets, More Consumers Use Debit appeared first on PaymentsJournal.

The ACH Network is set to surpass 33 billion payments by the end of the year, marking a significant milestone. Consumer Internet-initiated payments are set to surpass 10 billion, a remarkable achievement considering the payment method was created just 20 years ago.

In a recent PaymentsJournal podcast, Michael Herd, Executive Vice President of ACH Network Administration at Nacha, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, discussed this success story and the future of the protocol in a crowded payments landscape.

The State of ACH

Instant payments rails like FedNow and RTP have received significant attention over the past year, but this hasn’t slowed ACH’s momentum. In Q2 2024, ACH payment volume increased by over 6% year-over-year, with an average daily payment volume reaching 132 million payments. The total value of payments flowing through the ACH Network topped $42 trillion in just the first half of the year.

“There are a few areas that are driving overall ACH volume growth,” Herd said. “The first is B2B payments, which are growing by more than 10% per year. That’s been a long-standing trend for the last seven or eight years. While there are still pockets of check use in industries like healthcare and higher education, overall check volume seems to be declining and the B2B space is moving towards ACH.”

ACH is also thriving in consumer single and recurring bill payments, as well as account transfers. This volume exceeded 2.6 billion in Q2 2024, up 8.3% year-over-year.

“With increasing automation of business processes and the digitization of payments, both businesses and consumers are looking for greater efficiency,” Tavilla said. “It comes as no surprise that there is now record-breaking volume being transacted over ACH. There’s more data that is available with digital payments and it also helps businesses improve cash flow.”

However, there was a recent slowdown in healthcare claim ACH payments, likely due to a large-scale ransomware attack on the healthcare sector. A major processor in healthcare payments was unable to process claims for a period, leading to a 2.8% year-over-year increase in healthcare claim payment volume in Q2.

Same Day ACH

There’s a strong demand for faster payment settlement, and Same Day ACH has a formidable use case in both consumer and business applications. For consumers, that includes transfers to non-DDA accounts like digital wallets and brokerage accounts.

Same Day ACH supports the two-way flow of funds in B2B, C2B and B2C payments, allowing for both debit pull transactions and credit push payments. This contrasts with many real-time payment networks, which are currently credit push only.

“To say Same Day ACH has a key role is an understatement,” Herd said. “Same Day ACH volume in 2024 is up 47% from last year, including 566 million payments in the first half of the year. April was a banner month, maybe because it was tax month, but there were over 100 million Same Day ACH payments in April. In all likelihood, Same Day ACH payments will exceed a billion this year for the first time ever.”

The payment landscape is trending toward digital and real-time payments. Consumers increasingly demand faster payment methods, and Same Day ACH is a key part of that trend.

A driving factor in the growth of Same Day ACH payments is the ACH Network’s firm establishment. ACH is ubiquitous, and businesses and consumers are familiar with it. Unlike some of the newer real-time payment rails, virtually all financial institutions are connected to ACH, facilitating money movement regardless of the customer’s bank.

“If you’re a business and you haven’t dipped your toe in the faster payments waters yet, start with what you’re familiar with, which is likely to be ACH,” Herd said. “Same Day ACH is just a faster form of what you already know. It’s the same system and the same processes. You will have to adapt to the faster settlement of funds, but ultimately there’s a much lower barrier to entry.”

Improving the Experience

While the ACH Network is well established, there are three key areas where the platform can improve: risk management, exception resolutions and ACH scheduling. To mitigate risks, Nacha members have adopted new rules to raise the bar for payment monitoring among every participant in the ACH Network.

The objective is to better identify and recover from fraud attacks that target ACH and other credit push payments. As fraud attempts rise, it’s crucial to understand how organizations continue to fall prey to criminals. The new rules aim to define the network’s response to fraud and mitigate criminal activity.  

Second, paper-based processes should be eliminated from the ACH payment exception resolution process. Exceptions are payments that don’t process directly through, and resolving those transactions often requires manual intervention from the two financial institutions involved.

The institutions must share documentation and information to resolve the exception, which is often still done through phone calls and faxes. Because the manual methods lessen the efficiency of the underlying ACH process, a better solution is to resolve exceptions through secure online platforms. The Federal Reserve’s exception resolution service and Nacha’s risk management portal are two examples of how exception resolution and information exchange can occur through secure channels.

The last area of opportunity is to expand the current Same Day ACH schedule to align with the close of business in the Pacific Time zone. Currently, the latest time a Same Day ACH payment can be sent is 1:45p.m. PT. There is significant value in supporting Same Day ACH processing up to the end of the business day for Pacific Time zone businesses and consumers.

Lower Hurdle to Entry

Though the ACH Network has room to improve, there is little doubt that ACH will continue to have a place in the payments landscape for years to come.

“It’s not instant,” Herd said. “However, with ACH there is a lower hurdle to entry in nearly every situation. Wherever you’re transacting, wherever your employees have their bank accounts, and wherever your customers are, you’re going to be able to reach them with ACH.”

The post The Ongoing Success Story of ACH appeared first on PaymentsJournal.

Cards made from paper and other sustainable materials continue to gain in popularity. In addition to being ecofriendly, paper cards are more cost-effective and perfect for single-use purposes, such as gift cards.

To explore the future of sustainable cards, Peggy O’Leary, EVP, Prepaid and Digital Solutions for CPI, spoke with Elisa Tavilla, Director of Debit Payments for Javelin Strategy & Research, on a recent PaymentsJournal podcast. They discussed the flexibility available to consumers and providers with sustainable cards and looked at where the industry might be headed.

Paper Power

Sustainable cards are being made from a variety of materials, including paper, wood, recycled PVC and other substrates, as well as recycled plastic. All of these are much easier on the environment than traditional plastic cards.

“We’re seeing a greater effort toward fostering sustainability and protecting the environment across all industries,” Tavilla said. “For example, in the retail industry, there’s been greater attention and efforts toward things like consignment, thrifting, upcycling, focused on zero waste. In the payments industry and financial services, we’ve seen efforts to improve sustainability and help the environment, too.”

Single-use type prepaid cards (that is, not reloadable) are ideal for paper. Visa, Mastercard, and American Express gift products have increasingly moved toward paper cards. They are more environmentally friendly than traditional cards, and they don’t need to be as durable as credit or debit cards that people use more frequently. Paper cards are also more cost-effective for manufacturers than plastic cards.

Sourcing Matters

The market has been pushing for assurances that paper products—and even the packaging around the paper products—come from responsibly sourced materials. 

“At CPI, we’re heavily investing in ensuring our materials are FSC-certified,” O’Leary said, referring to the Forest Stewardship Council, a group whose mission is to promote economically viable management of forests. “We’re making sure that our products have a trackable chain of custody and that our paper products come from responsibly managed forests. Not only are we creating something from a natural product that can break down after use, but the source itself is coming from a more ecofriendly supply chain as well.” 

Financial institutions have seen plenty of new investment around environmental, social, and governance (ESG) initiatives, indicating a desire by consumers to minimize their impact on the environment. Many of these customers may not even realize that the plastic cards in their wallet could be replaced by something more ecofriendly. The effort extends to finding partners to ensure that the types of materials used are responsibly sourced as well. That is an important part of CPI’s manufacturing process.

“From the ESG perspective, CPI’s approach and strategy are very thorough and well-rounded, whether it’s from the cards and the products that they’re producing or the sourcing and the supply chain of the material,” Tavilla said. “Consumers are increasingly environmentally conscious of the products that they’re using and the providers that they buy from. A Javelin survey asked the key factors that users consider when they apply for a new credit card, and 26% said that having the card being made of sustainable material is an important factor.”

Expanding Possibilities

Sustainable card manufacturing allows for more than just environmentally friendly transactions. It opens up a new world of design for the cards as well.  

“We have come up with innovative ideas such as gift packages that would have lights that lit up or scratch-and-sniff options for the holidays where you could definitely smell the peppermint,” O’Leary said. “When you think about what it takes to be able to deliver that kind of innovation, you need an extensive network of suppliers, partners, and innovators behind the scenes that help you bring that all together.” 

It’s a misconception that an ecofriendly production means giving up uniqueness or special designs. CPI has developed hundreds of designs suitable for all kinds of occasions and personality types. Indeed, moving beyond simple plastic can give cards a variety of distinctive tactile feels. Special embellishment and designs focus on strong tactile experiences, which consumers love when they’re shopping for gift cards. 

Similar developments can be expected in gift and retail cards. Even though these cards tend to be single use or limited use, consumers sometimes want them to have a certain degree of durability. Some people might leave a gift card in their wallet or in a drawer for months before they redeem it. Cards with a larger amount of funds attached may be used multiple times. 

There are other reasons to look toward more sustainable products. California, for example, has introduced legislation limiting single-use plastics, which could have ramifications across the country. Obviously, it would not be efficient for card manufacturers to produce one card to meet the standards of one state and different cards for other areas. The result is likely to be a standard based on the most restrictive state laws.

For card providers and their customers, these trends are likely here to stay.  

“From a cardholder perspective, it is ensuring that you’re meeting the new requirements that are coming more broadly from your market,” O’Leary said. “From a business perspective, businesses are taking steps to improve their impact on the environment. Overall, you can drive a really positive business outcome, not only from an investment perspective but also to win in the market.” 

The post Paper or Plastic: Sustainable Cards Are the Wave of the Future appeared first on PaymentsJournal.

In the ever-evolving landscape of retail, understanding consumer preferences for payment methods at physical locations has become crucial for businesses aiming to enhance the shopping experience and increase customer satisfaction. As digital wallets, contactless cards, and mobile payment solutions continue to gain traction, traditional cash and card payments remain significant.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: A New Era of Chargeback Management

Preferred Payment Methods at Physical Locations

• 39% – Major credit card
• 31% – Major debit card
• 15% – Cash
• 3% – Contactless at the POS
• 2% – Store-specific card

About Report

The chargeback—a forced refund to a cardholder’s account that is initiated by the issuing bank—turns 50 years old later this year. The maneuver, legislated into existence to foster trust in card payments at a time when few consumers were using them, has aged into a management headache for merchants. In an age of proliferating card usage and ongoing growth of e-commerce channels, chargebacks are easy to initiate and easy for consumers to win. Merchants, meanwhile, need help with the complex process of challenging chargebacks, heading them off in the first place, and avoiding the escalating consequences of a high chargeback rate. It’s an endurance test most merchants are not equipped to navigate alone. 

This Javelin Strategy & Research report looks at where chargebacks started out and how they have evolved into a present-day challenge for all kinds of merchants. It lays out the stakes for harboring an unchecked high chargeback rate, denotes strategies for communicating with consumers to reduce instances of so-called “friendly” fraud, and examines the value of dedicated service providers versed in representment and building strategies to stem the chargeback tide.

The post What Are the Preferred Payment Methods at Physical Locations? appeared first on PaymentsJournal.

In an era defined by rapid technological advancements and shifting cultural norms, Generation Z, born between the mid-1990s and early 2010s, is redefining consumer behavior. As this tech-savvy and socially conscious cohort enters the workforce and gains purchasing power, Gen Z’s spending habits are attracting attention.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: Get Out Your Wallet: Gen Z Debit Payment Preferences

Gen Z’s Self-Reported Percentage of Spending (Monthly)

• 52% – Household bills and expenses
• 44% – Clothes and accessories
• 39% – Travel
• 37% – Going out/entertainment
• 37% – Food delivery/eating out

About Report

Generation Z—those born from 1997 to 2012—is coming of age and moving steadily toward greater financial maturity. Members of this generation differ from their elders in significant ways, including a strong preference for debit and digital payments, a greater propensity for saving, and an approach to shopping that is heavily influenced by social media and a desire to shop with merchants that align with their values. 

This Javelin Strategy & Research report delves into the characteristics of this generation and what drives the payment behaviors of its members. Generation Zers live digitally and expect to be able to shop according to that lifestyle, with digital payments that are at the ready when the moment to buy arrives. As Gen Zers age, some of their habits will no doubt change, but the digital-first approach is hard-wired into them. 

The post Top 5 Categories for Gen Z Spend appeared first on PaymentsJournal.

Boston T riders will be able to tap their contactless credit or debit card, mobile wallet like Apple Pay or Google Wallet, or Apple Watch to pay for the bus and subway.

Beginning on August 1, the MBTA will roll out its long-awaited new fare system that accepts contactless payments onboard buses, Green Line trolleys, Mattapan trolleys, and all gated subway stations.

Commuters and visitors will be able to tap to pay for their transit fare as they would do for any retail purchase. T riders will no longer have to endure common pain points associated with public transit, such as missing a bus or train while waiting in line to buy or add money to a fare card, worrying about not having exact change or enough cash, and trying to figure out the fare system. With contactless payments, transit riders can simply tap to pay and be on their merry way. Traditional fare payment options, including the CharlieCard, will continue to be accepted.

A significant majority (94%) of transit riders expect public transit to offer contactless payments, according to Visa’ global mobility survey. The MBTA joins other major transit systems like New York’s MTA and London’s TFL in implementing a contactless fare system. The MTA’s OMNY contactless fare system has been very well received by straphangers in the Big Apple with a customer satisfaction rate of 85%. Over three-quarters of New York City Transit regular fare customers are now tapping to pay, and nearly 70% are tapping with their smart device. In London, contactless payments now make up more than 70% of pay-as-you-go rides on TFL buses, and over a third of adult contactless single-ride fares on the Tube are now made using a mobile device.

Contactless payments help transit agencies reduce costs associated with cash handling and proprietary fare cards, like the CharlieCard and Oyster cards, which are expensive to print and encode. Ticket vending machines require heavy upfront investments and carry additional maintenance and repair costs. The MBTA also expects contactless payments to make boarding buses and trolleys smoother because riders will be able to use all doors to climb aboard instead of only the front door. Passengers will also be able to pay near-instantaneously with a credit or debit card or mobile device instead of adding cash value at the fare box on board.

Initially, MBTA customers will only be able to pay per ride using contactless payments. T riders with weekly or monthly passes will need to continue to use their CharlieCards. Gradually, the MBTA will likely introduce other capabilities, such as fare capping, which lets customers get the same benefits of a daily, weekly, or monthly pass without paying advance. For example, in New York, OMNY caps weekly fares at $34 (the same price as a weekly Metrocard) when a customer taps the same card or device for every ride. In the meantime, T riders can register for a Charlie account to view trip history, manage contactless cards or devices used for payments, and set preferences for language, accessibility, and notifications.

The post T Riders Can Soon Tap to Pay for Bus and Subway Fares in Boston appeared first on PaymentsJournal.

Payments data has become a crucial cornerstone for any company that processes transactions. Despite the availability of powerful analytics tools, many companies can’t leverage the true potential of their payments data because their information is siloed and scattered across multiple systems.

In a recent PaymentsJournal podcast, Mike Meeks, Chief Technology Officer at BHMI, Jon Protaskey, Director of Software Engineering at BHMI, and Brian Riley, Co-Head of Payments at Javelin Strategy & Research, discussed the approaches that enable companies to tap into the power of payments data.

Transforming Transaction Data

Payments data is consolidated through a secure centralized repository where transaction data is stored, managed, and accessed. The first step is to pinpoint all relevant sources, such as data from authorization systems, information from external transactional systems, and even data from internal CRM systems.

Then the data is extracted using methods like APIs, parsing of structured files, and database queries. That captures a wide variety of payment-related information like transactions, customer details, and financial records.

After extraction, the data is transformed into a standardized format and enriched, where necessary, with details like client participation, programs, relationship with other participants, and billing terms. The data is then integrated into a central repository.

“There was a time when it made sense to have payments data in silos, whether it be for security reasons or simply the limitations of technology,” Riley said. “However, now being able to bring it all together into an actionable form is truly transformative.”

Key Competitive Advantages

Throughout the process, consolidation providers should prioritize data governance, delineation of ownership, implementation of access control, and compliance. Once the consolidation is complete, businesses will have several key advantages.

“The biggest advantage of a consolidated payments data platform is it gives companies a uniform enterprise view of all their transactional data,” Meeks said. “It’s a challenge to implement an enterprise-wide data management strategy that provides access to all payments data regardless of transaction type or source. However, the centralized viewpoint makes it worth the effort.”

A data repository can eliminate challenges like duplicate data or missing data due to silos. It also allows businesses to normalize data from disparate sources to make it more understandable. Payments data consolidation sets up companies to leverage advanced analytics and reporting tools that can generate real-time insights. That enables informed decision-making and improves operational efficiency.

As data is ingested, a company could calculate fees, reconcile transactions from different sources, and link transactions from diverse sources to create transaction life cycles. The business can also process disputes as soon as the data arrives.

“On top of those benefits, there’s a substantial cost savings that goes along with it,” Protaskey said. “Eliminating data silos from redundant systems reduces overall maintenance costs and lowers a system’s complexity. It allows companies to allocate resources more efficiently and focus on innovation and value-added activities, instead of wrangling data and reconciling disputes.”

The Right Repository

Payments data consolidation hinges on the data repository, so it’s important to select the right platform from the start. The process starts with examining disparate systems and detailing how they will be tied together.

“It takes time and expertise to do it right, but putting in the effort to create an effective system is just good data hygiene,” Riley said. “The beauty of the process is once it’s set up properly, the inputs become routinized and the structure can be repeated, or enhanced, as time goes on.”

Because there are a wide variety of data sources that all have unique characteristics, automating data loading can have a significant impact. It simplifies the data-gathering process and takes the load off operations staff.

Data should be continuously loaded through a real-time feed or by chasing an authorization log file. That allows a business to substantially improve their ability to meet tight SLA windows at the end of the business day. It’s also important to have a repository that can ensure data quality. If a transaction record doesn’t pass validation checks, the system shouldn’t stop processing.

“A best practice is to set the transaction aside into an exception list, continue processing, and notify operations staff,” Meeks said. “Oftentimes, it is a simple issue like a new merchant has been onboarded, but their configuration wasn’t entered into the system. Operations staff can correct the issue and resubmit just the exceptions for processing.”

Right for the Future

Another important aspect of a data repository is that it’s scalable, and not just in terms of supporting increased transaction volumes. The system should also support constantly evolving payment types. For instance, the protocol for card transactions is ISO 8583, but systems should also be able to handle ISO 20022, which supports the emerging real-time and cross-border payment types.

“It’s important to address your current needs, but it’s just as important to get it right for the future,” Protaskey said. “The repository should be flexible enough to leverage future technologies like AI and custom data analytics tools. It’s difficult in a constantly evolving environment, but you don’t want to be stuck in a system where you can’t move forward as the technology and the industry advances.”

Payments have a short SLA, and companies need to respond quickly to complete transactions. That means a data repository shouldn’t impact the performance of the system. To that end, the repository should be externalized from the production system so it can be managed independently and leave payments unaffected.

If it’s externalized, however, the repository should have a secure PCI compliant user interface where authorized users can navigate and find payment data in one location. In addition, an external data repository should have extensive security protocols, so there’s no way for an unauthorized user to access the data.

Overall, consolidated payments data repositories can improve compliance, mitigate risk, perform back office processing, and even optimize marketing functions.

Learn more about BHMI’s Concourse Financial Software Suite

The post The Competitive Advantages of Payments Data Consolidation appeared first on PaymentsJournal.

The sun is out, school is out, and summer vacation season is in full swing. Whether you’re jet-setting to Paris for the 2024 Olympics or staycationing in Seattle, mobile payments can make your travels smoother and safer.

According to Visa, digital wallets have become an essential part of the travel experience for many, with 74% of U.S. travelers now using them on their trips.

Globetrotters traveling by air can scan their mobile boarding passes for most airlines at many U.S. and international airports. New Yorkers can now also use their mobile driver’s license for identity verification at JFK and LaGuardia Airports, and at 26 other airports where TSA has credential authentication technology units. Other states offering digital IDs include Arizona, California, Colorado, Georgia, Iowa, Louisiana, Maryland, and Utah.

Once travelers reach their destination, mobile payments make getting around via public transit easier and more convenient. In cities like Chicago, London, Lyon, New York, Singapore, Vancouver, and soon Boston, transit riders can simply tap their contactless credit or debit card, mobile wallet or smartwatch to pay for fares. Visitors to Paris can add their Navigo card to their Apple Wallet and Samsung Wallet to ride the metro, train, and bus as explore the French capital. Similarly, tourists and commuters in Seattle can now add their ORCA card to Google Wallet to travel around Puget Sound.

Travelers can also collect extra loyalty rewards when they use mobile payments while they’re on the road. Caffeine lovers can earn additional Starbucks Rewards Stars, Marriott Bonvoy points, and Delta Sky Miles when they link their loyalty accounts. Additionally, travelers can use their mobile phones as their room keys at some hotels. Guests staying at Strawberry’s Clarion Post Hotel in Sweden can add an NFC mobile hotel key to Google Wallet or Apple Wallet and tap to unlock their room. Once the guest checks out, the key is automatically deactivated. Hilton and other hotels offer mobile room keys using Bluetooth technology.

Contrary to popular belief, mobile payments are more secure than card payments. Mobile and digital wallets leverage tools, such as tokenization and biometrics to protect card account data and provide stronger authentication. If a traveler, unfortunately, loses their mobile phone or card while on vacation, they can immediately block their mobile wallet and request a replacement card.

Visa recently announced a new Digital Emergency Card Replacement service that promptly delivers a digital replacement card via text or email to the cardholder, who can authenticate and add the new card into a digital wallet upon receipt. “We’ve all felt that moment of panic while on vacation—the loss of a card and the feeling of being stranded,” said Kathleen Pierce-Gilmore, global head of Issuing Solutions at Visa in an article. Visa’s new service allows issuers to offer instant, secure access to funds for their customers when they travel.

Spend more time making memories with your family and friends this summer, and less time waiting in lines to pay for food, souvenirs, transportation, and other purchases. Digital payments improve your vacationing experience and peace of mind.

The post Make Vacationing Easier This Summer with Digital Payments appeared first on PaymentsJournal.

Cashless payments are becoming more prominent globally, though there are significant variations across countries.

Belgium, Brazil, China, the Czech Republic, France, Germany, Japan, the Netherlands, Spain, and the U.S. are best positioned to go totally cashless. In lieu of cash, consumers increasingly use debit or credit cards, as well as payment services such as Apple Pay, PayPal, Venmo, and Zelle. Cashless payments have proven to be more convenient, reduce certain types of crime, and simplify accounting processes.

Research shows that digital payments are changing how consumers spend their money. A new study from the University of Adelaide and University of Melbourne in Australia analyzed spending habits across 17 countries and found that cashless payments are making consumers spend more.

The Rise in Cashless Payments

Using a card or tapping a phone at a point-of-sale eliminates the need for consumers to carry or handle cash, and relieves merchants of cash handling tasks. Cashless payments remove friction at the point-of-sale. However, without being able to see how much they are spending—how many bills and coins they are physically handing over to the cashier—some consumers are becoming less strict with their budgets.

This is positive news for merchants but concerning for consumers. Some merchants have been reluctant to prioritize digital payments over cash due to processing costs. However, with the potential for increased customer spend, merchants can justify the expense. Consumers must beware.

The difference in consumer spending was small, but mighty. The most noticeable difference in spend behavior was rooted in purchases meant to signal status, such as luxury branded clothing and jewelry. There was little difference in spend behavior when comparing donations and tips.

Researchers from the study recommend that consumers carry cash instead of cards because it serves as a means of self-control. When consumers can see how much they have budgeted and only carry around that exact amount in their wallet, it is impossible to overspend. Credit cards with large limits, debit cards linked to checking accounts, and buy now, pay later services enable large ticket purchases and plant just enough temptation for the consumer to splurge.

The transition towards a cashless society is inevitable. Most of the sentiment around cashless societies is positive, promising a brighter future with reduced corruption, easier checkouts, and automated accounting. However, the downsides to a cashless society often go overlooked. Cashless societies reduce consumer privacy, expose consumers to potential hackers, magnify economic inequality, and change consumers’ spending habits.

The post Cashless Payments’ Influence on Consumer Spending appeared first on PaymentsJournal.

Coffee enthusiasts and globetrotters can now earn even more loyalty points for their daily cups of Joe and hotel stays. Starbucks recently announced a new collaboration with Marriott, allowing travelers to earn more Starbucks Stars and Marriott Bonvoy points. Starbucks Stars can be redeemed for free beverages, food, and other products. Marriott Bonvoy points can be redeemed for stays and experiences at Marriott Bonvoy’s global properties and destinations.

Customers who are members of both programs can link their loyalty membership accounts to take advantage of this partnership. According to Starbucks, U.S. rewards members earn double points (stars) when they make Starbucks purchases during their stay at Marriott Bonvoy hotels. Additionally, there will be designated weeks throughout the year, with the first starting on July 8, when Starbucks Rewards and Marriott Bonvoy members will earn 100 Marriott Bonvoy points when they make qualifying transactions at participating Starbucks locations.

Starbucks also partnered with other external rewards programs, including Bank of America and Delta Airlines. These collaborations enable Starbucks customers to earn loyalty points for using their Bank of America credit and debit cards, and for Delta Airlines and Marriott Bonvoy purchases, and vice versa.

“Starbucks Rewards members can link their account with each of our loyalty partners, including our newest Marriott Bonvoy, to unlock more value and earn benefits simultaneously,” said a Starbucks spokesperson via email to The Points Guy. Starbucks Rewards members can “double dip” by linking their account with Marriott, Delta, and Bank of America accounts to earn extra Stars and rewards points.

By partnering and integrating loyalty programs, businesses can deepen relationships and enhance loyalty with their customers, especially when their products are complementary. In addition to the new partnership announced last week, Starbucks and Marriott have had a long-term licensing agreement to open Starbucks locations in select hotels across the U.S. and Canada since 2000. The latest collaboration makes it even easier for Starbucks and Marriott Bonvoy members to earn additional rewards points. Similarly, Starbucks is expanding its mobile-ordering capabilities to more airport locations this year, which allows Delta frequent flyers to collect more stars on their travel days.

Starbucks Rewards program continues to grow in popularity. In Q2 FY2024, Starbucks Rewards membership in the U.S. grew 6% over the prior year to nearly 33 million 90-day active membership.  

The post Richer Rewards Are Brewing for Starbucks and Marriott Customers appeared first on PaymentsJournal.

Debit cards have become an integral part of modern financial transactions, offering consumers a convenient and secure way to access their funds directly from their bank accounts. Unlike credit cards, which allow for borrowing money up to a certain limit, debit cards enable users to spend only what they have, promoting better budgeting and financial discipline. With the added benefits of wide acceptance, minimal fees, and advanced security features, debit cards have emerged as a preferred payment method for everyday purchases.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: Retailer Debit Cards: Why Doesn’t Everyone Do It?

Top 5 Retailer Types Where Debit Cards Are The Preferred Payment Method

• 40% – Supermarkets/grocery stores
• 36% – Pharmacies/drugstores
• 34% – Mass merchandisers/big-box retailers
• 33% – Gas Stations
• 33% – Warehouse/club stores

About Report

Consumers are on a quest for value and convenient ways to pay. Retailers and merchants want to boost sales and cut costs. These interests can get together through retailer debit cards that leverage consumer bank accounts via store-branded apps and payment cards. These payment vehicles are especially attractive for buyers and sellers of everyday goods like groceries and gas, and combined with loyalty and rewards programs they can be drivers of customer retention and adoption of payment methods that are beneficial to merchants. 

This Javelin Strategy & Research report looks at how consumers’ payment habits are shifting, innovative ways retailers are guiding their customers to these branded debit products, and what should be considered when such programs are implemented.

The post Top 5 Retailer Types for Debit Cards appeared first on PaymentsJournal.

Everyone loves to save, shoppers and retailers alike. While inflation rates and prices have come down somewhat, consumers still prioritize discounts and ways to save money. Merchants are also continuously looking for ways to reduce payment processing costs.

From small local businesses to large retail brands, merchants are finding innovative ways to incentivize customers to use alternative, lower-cost payment methods to credit cards, such as cash, debit cards, and pay-by-bank.

Payment Preferences

Merchants tend to have a love-hate relationship with payment cards. Consumers prefer credit card payments because they are convenient to use, universally accepted, and often come with generous rewards. Studies show that shoppers also tend to spend more with cards than cash. However, swipe fees amounting to 2% to 4% per transaction have long been contentious for merchants and retailers.

More merchants are offering lower prices to customers who use cash rather than credit cards for purchases. Some businesses market the savings as a cash discount, while others charge a card service fee. Regardless of terminology, the cash discounts typically run about 2% to 4% on purchases. Nonetheless, the share of cash payments with a discount is still low—only about 3% of all cash payments in 2022, according to data from the Federal Reserve Bank of Atlanta. Additionally, there are costs and risks associated with accepting and processing cash for merchants.

Increased Debit Usage

Shoppers are increasingly using credit and debit cards and mobile payments for in-person transactions at grocery and convenience stores, restaurants, gas stations, and general merchandise locations. Many consumers do not even carry cash anymore. According to the Federal Reserve’s 2024 Findings from the Diary of Consumer Payment Choice, debit cards are now used as often as cash for in-person payments under $25.

The largest U.S. mobile carriers, T-Mobile, AT&T, and Verizon use discounts to steer customers toward using their debit card or bank account (ACH) to pay their monthly bills automatically. T-Mobile’s approach removes the $25 monthly autopay discount entirely if a customer does not use a debit card or bank account. AT&T, instead, reduces the monthly discount from $10 per line to $5 per line if the customer continues to use a credit card for autopay. “Like others in the industry, we are making this change in response to credit card fees,” an AT&T spokesperson said. Verizon requires customers to enroll in autopay and paper-free billing using their bank account or Verizon Visa card to qualify for the $10 per month discount.

For most Americans, gas is a regular and necessary purchase, and consumers tend to be sensitive to gas prices. According to a GasBuddy survey, 92% of consumers reported shopping around for the best gasoline price before filling up. Many fuel retailers offer mobile payment apps with exclusive discounts for ACH payments. Cumberland Farms, Chevron-Texaco, Circle K, Exxon Mobil, and Valero all provide discounts for ACH mobile payments. Discounts range from 5 cents to 10 cents per gallon. Some merchants also offer bonus savings for enrolling in their mobile payment/loyalty program and other discounts for in-store purchases.

With cash usage in decline, merchants and retailers can encourage shoppers to use convenient debit cards, ACH, and mobile payment options with discounts. Given many consumers do not carry cash, having to go out of their way to withdraw cash or pay out-of-network ATM fees, could mean the cash discount would not be worth the savings.     

A Look Ahead

Growing adoption of real-time payments and open banking in the U.S. could enhance the pay-by-bank customer experience and help merchants bypass card payments and swipe fees. Several retailers are exploring real-time pay-by-bank payment options using FedNow and RTP. Fiserv is lining up clients, including Walmart, Kroger, and Sunoco, who want to add a pay-by-bank option for consumer payments.

Visa is also preparing to offer pay-by-bank services in the U.S. following its extension of such services in Europe via its acquisition of the open banking firm Tink, which enables banks, merchants, and fintechs to move money. J.P. Morgan Payments’ pay-by-bank solution leverages Mastercard’s open banking technology to allow billers to let their customers to pay bills directly from their bank account. Verizon plans to pilot J.P. Morgan Payments’ offering with U.S. customers.

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Airlines worldwide are increasingly accepting alternative payment methods for both ticket purchases and in-flight amenities. However, they are still struggling to provide enough alternatives to meet their passengers’ needs. 

Data from CellPoint Digital, titled Payments Come of Age: A Global Study of Airlines and Their Payment Technology Needs and Challenges, found that 62% of airlines already accept alternative payment methods. Indeed, 30% of respondents had implemented buy now, pay later (BNPL) services, while nearly as many have used online bank transfers (26%) and offer pay-by-link (24%).

These features are often region-specific. More than a third of airlines serving Latin America, for example, are investing in installment payment capabilities, which is a greater share than their European and Asian counterparts, responding to the demand for BNPL in the Latin market. 

At the same time, many respondents felt there weren’t enough alternative payment methods available, and that was a concern. Only 11% of those surveyed said they could accept newer alternative payment models (APMs) like open banking and account-to-account payments. This is especially concerning in markets like Southeast Asia, where APMs are increasingly used for travel purchases.

Another significant concern for airlines is the lack of foreign currency support. Offerings such as dynamic currency conversion and multi-currency processing were frequently mentioned as areas needing improvement.

Investing in Upgrades

In the immediate future, more than a third of respondents said they plan to invest in support for digital wallets like Apple Pay and Google Pay within the next year. They are also looking at split payment capabilities, stored cards, and currency conversion.

It’s clear that many airlines are considering upgrading their payment capabilities, with 77% of respondents saying they are not happy with the flexibility their platform provides. While less than half of airline professionals are “very” satisfied with their payment technology, only 23% said they’re confident about making changes on their own.

Several factors are preventing airlines from making payment improvements. Nearly half of the airline professionals surveyed said the top reason preventing them from switching to a new vendor for their payment technology is the potential complications to reporting and reconciliation processes.

Reconciliation, which encompasses extracting, aggregating, and comparing transaction records for accounting purposes, can be a particularly acute problem for airlines. They need to be able to accept payments in multiple channels and currencies and by multiple methods—and settle transactions in multiple geographies. The next generation of airline payment processors will have to be sensitive to this concern.

The post How Airlines Are Evolving Their Payment Capabilities appeared first on PaymentsJournal.

This past Sunday, comments were due in response to the Federal Reserve’s proposed changes to Regulation II of the Durbin Amendment.

Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research recently covered the initial proposal.

A Quick Recap

In October 2023, the Federal Reserve Board voted in favor of a proposal to lower the maximum interchange fee that debit card issuers (with $10 billion or more in assets) can charge merchants to process card transactions. The current interchange cap per Reg II is set at 0.05% + $0.21, plus $0.01 for fraud prevention. The interchange rate would be lowered to 0.04% + $0.144, and fraud prevention would be raised to $0.013.

Since the inception of the Durbin Amendment nearly a decade ago, no changes have been proposed until now. This proposed change is the first of its kind. After publishing the proposed changes, the Fed sought public comment on the Federal Register Notice: Debit Card Interchange Fees and Routing. The original deadline for public comment was set for February 12, 2024; however, given the complexity and importance of the issue, the Fed extended the public comment period to May 12, 2024. Merchants and issuers alike have been battling over interchange fees for decades, and a flood of comment letters was to be expected.

Considering Next Steps

The Federal Reserve Board received over 2,500 response letters regarding the proposed lowering of the current interchange cap—from both merchants who approve the change, and issuers who depend on the interchange for revenue. Large players have stepped up to make their stances clear.

On the merchant side, the National Retail Federation questioned if the changes would still leave the cap too high. They encouraged the Fed to consider routinely updating the interchange cap in years to come. In the same vein, the Merchants Payments Coalition supported the rate reduction and proposed lower rates.

On the issuer side, the Iowa Credit Union League feared there wasn’t enough of a distinction between smaller, financial institutions and their larger, national peers. Their comments warned of financial detriments to credit unions. Many financial institutions banded together to produce a joint-effort letter to the Fed displaying their disproval, including the American Bankers Association, Credit Union National Association, National Association of Federally-Insured Credit Unions, Bank Policy Institute, National Bankers Association, Consumer Bankers Association, Mid-Size Bank Coalition of America, Independent Community Bankers of America, and The Clearing House.

Interestingly, a third-party group, the International Center for Law & Economics, suggested the Fed should drop the regulation altogether. They sighted free markets as the best mechanism to appropriately set fees.

The Fed is to read each of the 2,500-plus responses and take them into consideration as they proceed with making a final decision on the proposed changes. The final decision has the potential to shake up the payments industry similarly to what was witnessed with the original Durbin Amendment.

The post Fed Receives Overwhelming Response to Proposed Interchange Fee Changes appeared first on PaymentsJournal.

The United States is a unique banking market, with more than 11,000 financial institutions and some of the most stringent regulations in the world. With the launch of FedNow last year, The Clearing House’s RTP network, and a new messaging standard in ISO 20022, U.S.real-time payments have finally arrived. There’s only one problem: The infrastructure here is not ready. 

In a recent PaymentsJournal podcast, Himanshu Pujara, Managing Director for Euronet Worldwide, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, spoke about how instant payments are happening around the globe today, and how banks can develop payment platforms that take advantage of increased standardization and interoperability, as regulatory bodies push for a more interconnected financial ecosystem.

Playing Catch-Up With the World

The state of global payments varies depending on where you look.

“We’ve connected to many RTP networks and have been processing instant payments for over a decade now,” Pujara said. “In India, the Unified Payments Interface has been a game-changer, enabling billions of transactions monthly with its simple, mobile-driven approach. Then there’s the EU’s SEPA Instant Credit Transfer, which streamlines cross-border payments efficiently within Europe. In Brazil, the Pix system has revolutionized the speed of payments, quickly becoming a mainstay in their financial ecosystem. We process millions of transactions every single month for our customers in the emerging markets, and in all of these markets real-time payments has become a dominant form of payment in the day to day lives of consumers.”

These global trends have not yet matured in the U.S. market. While the United States has had limited access to instant payments in the past, FedNow has sped up the timeline for banks to offer such payments to consumers and merchants. This gives banks the opportunity to enhance transaction efficiency, financial inclusion, and economic growth.  

Seeking Harmony

Although there are different U.S. regulatory and market environments, the future points toward more collaborative efforts to harmonize regulations and technical standards, making it easier to transact instantly and across borders. Financial institutions have the opportunity to use the real-time payment rails to launch innovative use cases for customers such as insurance companies or payroll service providers.

Under the new rails, banking teams could offer a cash management solution or a liquidity management solution to make sure the merchants they support get their funds in real time. In other parts of the world, fintechs have taken the lead by converting their closed-loop stored-value wallet propositions and making them interoperable on the back of real-time payment systems. U.S. fintechs have the same opportunity. 

Architecture and Use Cases

The challenges lie primarily with legacy applications and their architecture. How does a bank make sure it’s able to connect to these systems in the shortest possible timeframe, knowing there will be new services or functionalities launched by the Fed or TCH? And how do consumers recognize the benefits of adopting instant payments?

“We all know consumers in the U.S. are very card-centric,” Tavilla said. “They like using credit and debit cards and have been accustomed to their rewards and incentives, as well as the purchase protection that cards provide. It’s important for providers to offer comparable benefits to give consumers a reason to convert from card payments to other types of payments.”

U.S. consumers often expect inconveniences in their financial transactions, not realizing that an instant payment system could ease issues.  “Last week I unexpectedly had to go shop for a new car,” Tavilla said. “On Sunday, I picked out a car and negotiated the price. The dealer offered to put $3,000 on my credit card but asked for the balance by the day after tomorrow, which was a Tuesday.  I don’t keep tens of thousands of dollars in my checking account, so I had to transfer it from my savings account via ACH, from one financial institution to another.” 

Such transactions can take a few days to transfer and cost the consumer $30 or $40 each. Real-time payments and ISO messaging can help alleviate such pain points by automating and reducing the time and heightening the efficiency of the entire process.

“Elisa’s story is a classic example where the customer would want some sort of a payment rail, where the money can move on a real-time basis,” Pujara said. “She had an urgent requirement, but even on an ordinary basis, we’re all used to instant gratification. Whether it’s ordering a ride or shopping for goods, the real time element is there pretty much in every part of our lives, other than money movement.”

U.S. financial institutions have decisions to make as they move into instant payments. In addition to having connectivity to RTP systems, banks can build an orchestration layer on top to decide on the rules they want to put in. They have the flexibility to scale their processes based on cost, availability, or which network to route the transaction.

A Range of Solutions

To navigate and capitalize on the evolving landscape of instant payments, organizations must be technologically adaptable, savvy with regulations, and customer-centric, ensuring they can meet the demands of a rapidly changing global payments environment. This means investing in payment technologies that can quickly conform to new standards and regulations. Cloud optimization is just one example of innovative technology that can enhance performance, security, and cost-efficiency.

The future points toward increased standardization and interoperability, as organizations and regulatory bodies push for a more interconnected financial ecosystem, enabling seamless transactions and enhanced user experiences globally. We’re likely to see more collaborative efforts to harmonize regulations and technical standards, making it easier to transact across borders. 

As those efforts come to fruition, Euronet offers an example of the flexibility available to U.S. banks. “We have a flexible deployment architecture depending on the size of the financial institution,” Pujara said. “We could provide a license that the bank can deploy in their own data center. For some of the smaller banks, we have a fully managed services offering with a hosted solution, which includes not just processing these transactions, and routing the transactions to instant payment schemes. It also includes services like reconciliation, settlement, unified dispute resolution, fraud, and risk monitoring.” 

The post Getting the U.S Banking Market Ready for Instant Payments appeared first on PaymentsJournal.

Real-time account-to-account (A2A) payments, also known as pay-by-bank has been adopted in many parts of the world. While sending payments directly from one bank account to another has become ubiquitous elsewhere, Americans have been hesitant to adopt the practice.

In the new report, Room for One More? Global Real-Time Pay-by-Bank Lessons for the U.S., Javelin Strategy & Research Director of Debit Payments Elisa Tavilla explores the reasons pay-by-bank has been so well-received abroad, the obstacles to U.S. adoption, and the future of the real-time payments landscape.

Government Backing

In countries like Brazil, Thailand, and India, A2A payments have achieved widespread adoption by consumers, merchants, and financial institutions. One of the key reasons for the rapid acceptance is government support.

Central banks and governing bodies have promoted both real-time payments and pay-by-bank to foster financial inclusion and to establish a digital payments ecosystem. Those countries had previously been largely cash-based economies, which smoothed the transition to digital payments. The Brazilian government has gone so far as to mandate rails for RTP and A2A.

Those governments also worked to standardize common financial technology like APIs, and the digital infrastructure makes new payment types easy to implement. Lawmakers in many countries have put QR code standards in place which promote interoperability.

“Standardized QR codes are essential to ease of adoption,” Tavilla said. “Especially with smaller businesses, QR code-based pay by bank solutions give them a more cost-effective way to move from cash to digital payments.”

A Card-Centric Market

Because of the established payment system in the U.S., A2A payment methods have been slow to take root. Although pay-by-bank options are emerging for both in-store and ecommerce transactions, American consumers still prefer to use their credit and debit cards.

“The U.S. is a very card-centric market from the consumer end,” Tavilla said. “Merchants may complain about the high cost of acceptance, but at the end of the day it’s the standard for purchases.”

Even with the high interest rates and late fees often associated with credit cards, Americans have been unwilling to switch.

“Consumers like using cards, especially rewards credit cards,” Tavilla said. “There’s also the purchase protection that comes with cards. if you order something and it doesn’t get delivered, you’re protected. That same level of protection doesn’t currently exist with pay-by-bank transactions.”

Opportunities for Growth

While A2A transfers aren’t likely to overtake cards in America, the comfort level is increasing. That acceptance has been fueled by peer-to-peer platforms like Venmo and Cash App, which three-quarters of Americans have used.

“Those platforms have grown substantially in recent years,” Tavilla said. “It wasn’t that long ago that cash and checks were the only ways to pay your friends and family.”

Pay-by-bank transfers are increasingly used to pay bills. Many smaller municipalities and utility companies don’t take card payments at all or charge a service fee to process card payments. In those instances, Americans are increasingly moving away from checks to pay-by-bank, which is mostly completed by ACH.

“As FedNow and RTP adoption continue to grow, real-time A2A use cases will also continue to grow,” Tavilla said. “When people use instant payments to pay their electric bill, they will appreciate the speed of the transaction. They’ll also see the added benefits of real-time payments because it allows for more transaction data to be included. It’s much easier for merchants and customers to identify what the payment is for.”

Irrevocable Transactions

Consumers will still be concerned about purchase protection. As with peer-to-peer platforms, once a real-time pay-by-bank payment is sent, it’s irrevocable. That puts the burden on the customer to verify the money is going to the right place.

“Consumer education will have to increase, which is another barrier to adoption,” Tavilla said. “As a consumer myself, why would I choose to pay this other way where if something goes wrong, if I’m not going to be made whole again? There isn’t any standard policy for protection like what exists with cards today.”

Another barrier to A2A adoption is the lack of rewards. Credit card rewards are funded with interchange fees that merchants pay.

“Rewards programs could be implemented for pay-by-bank solutions,” Tavilla said. “If merchants want customers to use a credit card alternative, they could offer incentives to pay-by-bank.”

The Drive to Real-Time Pay-by-Bank and Open Banking

In the U.S., there are two real-time payment rails FedNow, which launched last year, and the Clearing House’s RTP. Still, most pay-by-bank transactions use ACH.

“There aren’t any government mandates for real-time payment adoption in the U.S., participation is voluntary.” Tavilla said. “Governments in the UK and Thailand disburse social benefits and accept tax payments via real-time payment networks, which have accelerated adoption. The U.S. Treasury is a FedNow participant, and could potentially speed up real-time A2A payment adoption in the U.S.”

ACH will likely continue to be the standard for now, but it has its drawbacks. The major downside is the time it takes for transactions to clear. The delay can lead to payments failing for insufficient funds. Customers don’t know exactly when the money will be taken out, so when the transaction occurs the money might not be there. That can create a less than ideal customer experience.

“With real-time payments, the money is moved with more certainty and precision,” Tavilla said. “It also improves the pay-by-bank customer experience, when coupled with open banking technology, which is still in early stages in the U.S.”

The post Real-Time Payments and Open Banking Could Accelerate U.S. Pay-by-Bank Adoption appeared first on PaymentsJournal.

Traditional payment gateways have often hindered banks in their efforts to modernize their payment systems. Transitioning to real-time payment capabilities demands dismantling outdated procedures, a task many banks are unprepared to take on.

A recent PaymentsJournal webinar featuring Miriam Sheril, Head of US Product at Form3, Peter Gordon, Founder and Managing Partner at Atlantic Fintech Advisors, and James Wester, Co-Head of Payments at Javelin Strategy & Research, took a closer look at how a platform-based approach is helping banks commercialize their value-added services and develop a more client-centric service model when it comes to payments.

Battling the Legacy

For banks venturing into real-time payments, grappling with legacy back-office technology can be frustrating. Real-time payments hinge on delivering seamless end-user experiences, a demand that traditional technologies have long struggled to meet, especially considering customers’ 24/7 expectations. Implementing FedNow and the RTP network effectively necessitates embracing modern technologies.

“In the U.S., we’re going to see more banks needing to modernize their technology at the back end to make this happen,” Gordon said. “The legacy infrastructure that banks have—batch-oriented, mainframe-based systems—can’t handle the 24/7/365 scaling. It also means that we’re moving from silo-based systems to enterprise-based systems and platforms.”

Managing individual transactions for FedNow and RTP differs significantly from the batch-oriented processing typical of ACH transactions. The infrastructure needs to become modern and cloud-based. Regulatory concerns, such as anti-money-laundering laws, further impel banks toward modernizing their architecture. By providing more seamless solutions through better technology, fintechs like Stripe and PayPal have been pushing banks to turn toward cloud solutions and APIs that allow banks to scale and work more directly with fintechs.

“We focus on trying to insulate banks and financial institutions from having to deal with some of the nitty-gritty annoying stuff, so that they can focus on their customers, their end users, and where they want to make money,” Sheril said. “A truly seamless API will cover all the rails, instead of the bank having to worry about ISO spec version this for RTP, and version that for FedNow, and a third version for Fedwire.“

Wrestling With Complexity

Financial institutions are often stymied by the technological complexity of payments. The systems in place worked well for a long time, but banks are beginning to realize they’re being forced along the path to modernization. And it’s not going to get simpler, primarily because of the silos within their operations.

A large financial institution operates numerous disparate channels, each with its own dedicated system tailored for functions like treasury and wealth management. Yet there’s growing desire within banks for payments to present a unified front, emanating seamlessly from a singular source. This entails breaking down the silos so there’s a consistent experience across the middle and back office, as well as throughout the infrastructure and among technologists.

With this push for new technology, many banks accustomed to constructing their own infrastructure are opting against replacing outdated system internally. Instead, they’re forging partnerships with companies specializing in modern technologies.

“Instead of it being one of the 75,000 things I do, streamline the piece that matters to me,” Sheril said. “Now that we have the ability to have better architecture that’s easier to implement, that is going to be helpful in terms of where banks are going across lines of business and tearing down silos.”

Ultimately, customers simply want convenience. However, there’s growing awareness among customers regarding the various payment methods available to them. They can opt for installments plans, direct transfers, or transactions that accrue points. Financial institutions want to present customers with all of these options.

“That’s where that technology kicks in and says to the financial institution, you have more power now,” Wester said. “Financial institutions have always just looked at a payment as a payment. But now that we’re seeing consumers care, there are ways that you can use that to reinforce the relationship.”

In many instances, customers fully appreciate the advantages of real-time payments only once they’ve had the opportunity to use them. Real estate firms, for instance, are showing interest in real-time payments not because they’re concerned about where their settlements occur but because they want to close deals on Saturdays, a day when most realtors are active.

Consider another scenario where instant payments afford retailers the ability to reconcile transactions at the end of the day and receive funds instantly. For example, on a Friday night, a restaurant reconciling its accounts can simply press a button, and the funds are deposited into its account, enabling them to promptly pay the wait staff.

However, many banks have been unable to facilitate such transactions on Saturdays due to wire closures. As a result, these options emerge as new products and services for consumers and represent novel competitive avenues for financial institutions.

Adventures in the Cloud

Conducting operations in the cloud allows banks to integrate many of their services, yet there has been a reluctance to use such services.

“Ten years ago I was at a conference about the cloud, and the CIO of a relatively large bank said from the stage, ‘We will never put any mission-critical stuff in the cloud. It’s just too risky,’” Wester said. “And the bankers in the audience all nodded sagely. ‘No, that will never happen.’”

Yet more banks are discovering that using a platform-as-a-service provider can reduce costs significantly if it’s done right. They can end up paying a fraction of the cost of building and maintaining a data center.

Another advantage of the cloud is translation. It can take an ACH file and convert it to an ISO 20022 format, maybe even enrich the payment instructions with information, then pass it through a payment system. Those who understand how rich this data is will be the real winners.

Piece by Piece

Implementing new processes in today’s payments landscape means dismantling old ones. It’s important for organizations not to underestimate the challenges associated with decommissioning legacy systems and instead focus on this task with purpose.

Organizations should embark on a journey toward modernization, starting by insulating themselves from risks and addressing their least risky areas first. It’s imperative to start with smaller aspects that can coexist alongside the legacy system. This incremental approach ensures that each step is modernized. Not everything needs to be moved at once.

“This is about getting something better out there and not waiting till your customers leave you for someone else,” Gordon said. “There are ways to do this that help you de-risk the whole migration. Some banks have only taken specific accounts and moved them over. Or only real-time payments. You can start real-time there, then move the other aspects over.”

Said Sheril: “The more complex these requirements get, the more modern the technology has to be. You can’t do it on old platforms. You have to do it on things that are quick. We can only do it because we are on a modern 24/7 platform. Banks need to get this modernization done, but they don’t want it to distract from the focus on what’s important to them, which is their customers and their revenue.”

The post Clearing the Decks for Real-Time Payments appeared first on PaymentsJournal.

The implementation of FedNow is a chance for financial institutions to entirely rethink their payment systems and carefully assess the technology partners they engage with on this transformative journey. This is especially true for smaller institutions, who can leverage FedNow to enhance payment experiences for their customers and initiate the journey towards payment modernization. 

However, the adoption of FedNow in the U.S. has been slower compared to similar payment systems in Europe and other global regions. In FedNow and Technology Vendors: Setting the Foundation for Future Payments, James Wester, Director of Cryptocurrency and Co-Head of Payments at Javelin Strategy & Research, lays out the incentives for financial institutions as they rethink payments in a real-time era.  

Making Connections

FedNow transactions differ from traditional batch processing because they happen in real time, a distinction that significantly impacts the necessary technology infrastructure.

“When we’re talking about large banks like Chase or Capital One, they are communicating all the time because the number of retail and commercial customers making transactions each day,” Wester said. “Real time is different. There are technological considerations from a platform, from messaging, even from a liquidity standpoint. Our report is addressed to technology leaders who are being tasked with connecting to a FedNow, versus being addressed to a business owner within a financial institution who’s looking at it from a features and product standpoint for their customers.”

In a way, access to FedNow is progressing rapidly. Since its launch in July 2023, 35 financial institutions and 15 certified technology service providers were initially connected to the system. This number has since expanded to approximately 700 banks and credit unions of varying sizes, alongside 30 service providers offering a range of services to partner banks, including payment processing, bill payment, and more.  

“With 11,000 financial institutions in the United States, it’s a small percentage that are connected to FedNow,” Wester said. “But if we do it by number of accounts with access to FedNow, it’s actually doing quite well.”

One contributing factor to the relatively slow adoption is the payments industry’s incomplete communication of the added value of a real-time settlement program to consumers. Small businesses may not be aware that they can utilize instant payments to address challenges such as liquidity and cash management. “A lot of businesses have billings that may not be coming in for 30, 60, or 90 days, but they have to pay vendors immediately,” Wester said. “Real-time gross settlement through something like FedNow would be a benefit to them.”

Differences With Europe

The UK has consistently been ahead of American institutions in terms of faster payments, largely due to their outdated prior system. Before the introduction of FedNow in the U.S., the UK established its Faster Payments Council to modernize the settlement processes of British financial institutions, resulting in the creation of a nearly real-time settlement rail.

The situation in Europe was a bit different. While lacking a robust digital settlement network, they had fewer financial institutions. European financial institutions pushed to develop SEPA (Single Euro Payments Area), which launched in 2017 and manages euro-denominated payments across 36 European countries. “They were ahead because they started out behind,” Wester said.

One factor hindering faster payment system adoption in the U.S. is the multitude of financial institutions and payments providers that need to work in concert. This complexity extends beyond technology to regulatory and risk considerations.

Selling the Benefits

ISO 20022, the enhanced standard for processing data, may help spur the adoption of FedNow. “We’ve created a new standard for data that goes along with payments, and don’t really know what to do with it,” Wester said. “Basically, we bought ourselves a big truck, and now we need to figure out what the fill it with. But it gives us room to send more enhanced data, better data, everything that goes along with the payment.”

But Wester points out that there were also many businesses who did not want payments to be processed any faster. “There is an entire industry built on the fact that payments aren’t due for net 30, net 60, net 90,” Wester said. “Companies aren’t paying for two or three months, so you have an entire sector that’s built up on buying receivables or loaning money out against receivables. We just had a system in place that frankly worked pretty effectively. There were discount rates given for paying on time or paying faster. It supported the largest economy in the world, so there weren’t a whole lot of reasons to change.”

Wester says that we need to do a better job of showcasing the benefits of instant payments. FedNow can benefit small- and medium-sized businesses from a cash flow standpoint. They don’t need to wait three days for a transaction to clear; they are immediately able to turn that cash around and pay somebody else.

“Those are the things that make it advantageous,” Wester said. “Once we start seeing FedNow adopt it in larger and larger numbers, it will become a necessity.”

The post Instant but Slow: The Remaining Hurdles for FedNow Adoption appeared first on PaymentsJournal.

Consumers not only prefer to use cards when they spend, but they also tend to spend more money when they don’t have to pay with cash. What’s more, paying with cards has gained widespread acceptance across all age groups and regions, signifying a lasting shift in consumer behavior.

In general, using cards makes people less conscious of their spending. More than half of consumers surveyed in recent Forbes Advisor research said they are more likely to make impulse purchases when using cards, compared to less than a quarter who feel similarly when paying with cash.

This tendency extends to big-ticket purchases, though at a lesser scale. Some 22% of respondents expressed feeling less discomfort about spending a lot of money when using a card.Additionally, more than a quarter said that not handling physical cash makes it easier for them to spend money.

Not surprisingly, it’s the highest earners who are least likely to check their bank balance before they pull out their card. Nearly a third of those earning $150,001 to $200,000 said they rarely check their balance before making a major purchase, in contrast to 12% of those earning less than $50,000. Only 10% of baby boomers reported checking their balance before spending.

Spending Is Psychologically Easier With Cards

Separate data from the University of Notre Dame resulted in similar findings. That research found that some consumers prefer paying with cash rather than credit to avoid having a record of purchases they may feel guilty about. “When consumers make a purchase that feels hard-to-justify (vs. easy-to-justify), they want to avoid recalling this purchase in the future,” the authors noted.

Recent trends indicate a decline in impulse buying. A 2023 survey from shopping site SlickDeals found that people made about $150 worth of impulse purchases each month, totaling nearly $2,000 a year. This figure had decreased from the prior year, likely a result of post-COVID shopping habits moving from online back to brick-and-mortar retailers.

In all, these studies reveal that payments not only become technically easier with cards, but also psychologically easier. These findings suggest that card payments facilitate impromptu purchases, and consumers are aware of this effect—and perfectly fine with it.  

The post Consumers Spend More Impulsively With Cards—and Don’t Mind appeared first on PaymentsJournal.

In an era where cash is no longer king, debit cards have emerged as the primary mode of transaction for many. From daily purchases to online shopping sprees, these plastic wonders have revolutionized the way we handle our finances. But who exactly is leading the charge in embracing this convenient payment method? Delving into consumer habits, it becomes clear that generational disparities play a role in shaping debit card usage patterns.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: 2024 Annual U.S. Debit Card Market Data Review

Debit Card Usage by Age Bracket

What percentage of spend is by debit card?

• 18-24 year olds: 39%
• 25-34 year olds: 33%
• 35-44 year olds: 35%
• 45-54 year olds: 32%
• 55-64 year olds: 29%
• 65+: 20%

Source: Federal Reserve Bank of San Francisco, Diary of Consumer Payment Choice (2023)

About Report

Changes are afoot in the debit card market as higher prices drive more consumers toward credit for everyday payments and users increasingly demand digital payment technologies. This Javelin Strategy & Research report takes a comprehensive look at debit payments in the context of now and what is likely to be coming as consumers consider the economic landscape, adopt new technologies, and adjust their payment preferences accordingly. 

For debit card issuers and merchants, Generation Z—encompassing those born in 1997 and later—represents an opportunity to reach out to consumers who haven’t yet built up a strong credit profile and engage with issuers’ apps more strongly than older generations. This is a chance for debit issuers to build products that align with these consumers’ wants and needs and to build lasting relationships.

The post What Generation Uses Debit Cards the Most? appeared first on PaymentsJournal.

Tracing the Origins of Card Payments

Card payments are on a path of tremendous growth: in 2022, global card networks processed a whopping 624 billion transactions, marking a growth of 7.5% compared to 2021. Today, payment cards reign supreme as the preferred method for in-store purchases worldwide, accounting for over 50% of all transactions, and cash is starting to disappear in certain parts of the world.

The backdrop for this transformation takes us back to the challenging days of the Great Depression in the 1930s. Faced with economic hardship, enterprising U.S. merchants devised a solution by extending credit to customers through store-cards and charge plates, where a single card operated exclusively within one department store or a specific gas station chain.

The Birth of Payment Schemes

Fast forward to 1950 in New York, where businessman Frank McNamara’s forgetfulness led to a pivotal moment. Left without his wallet during a restaurant dinner, McNamara’s wife drove into town and settled the bill. This incident sparked the idea of creating a way to pay with a card at eateries, giving birth to the Diners Club credit card. Unlike its predecessors, this card offered credit at multiple merchants. In 1958, American Express followed suit, launching its inaugural credit card.

These early credit cards were not backed by banks, but in response to this new trend, banks began to launch their own credit card programs in the 1960s. Bank of America in San Francisco took the pioneering step with the BankAmericard. Realizing the potential of a unified network, a group of California banks joined forces to create the Interbank Card Association in 1966, which later became Mastercard. Concurrently, other banks adopted BankAmericard, which eventually rebranded as Visa in 1976.

Material Transformations: from paper to plastic to metal

The initial Diners Club cards were crafted from cardboard with printed ink displaying the card details, and those details had to be manually written down by the merchants. American Express introduced plastic cards in 1959 and over time, card details were embossed onto the card’s surface, and flatbed imprinting machines were introduced, enabling the recording of embossed card information on carbon paper. These devices became known as ‘zip-zap machines’ due to the distinctive sound they generated.

The 1960s brought another innovation as IBM recognized the potential of encoding information onto cards using magnetic tape. Legend has it that the idea of melting the tape onto a badge using a flat iron came from IBM engineer Forrest Parry’s wife. This innovation led to the dominance of magnetic stripe (magstripe) cards in the market.

In the mid-1970s, Roland Moreno, a French engineer, introduced a revolutionary plastic card embedded with a microchip capable of performing complex calculations and enabling stronger security measures. The following year, he successfully demonstrated how this smart card could facilitate electronic financial transactions. By the early 1980s, French banks embarked on a pioneering journey to issue these chip cards. Banks worldwide followed suit, and today, a staggering 93% of all card-present transactions globally utilize EMV chip technology.

In 2003 the industry had another milestone as American Express launched its Centurion card in a metal form factor, made of titanium.

Tapping Towards the Future

As we continue our exploration of the card’s evolution, we arrive at the present, which has been notably shaped by the COVID-19 pandemic. This crisis has expedited the transition from traditional contact payments, which involve inserting or swiping the card, to contactless transactions that require simply tapping the card on the terminal. It is estimated that by 2026, 81% of all cards worldwide will be equipped with contactless technology.

As we contemplate the future, it’s fascinating to see how payment cards have continually adapted, reinventing themselves over nearly a century to accommodate technological and societal advances, and how in doing so, they have given birth to some of today’s most iconic and prominent brands.

The post A Century of Payment Innovation: The Journey of Payment Cards appeared first on PaymentsJournal.

The evolution of digital card management has given financial institutions new opportunities to cultivate enduring customer relationships. By making consumers’ lives more convenient and complimenting physical cards, so consumers have the options that work for their lives at a particular time, issuers can foster ease of use and brand loyalty, leading to decades-long relationships.  

In a recent PaymentsJournal podcast, Wesley Suter, Senior Director of Product Solutions at Fiserv, spoke with Elisa Tavilla, Director of Debit Advisory Services for Javelin Strategy & Research, about the future of digital cards. They discussed what strategies can make cardholders develop loyalty to their issuer—or lead them to end the relationship.

The Advantages of Digital Cards

Digital card management addresses two issues: Making it easier to do business with a financial institution and making consumers’ lives more convenient. The goal is to ensure that customers are more willing to use your card over a competing card in their wallet.

To understand where we are today, it helps to take a step back. During the COVID-19 era, many merchants amplified their touchless point-of-sale capabilities, and thus digital wallets such as Apple Pay and Google Pay became even more attractive.

“COVID accelerated consumers’ preferences toward the digital channel,” Tavilla said. “Our Javelin research has shown that consumers are using both credit and debit cards in digital and mobile wallets. And the expectations that consumers have, whether it’s in commerce or in online mobile banking, have trended more toward digital capabilities.”

In this digital environment, cardholders can handle most service issues more easily than calling into a call center or discussing their card relationship by going into an in-person branch.

Consider how information is more readily available with a tap of a finger: When you use Uber or Lyft, you can track the precise location of a vehicle. And when you order packages online, you can track every movement of the shipment—from the order confirmation to when the packages leave the warehouse to when they arrive on your doorstep—solely through your phone.

“I don’t necessarily walk out of the out of the house or out of the room with my wallet, but I always have my phone on me,” Suter said. “As we can drive more of that phone experience into the digital banking platforms that many financial institutions leverage, that’s going to create the adoption and loyalty that many issuers are looking for.”

Said Tavilla: “Just a few days ago, I left my house without my wallet, and it was an hour or two later that I realized I didn’t have it. If I had left my phone, I’d have realized that in two seconds. But I had my credit card and debit card loaded into a digital wallet, so I was able to make it through the rest of my evening without needing my physical wallet. I find that to be very convenient and a positive customer experience, and I’m sure I’m not the only customer who feels that way.”

Building Relationships

When it comes to digital card management, banks do not differentiate themselves based on the ability to activate a card or set a PIN. The focus should be on acquiring new relationships or leveraging newly onboarded customers for cross-selling opportunities at a later stage in the relationship.

“CardHub, the digital card management solution from Fiserv, handles all the other stuff while our issuers are really focused on that acquisition of new relationships,” Suter said. “We’re focused on deploying CardHub in a manner that makes it easy and convenient for a consumer but also drives that necessary relationship into all of those subscriptions, recurring payments, card-on-file merchants.”

“Let’s say Elisa opens up a Hulu account and puts her preferred payment to that relationship,” he said. “The likelihood for her to swap that out with a competing card is very, very low. How do we generate more of that type of card-on-file connectivity in relationships so that our card issuers are winning that default card position? That leads to customer loyalty and bringing the ideal customer experience through their entire journey.”

If FIs can get to a position where they can educate cardholders that a digital card is more secure and a more convenient checkout experience, they’re going to attract Apple Pay and Google Pay wallet experiences as a default.

Another factor involves the proprietary apps that every merchant built after the pandemic. How do you drive those interconnected relationships with in-app payment experiences? If FIs provide solutions to those with their own card portfolios, they’re going to win in the long term across debit and credit payments.

Helping Customers Solve Their Problems

If consumers lose their physical card, they can call and ask for a replacement that could be sent traditionally through the mail. But it’s not instant. With digital issuance, FIs can replace that card and have it in the customer’s phone or hand in minutes. That ensures a continuous, seamless experience that allows the customer to keep using the card as top of wallet. That’s important because lag time could cause customers to use a different mode of payment.

The most sensitive chapters in the relationship between a cardholder and the card issuer are those disruption events when the customer has to replace the card or get a new PIN. That’s a vulnerable position for the consumer because if a replacement card isn’t received quickly, they’re likely to move on to a different form of payment—perhaps a competitive card in their wallet.

“If I’m a debit card holder, I’m doing 25 transactions on average per month,” Suter said. “So you do not want to miss that gap where there is a disruption.”

The post FIs Are Building Long-Lasting Relationships Through Digital Card Programs appeared first on PaymentsJournal.

The Bundestag, Germany’s federal parliament, has passed legislation to introduce specialized debit cards for asylum seekers, with strict limits on how and where users will be able to spend the money. The plan closely mirrors a pilot program initiated in New York City earlier this year that provides migrants with prepaid debit cards.

In Germany, these debit cards would prohibit users from sending money abroad, a measure intended to prevent asylum seekers from sending money to family and friends in other countries. Migrants would also be limited in their ability to withdraw cash from the card. The main objective of the debit card is to reduce “the administrative burden on local authorities, preventing the possibility of transferring money from state support to countries of origin and thus combating the inhumane crime of people smuggling.”

Currently, asylum seekers in Germany receive roughly €500 in monthly benefits. Due to their lack of residency status, they can’t open their own bank account. Prepaid cards have been growing in popularity among migrant workers for some time now, since they provide a way to mitigate the problems of the unbanked.

A German Pilot Program

Since late last year, the German initiative has undergone a trial phase in Greiz, a town with a population of just over 20,000 people located in the former East Germany. The usage of these debit cards is limited to local stores in Greiz that accept Mastercard, with restrictions on online purchases. 

This effort was spearheaded by a conservative state administrator Martina Schweinsburg, who considers it a success. She also acknowledges that providing migrants with cards instead of cash carried a cultural component.

“When they go into a supermarket and buy groceries for €20 and unroll a big pack of money to pull out a hundred-euro note then it doesn’t make a good impression,” Schweinsburg told the German state-owned media outlet DW.

New York’s Debit Card Plan

Earlier this year, New York City launched a pilot program to provide migrants with prepaid debit cards. The cards—loaded with an average of $12.52 per person, per day for 28 days—can only be used to buy food and baby supplies.

The cards were touted as a replacement for the non-perishable food boxes the city had been providing to migrants. Despite the pilot program’s $53 million price tag, city officials anticipate annual savings of $7.2 million. 

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In the dynamic and rapidly evolving landscape of global commerce, Latin America stands out as a region of particular interest and complexity when it comes to payment methods. With a diverse mix of economies ranging from emerging markets to more developed financial systems, the tapestry of payment preferences and innovations across this vibrant region offers a unique view into the challenges and opportunities of catering to Latin American consumers and businesses. As digital transformation accelerates, understanding the nuances of payment methods in Latin America is essential for stakeholders looking to navigate this promising yet intricate market.

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Data for today’s episode is provided by Javelin Strategy & Research’s Report: Latin American Payments: The Emerging View From South of the Border

Top 4 Payment Methods in Latin America Used at Least 5 Times per Month

• 77% – cash
• 72% – debit card
• 64% – credit card
• 53% – digital wallet

Source: Accenture 2022 Global Consumer Payments study

About Report

Latin America—as a region and as ground being seeded for the future of payments—is vast, diverse, and resistant to attempts to bring it into homogeneity. The region encompasses around two dozen countries with their own currencies, monetary policies, histories, and trajectories with regard to financial infrastructure and development. Amid these variables, a new age in payments is rising, being marked by instant payments, greater financial inclusion, and an atmosphere that is conducive to disruption by fintech startups, as well as by a lagging approach to data capture and leverage.

This Javelin Strategy & Research report looks at the changing payments landscape through those lenses, outlining the broad trends afoot in Latin America and the factors that have made it an area both teeming with payments innovation and facing significant hurdles to overcome.

The post Top 4 Payment Methods in Latin America appeared first on PaymentsJournal.

Payments Canada has still not found a new CEO to replace Tracey Black, who ran the organization for more than five years before stepping down at the end of her term earlier this week. The delay is emblematic of the problems Canada has encountered in introducing its real-time payments system, which is now years in the making.

Canada is the only G20 country without such a system in place. The Real-Time Rail (RTR), Payments Canada’s proposed real-time payment system, is years behind schedule. Payments Canada originally targeted to have the system up and running by 2019, but has pushed the deadline back several times since.

In Payments Canada’s Q4 2023 report, Black wrote: “The next update on the RTR program will be in Q1 of 2024 and I look forward to sharing more with you about this critical program.”

The latest word is that the update—not the launch—will be released in the coming weeks.

Mysterious Delays

As far back as 2020, Payments Canada said it was selecting technology partners and beginning the building process for its real-time payments platform. The target date for RTR was set for 2022.

In 2021, Payments Canada announced that Canadian interbank network Interac would be the exchange solution provider for RTR, with Mastercard providing its clearing and settlement technology.

Last June, there were “current delivery delays” that were responsible for the latest pushback on the deadline. At that time, the target date was mid-2023.

But there have also been indications suggesting that Canada’s banking industry isn’t entirely sold on the necessity for the new system. Even despite Jeremy Kronick, Director of Canada’s Centre on Financial and Monetary Policy, estimating its benefits to the nation’s economy at $3.24 billion over the first five years.

Progress on Other Fronts 

Payments Canada has been active on other fronts, expanding its membership to include newer service providers and credit unions. However, this offers little comfort until the new payments system is ultimately launched.

“It’s not enough to have access to a payment system that does not yet exist,” Alex Vronces, executive director at Fintechs Canada, told the Canadian Press. “We need the payment system to exist.”

The post Canada’s Real-Time Payments Network: When Will It Ever Happen? appeared first on PaymentsJournal.

In the swiftly evolving landscape of digital payments, mobile wallets have emerged as a cornerstone for transactions, offering users unprecedented ease, security, and speed. These digital vaults not only streamline purchases but also serve as hubs for loyalty rewards, tickets, and coupons, melding the physical and digital realms of commerce. Yet, the foundation of their functionality—the methods consumers use to fund these wallets—varies widely and plays a pivotal role in their adoption and usage. From direct bank transfers and linkages to credit and debit cards, to more innovative approaches like linking loyalty points or even cryptocurrency accounts, the ways in which users can fuel their mobile wallets are expanding.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: Incentivizing Consumers Toward Debit Payments with Rewards

Top 5 Methods Consumers Use to Fund Mobile Wallets

• 65% of consumers use debit card to fund mobile wallet.
• 53% of consumers use credit card to fund mobile wallet.
• 36% of consumers use the balance within the app to fund mobile wallet.
• 26% of consumers use direct debit from a bank account to fund mobile wallet.
• 16% use prepaid card to fund mobile wallet.

Source: Javelin Strategy North American PaymentsInsights, July 2023

About Report

Consumers increasingly use debit cards for various payments. Most consumers regularly pay for everyday purchases and bills with debit cards across physical and online channels. Rewards can help expand debit card spending to other categories. Always cost-conscious, consumers seek rewards that can lower their overall cost. Cashback is the most appealing incentive.

Many issuers have shifted their focus from debit card rewards to value-added features. Most large issuers do not offer debit card rewards but provide other checking account benefits. And with consumers buying more on mobile devices, issuers and retailers are collaborating to target e-commerce shoppers and drive transaction volumes. The opportunity is large.

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Retail debit cards offer a solution that caters to the needs of retailers and their customers. Leveraging consumer bank accounts through store-branded apps and payment cards, these products are especially attractive for everyday transactions like groceries and gas. When combined with loyalty and rewards programs, they play a pivotal role in retaining customers and promoting the adoption of payment methods that benefit merchants.

PaymentsJournal recently sat down with Elisa Tavilla, Director of Debit at Javelin Strategy & Research, to discuss her new report, Retailer Debit Cards: Why Doesn’t Everyone Do It? Tavilla delved into the benefits of retailer debit cards and what retailers should think as they consider dipping their toes into the space.

Your research examines the benefits of retailer debit cards. Can you tell us a bit about the report and what stood out to you in your research?

The report is about retailer debit payment options, and it’s not an entirely new concept. It’s often referred to as decoupled debit or private-label debit cards. Essentially, these are debit cards that are linked to a customer’s bank account. The payment gets debited directly from the customer’s bank account, unlike a credit card, where it’s like a loan. The debit card is issued by the retailer themselves and it can only be used at that retailer.

One of the examples that most people are familiar with is Target’s Red debit card. Target also has two credit cards—a co-branded Mastercard and a private-label one that can only be used at Target. One of the appealing benefits of the Target debit card, and why it’s been so well received by its customers, is the debit card benefits are similar to what Target offers to their credit card holders. There’s a 5% discount on all the products and extended return periods, for example. A benefit for the retailer is that it’s a debit card that doesn’t go through the Mastercard or Visa rails so they can save on the processing or interchange costs.

Target and many fuel merchants offer these retailer debit payment options. They tend to be common for everyday purchases like groceries or household goods that consumers would typically use their debit card to pay for. Because the margins are small on these types of products—any type of savings in payment processing costs would still translate to savings for these merchants. It drives incremental sales for these stores too.

In the report, I mentioned the H-E-B card, which is not a decoupled debit card, but it’s a co-branded debit option that the H-E-B supermarket chain offers with discounts on their store-branded products. Since many consumers are trying to save more money by buying store-branded products as opposed to name-brand products, this helps H-E-B with incremental sales as well.

You mentioned retailer debit cards not being something new, but I will say, they’re new to me. My take is that retailer debit cards can help keep consumers more accountable of their spending, making sure they don’t incur debt. With a retailer credit card, that’s more of a loan and consumers are encouraged, at times, to spend beyond their limits. Do you find that to be the case?

To address your comment about how it was new to you, actually it’s not very common. I was trying to find examples. There’s the Target Red debit card, which we discussed, and the Kroger and Nordstrom debit cards, which have both been discontinued. With Nordstrom, people who have a debit card can still use it, but they stopped issuing new Nordstrom debit cards when they revamped their loyalty program.

People tend to use debit cards for necessities or everyday spend just for the very reason that you noted, so they don’t incur additional debt that they don’t want. For everyday purchases like groceries, household items like consumer-packaged goods, whether it’s laundry detergent or toilet paper—these are necessities where consumers tend to use their debit cards because they can budget better and not incur credit card debt.

You mentioned that Nordstrom is no longer offering a debit card. It has a credit card it offers consumers and a loyalty program it continually puts a spotlight on. I’m curious if, in your research, you noticed why Nordstrom shifted away from a debit card.

There was a trend around the same time Nordstrom restructured its cards and loyalty rewards program. Target also revamped its reward program, along with J. Crew and Macy’s. All these retailers wanted to make their rewards programs less dependent on the payment method, especially their own private-label or co-branded cards.

The Nordstrom program, for example, was rebranded as the Nordy Club, where customers can sign up with their phone number or email address and pay any way they want and still earn rewards points, which they couldn’t do before. It’s at a lower rate than for cardholders, but it makes sense because retailers want to make their cardholders feel special and more valued. This strategy gave retailers the opportunity to capture more of their customer data and preferences, learn more about them, and engage with them. And it appeals to more customers because, as our studies show, loyalty rewards are a valuable incentive for many shoppers.

What’s in-store for retailer debit cards?

Given that mobile payments are more widely adopted, that helps facilitate some of these debit payment options, and certainly loyalty, personalization, and engagement is easier through mobile.

There’s also the potential of real-time payments. I wouldn’t say it’s coming soon or immediately, but it certainly can help improve the customer experience and also reduce risks, in particular with some of the challenges associated with ACH and insufficient funds and account verification. Another point I touched on in the report is one of the reasons that retailers are offering these debit options: They want to save on interchange fees. The Federal Reserve recently proposed lowering the interchange fee cap for large issuers, which is still pending. If the interchange fees were substantially lower, would it be worth a retailer’s investment to offer their own debit solution when they could be saving already from reduced interchange fees? Something to definitely consider

The post Exploring the World of Retailer Debit Cards appeared first on PaymentsJournal.

Mastercard’s recent collaboration with Alipay to facilitate swift and secure global money transfers marks a significant development in response to growing consumer demand for faster online cross-border payments.

In a prepared statement, Alan, Marquard, Head of Transfer Solutions at Mastercard, highlighted the significance of this partnership. By connecting with Alipay—a super app that reaches over a billion users in China—Mastercard is able to enhance its international payment offerings. The integration allows Mastercard’s bank, fintech, and corporate customers worldwide to provide consumers with real-time access to the popular e-wallet.

And with a focus on making payments faster and safer, Mastercard is aiming to capitalize on the growing demand for disbursements and remittances.

Global Partnership

Through the Mastercard Move initiative, participating financial institutions gain access to international payments to more than 180 markets. They’re also leveraging a global payout network that covers more than 150 currencies and reaches 95% of the world’s banked population. 

Overall, this partnership is helping Mastercard expand its collaboration with Alipay to streamline international fund transfers to China in real-time, benefitting both senders and receivers by making the transaction process easier.

The State of Cross-Border Payments

There’s been an increase in cross-border payments over the years, and as evidenced by this partnership, we expect this trend will only continue to grow. That said, it still relies on inefficient legacy processes and methods, and as a result, is an area ripe for innovation.

A whitepaper from Wells Fargo touched upon how cross-border payments can be unpredictable and costly—and financial institutions looking to make a name for themselves in the space will need to have a strategy in place to tackle the complexity that comes with cross-border payments.

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With the Clearing House’s RTP network and the Federal Reserve’s FedNow, the demand for instant payments continues to grow from consumers and small businesses. How can businesses best accelerate this process?

Debbie Smart, Senior Product Marketer at Q2, and Keith Gray, Vice President of Strategic Partnerships at the Clearing House, sat down with Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, for a PaymentsJournal podcast and explored the landscape for instant payments. Although the path can be different for different institutions, it’s clear that customers have come to expect real-time payments. Late adopters beware.

Payroll: A Critical Use Case

From the beginning, account-to-account payments have been driving many of the real-time use cases. The growth of providers like Zelle and Chuck has fueled the expansion of business-to-consumer payments.

One application that has been frequently overlooked is payroll, including daily payroll and earned wage access. These functions are already key users of the RTP network—and they’re growing every day.

“Who would have thought that six years ago when we launched this that a lot of people would prefer getting paid every day for what they do?” Smart said. “Now all of the rideshare companies and the companies like Grubhub are using RTP to push money out to their contractors.”

Exploring Business-to-Business Payments

On the commercial side, especially with business-to-business (B2B) payments, the most significant value is in the data. The rich messaging on the new payment rails doesn’t exist in the older payment rails. Commercial customers are increasingly excited about the possibilities as they learn more about this.

Another important usage involves paper checks. A third of all B2B payments are still made with a check. But 78% of the time, when a business pays another business via ACH, the identity information or remittance information doesn’t go along with the transaction. It goes in an email or via U.S. mail, which makes it time-consuming for these businesses to complete reconciliation. Part of the excitement around the power of instant payments lies with the ability to have that remittance information from the start.

It’s not just the immediacy of the payment. Timing is critical in a B2B transaction as well. “If I owe a supplier a million bucks tonight at midnight,” Gray said. “I can keep that in my account till 11:59 and 45 seconds, and then I’ll shoot it out. I’ll get a confirmation back and everything will be closed and settled literally within seconds. That perfect timing and visibility of an immediate payment is a key part of the value proposition of an instant payment.”

Other use cases are being explored, if not offered already, in payments that traditionally have been limited to business hours. “In the auto industry, most consumers tend to shop for cars after work or on weekends, when the banks were closed,” Tavilla said. “With real-time payments, the 24/7/365 enables more convenience and better business processes.”

Start With Receive Only

Starting real-time payments with receive only makes sense for several reasons. It allows a business to get connected to networks and get the plumbing in place, so to speak, for using the new rails.

“The biggest benefit is what they can bring to their accountholders by receiving instant payments,” Smart said. “I’ll give you an example. We’ve got a customer, a $9 billion credit union, who started with receive only in January of 2021. The first month, they had 3,400 incoming transactions. By December 2023, that number was almost 38,000. They didn’t promote it, or even announce that it was available—they just enabled it. What’s even more interesting to me is the fact that the day they went live, the first payment hit within 60 minutes.”

Smart pointed to Grubhub as an entity where real-time payments grew from demand by the users of the app. When a Grubhub driver opens the Grubhub app, a message says: “Would you like to be paid immediately? If your bank doesn’t support it, click here for a list of banks that do so.”

Eventual Move to Two-Way

Financial institutions should plan to eventually support send and receive capabilities. That enables FIs to take advantage of all the capabilities that RTP and FedNow have to offer. For example, you must be able to receive and send in order to receive requests for payments. If you can’t send, you wouldn’t be able to push payments out, given that RTP and FedNow transactions are push only or credit push payments.

“An analogy I often like is that if you have a phone and can only receive calls, you can’t really take advantage of the technology,” Tavilla said. “It’s just a one-way system. Whereas if you have a two-way system, there are many more possibilities and value that you can take advantage of with the network.”

Joining Multiple Networks

FIs have always had multiple payment networks to choose from, across all payroll and payment types. Since FedNow launched, there has been a lot of concern in the industry about how to deal with these choices.

“My point is that we’re used to it and we’ll figure it out,” Gray said. “In the meantime, what we’re seeing is that most of the banks that are joining FedNow are also on RTP, or are getting on RTP. That’s also true of all of the technology providers that I deal with, both the big guys and the smaller guys.”

Over the long term, it’s possible that the networks will become interoperable, as they are on other payment rails. But the fact that the connectivity partners all support being able to connect to both networks makes it easier for financial institutions.

The bottom line for most FIs is this: What am I doing for my accountholders to enable them to move money the way they want to be able to move money?

“When financial institutions are considering implementing real-time payments, look at your own customer base and their financial needs and pain points,” Tavilla said. “Think about how real-time payments can complement the existing payment methods that your financial institution currently supports. Think about how you can help solve your customers’ problems and improve the customer experience.”

Download the Q2’s Instant Payments white paper, “What to Know and Where to Start“ 

The post Preparing Your Organization for Instant Payments appeared first on PaymentsJournal.

Zelle saw a significant surge in transactions last year, with consumers and small businesses conducting 2.9 billion transactions, totaling $806 billion—a 28% increase from the previous year.

According to Early Warning, the network operator for Zelle, fully 120 million customers and businesses used the Zelle network in 2023. Small business, in particular, experienced a substantial boost, receiving 217 million payments through Zelle, amounting to more than $100 billion. This uptick can be attributed largely to the growing adoption of Zelle for various organized payments, including employee salaries, vendor invoices and office expenses.

“Powered by our unmatched reach through thousands of participating banks and credit unions – and enabled by our continued efforts to enhance security and educate consumers – Zelle soared to new heights in 2023,” said Cam Fowler, CEO of Early Warning in a prepared statement. “As the digital payments growth engine for the U.S. financial services industry, the Zelle Network remains committed to providing consumers and small businesses a way to quickly and safely pay people they know and trust.”

Zelle’s Goal to Make Payments More Secure

Zelle has prioritized enhancing payments security under the oversight of federal financial regulatory agencies. As a result, reported instances of fraud or scams accounted for less than one-tenth of 1% of transactions last year—a figure that continues to decline as Zelle implements more sophisticated security measures.

To reinforce security protocols, Zelle is continuing to remind users throughout the payment process to only transact with trusted individuals. Notable, Early Warning issued over 700 million cautionary alerts to users before initiating payments, highlighting its commitment to proactive fraud prevention.

Moving forward, Zelle plans to further emphasize the importance of vigilance, collaborating with organizations like the Better Business Bureau and the National Council on Aging to better educate consumers. Additionally, Zelle will be equipping banks and credit unions with educational materials that they can leverage to empower their customers with better security practices.

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Visa and Checkbook are continuing their ongoing partnership, with a new multi-year initiative that aims to make instant payments more available for all.

“In today’s ‘always on’ world, businesses and consumers demand quick and convenient access to cash flow – whether paying insurance claims, disbursing wages, tips or rebates – speed and efficiency have become the name of the game,” said Yanilsa Gonzalez-Ore, North America Head, Visa Direct in a prepared statement.

Through this collaboration, both companies will focus on streamlining global money movement and facilitating fund disbursements through Visa Direct. This builds on their previous joint efforts; in 2021, Checkbook was part of the Visa FastTrack program and contributed to integrating Visa’s Virtual Cards solutions.

Faster Payments for Businesses and Consumers

The collaboration between Visa and Checkbook signifies a step forward in the evolution of financial transactions. Instant payments, particularly with the release of FedNow last year, have emerged as a game-changer, offering speed and convenience compared to traditional payment methods.

Instant payments have the potential to transform varies areas of financial transactions—from payroll processing and supplier payments to peer-to-peer transfers. They also help reduce administrative burdens, minimize delays, and enhance overall business operations. According to Elisa Tavilla, Director of Debit at Javelin Strategy & Research, as more financial institutions adopt real-time payments, funds will move quicker than they do on the current systems those payments rely on: ACH.

Learning from Global Success

Although the acceleration of instant payments in the U.S. is imminent, there is much to lean from global innovation and adoption trends.

Brazil’s instant payments service, Pix, serves as a prime example of success in this arena. Processing  more than three billion transactions per month, Pix boasts a staggering 70% adoption rate among  Brazilian adults. Brazil’s central bank has recently spearheaded initiatives to enhance cross-border payments, positioning Pix as a frontrunner in these efforts and offering valuable insights for other countries seeking to develop their own instant payments solutions.

Similarly, the European Union Council has made significant strides in promoting instant payments, evidenced by an upcoming law slated to take effect in April. This legislation will mandate the full availability of instant payments in euros across the EU, signaling a commitment to advancing the accessibility and efficiency of payment systems within the region.

The post Visa and Checkbook Set Out to Ramp up Instant Payments Availability appeared first on PaymentsJournal.

In the dynamic landscape of consumer engagement, the expectations placed upon companies are in a state of perpetual flux. Two discernible trends that have crystalized in recent years are consumers’ increasing desire for offerings that align with their beliefs and way of life, as well as their fervent demand for hyper-personalization, shifting decisively away from the outdated notion of a universal solution. This article delves deeper into these trends and examines their implications within the realm of payments. 

The Essence of Premiumization 

To distill it to its core, premiumization addresses consumers’ willingness to pay a premium for products and services for a perception of extra quality or status. While the notion of premiumization may conjure images of exorbitant spending on opulent items, it encompasses a spectrum of preferences. These preferences include: 

• Lifestyle Compatibility: Consumers, irrespective of their affluence, seek products harmonious with their beliefs and way of life. 
• Signaling and Image Projection: Products serve as status symbols, reflecting the identity, aspirations and affiliations of their users. 
• Emotional Gratification: Premium products fulfill emotional needs, with the goal of eliciting a profound sense of satisfaction. 

Hyper-Personalization Unveiled 

Hyper-personalization centers on delivering products and services tailored to individual preferences, a stark departure from the standardized offerings for mass consumer segments. This transformation stems partly from the influence of BigTechs like Amazon and Meta, which have raised the bar for user interaction standards. Today’s consumers, particularly Gen Z and Millennials, anticipate personalized interactions in all facets of their lives, driven by their desire for uniqueness and their inclination to share these unique experiences on social media. 

Helping Shape a Memorable Payment Experience

Matt Turner, Head of Digital at HSBC UK, sheds light on the manifestation of these trends in the banking sector, stating, “Getting to a one-to-one level of personalization is definitely a focus for us.” In the quest for hyper-personalization, banks stand apart from other industries, as they possess an unparalleled understanding of their customers’ (financial) preferences, which they can leverage to create unique (one-to-one) real-time offerings. 

Payment interactions are the most frequent touchpoints between banks and their customers, and consequently, banks around the world are harnessing credit and debit cards as a means to meet the burgeoning demand for premium and personalized experiences. The accelerating growth of banks issuing metal cards reflects this dynamic evolution. These cards exude distinctiveness, both in their tangible weight and their audible presence (the “clang” sound) when dropped on a surface. Some metal cards are further personalized by engraving the cardholder’s signature directly onto the metal. Payments have evolved to spark memorable experiences for the consumer; the payment card has indeed gone from being functional to becoming a fashion statement.

In an era of premiumization and hyper-personalization, the prevailing formula for success in banking appears to be succinctly captured by the adage: “Save your customers money, and they’ll remain loyal today. Make your customers feel unique, and they’ll remain devoted to you indefinitely.” 

The post Premiumization and Hyper-Personalization: Transforming Consumer Expectations appeared first on PaymentsJournal.

Right under our noses, payment card design has been making strong advances in aesthetic and usage terms. As card issuers fight for top-of-wallet positioning, they have been leveraging design features and formats that enable them to elevate their brand and differentiate their card programs. Features like personalization options and biometric sensors can make a strong impact on the final card design—and enhance customer satisfaction. 

During a PaymentsJournal webinar, Julia Schoonenberg, Executive Vice President for Payment Services at IDEMIA Secure Transactions, and Brian Riley, Director of Credit Advisory Services and Co-Head of Payments at Javelin Strategy & Research, discuss how card design trends are shaping the industry. They talked about not just the look but also the function of the physical card and what issuers have been doing to gain competitive advantages in these areas.

Living in a Visual World

One can argue that design is more important than ever. We live in a world where we communicate virtually and visually, with heavy doses of icons and emojis. Our relationships with banks are no exception.

“Design will increasingly play a key role in the bank card program and strategy,” Schoonenberg said. “There are a myriad of design capabilities impacting the card body material, the shape, the visual effect, texture, weight, and even the form factor.” 

Card issuers that create distinctive and attractive card designs can set themselves apart from their competitors with innovative raw materials, original cutting, and design techniques in line with their market segmentations. Banks can create a payment card that reinforces the bank brand and its positioning and creates an emotional bond with its brand. That can reinforce consumer loyalty by providing cards that strengthen the values users want to convey. IDEMIA Secure Transactions— the leading technology provider that unlocks safer and easier ways to pay and connect —has been at the forefront of that movement.

“The card itself represents the financial institution,” Riley said. “That remains the case whether you’re going into a mature market or developing market, whether the payments go through the internet or offline. That card establishes the front-end focus of the financial institution.”

Express Yourself

Banks increasingly segment their customers by persona to better customize their offerings. Here, too, design can play a critical role. Designs can allow a customer to self-identify as an innovator, as trendy, or at a more premium level. 

Toward that end, there’s been a shift toward empowering users to express their individuality through their payment cards.

“Consumers can select the card product they want also based on characteristics such as a standard plastic card, recycled PVC card or a metal card,” Schoonenberg said. “Banks can also give the opportunity to their consumer to select and even choose the card art of their choice directly from their mobile banking app, allowing them to customize the design of their cards.”

Some banks and card issuers collaborate with artists, designers, or influencers to create exclusive card designs. This not only provides users with distinctive and aesthetically pleasing options but also serves as a marketing strategy to attract customers who appreciate art and design. “When issuers partner with a brand licenses provider, we have seen cards featuring Marvel characters or community images,” Schoonenberg said. “They can be linked with limited edition programs. From what we’ve seen at IDEMIA, they are often very successful.” 

Physical dimensions, shape, and structure are aspects of card design where innovation is flourishing. Even ink has become an area of innovation. Card designs can now incorporate dynamic color schemes, often gradients or iridescent colors that change when viewed from different angles. Some cards were designed with interactive elements such as hidden thermoactive features that appear or change color when exposed to heat. 

The Physical Card

Maybe even more significant than design are the physical features of the card. “The most advanced features that we’re seeing are being developed onto the physical card,” Schoonenberg said. “A biometric sensor allows you to use your fingerprint to authenticate yourself instead of having to remember a PIN. This is particularly convenient for contactless payments.”

These innovations can also mean more inclusivity for people who find it difficult to physically manipulate the card.

Another aspect of card design new to Americans is the dynamic CVV. This feature has been around for a while in Europe, where a dynamic screen on the card keeps changing the CVV. “That is bringing a lot of security to online payments,” Schoonenberg said. “They also have illuminated cards that light up when you when you tap to pay. We’re seeing a lot of interest from financial institutions all over the world for those kinds of features.” 

“These advanced design features have become even more important  as we go towards electronic commerce and increasing payments offline debit card position,” Riley said. “If you’re a neobank, you don’t have branches, per se. The card is the entry point that customers can connect their card to that financial institution. The card itself and the design has its security features, but it also has a statement of the financial institution.”

As the banking experience becomes more remote, Schoonenberg notes that card design plays a vital role. “The look and feel of the card has become if anything more critical,” she said, “as that all-important physical link between the cardholder and the bank.”

The post How Design Is Shaping the Payment Card Industry 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 2023, the ACH Network added more than a billion and a half new payments, a year-over-year growth rate of 4.8%. With the economy doing reasonably well, employment levels being high, and payments continuing to migrate away from paper checks and cash, ACH is not just growing robustly but also poised to continue that growth well into the future. 

We asked Mike Herd, Executive Vice President of ACH Network Administration at Nacha, about what’s fueling that growth and where he expects ACH to be headed. Herd discussed these issues with Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, in a recent PaymentsJournal podcast.

ACH by the Numbers

The ACH Network handled 31.5 billion payments last year and moved more than $80 trillion. Of that growth, Same Day ACH volume increased by more than 22% in 2023. Notable drivers of overall ACH expansion included:  

• The number of consumer internet-initiated payments rose by 5.7% to 9.9 billion, primarily supporting bill payment and account transfer use cases.  
• The number of healthcare claim payments to medical and dental providers rose by 7.7% to 488 million.   
• Direct Deposit volume increased by 3.3%, with 8.3 billion payments to workers.    

The dollar limit of a Same Day ACH payment increased in 2022 to $1 million, which has had an effect in the marketplace. “We have been seeing results from it continue through the present with increases in transactions and increases in dollar flows,” Herd said. “Since Same Day ACH started in 2016, we’ve now surpassed 3 billion payments, moving more than $6 trillion. Among the leaders in that growth are things like business-to-business payments and consumer-initiated debt—transferring funds, paying bills [and] loading wallets.”  

Herd said that the increase in Same Day ACH usage has been largely through payroll and other types of disbursements to workers and consumers. That might be a missed payroll, or paying shift or gig workers, for whom speed of payment is an important consideration. Or it might be something like an insurance payout, another instance where speed is an important factor.  

The pandemic was another factor that led to more ACH payments. “During the COVID era, we saw a pretty dramatic shift, impacting businesses that didn’t have staff present in person to issue or process checks,” Herd said. “That was a catalyzing event from a behavioral perspective, for businesses to not process checks at all, and to move to ACH in particular rather than other electronic payments.” 

The Growth in B2B Payments

Business-to-business payments have been one of the true success stories for the ACH Network. Over the past decade, there has been a documented decline in the use of checks for B2B payments. Nacha’s data shows where the action has moved, with ACH use for B2B payments growing by double digits over the past seven or eight years.  

In 2023, the growth was by almost 11% to 6.6 billion B2B payments, primarily oriented around B2B vendor payments. In the Same Day B2B payments, volume grew by more than 50% in 2023, up to 261 million B2B payments made. From a dollar perspective, that’s growth of nearly 60%, with about $1.4 trillion moved via same-day transfers. 

“From the Javelin side, we have survey data that shows, for example, that small businesses often face challenges with cash flow, and they think faster payments would help improve their cash flow,” Tavilla said.  

Herd added to “keep in mind that better cash flow for one side of the payment might mean worse cash flow for the other side of the payment. A payer that holds on to money longer to accumulate more interest is going to pay at the last minute, and that will have an impact on the receipt side.” 

Looking to the Future

What’s certain is that ACH will continue to evolve to meet users’ needs. “I like the analogy of how everyone used to have a landline,” Tavilla said. “Then we had the giant cellphones, then flip phones, and now we all have smartphones. It’s similar with payments. With the technology and the evolution and the different iterations of the products, I imagine the trend will be toward faster, greater efficiency and more precision and control for all who are making payments.” 

Nacha has several priorities on tap. It is looking to define additional expansions for Same Day ACH, including to encompass the full business day in the Pacific time zone. Most of the systems operate from an Eastern time zone perspective, and the current processing day closes in midafternoon Pacific time.  

Nacha will also propose changes and enhancements to the International ACH transaction to try to improve understanding and adoption. It is evaluating expanding its Account Validation services offered through Nacha’s Phixius and for the Payment Information Exchange Network. Finally, it is looking roll out new rules around ACH Network risk management, particularly around fraud monitoring and reporting, to try to raise the bar on monitoring the ACH Network for anomalies and fraudulent transactions. 

The post Same Day, B2B Payments Fuel Growth of ACH Network appeared first on PaymentsJournal.

The landscape of payment cards has witnessed significant shifts, reflecting broader changes in consumer preferences, technological advancements, and the evolving financial ecosystem. As individuals and businesses navigate through the complexities of the global economy, the types of payment cards used—ranging from traditional credit and debit cards to innovative digital wallets and prepaid cards—play a pivotal role in shaping purchasing behaviors.

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Data for today’s episode is provided by Javelin Strategy & Research’s Report: 20th Annual U.S. Closed-Loop Prepaid Card Market Forecast, 2023-2027

Top 5 Payment Cards Used in 2023

• 82% – Major credit card usable anywhere
• 67% – Major debit card usable anywhere
• 37% – In-store gift card
• 33% – General prepaid gift card (non-reloadable)
• 32% – Store branded credit card

Source: Javelin Strategy & Research

About Report

With this report, Javelin Strategy & Research continues its annual series on market trends in the closed-loop prepaid market. In general, Javelin expects a stable environment for the prepaid ecosystem. Top categories such as in-store gifting should enjoy continued healthy growth, whereas other areas, such as transit, are strong but ripe for disruption. Economic conditions continue to make a large impact on overall market growth. Lessening budgetary and inflationary pressure should benefit the areas of consumer choice but inhibit the growth of items that depend on cost-of-living adjustments. Products such as campus cards and tolling will continue to rebound from the 2020-21 pandemic era.

Consumer sentiments remain positive overall, with American buyers showing strong belief in the closed-loop market. Javelin research highlights healthy spending patterns in prepaid cards as well as the frequency of purchases, with a prime opportunity to capitalize on consumers’ willingness to purchase more prepaid cards in the coming year.

The post What Payment Cards Have Been Used the Most? appeared first on PaymentsJournal.

Faster payment methods are experiencing a surge in popularity as more consumers want to send and receive payments in a faster way. Real-time and faster payment networks such as FedNow, RTP, Same Day ACH, and Zelle, a peer-to-peer payment platform, are seeing rises in transaction volume and value as consumers demand more speed and convenience with their payments.

FedNow, the long-awaited instant payment service built by the Federal Reserve Bank, was launched on July 20, 2023, to facilitate the sending and receiving of funds within seconds. You could say that this launch completes the missing puzzle to establish a nationwide real-time payments solution.

In a recent report, 2024 Trends & Predictions: Debit Payments, Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, describes how merchants are navigating card fees, the future of debit payments, and what customers and merchants want.

How Merchants Navigate Card Fees

Doing business, of course, comes with costs. But for merchants, the persistent pain point involves paying credit card fees. These are fees paid to the credit card provider to complete credit card transactions. Current interchange fees range from 1% to 3% of the transaction amount.

These fees can potentially erode the bottom line, so merchants have sought a workaround solution to offset these costs. One way is to encourage consumers to use debit cards. The current cap on interchange fees for debit cards sits at 21 cents and 0.05% of the transaction value.

Tavilla detailed how two prominent players in the mobile phone industry, AT&T and T-Mobile, announced over the summer that for customers to receive their monthly discount via autopay, they must have their autopay set up with a debit card or a bank account.

Everlane, a clothing store, has also found a way to encourage consumers to pay without the debit card option. It’s an alternative payment method known as “Catch” that enables customers to pay through their bank account. When Catch is used as a payment method with Everlane, the customer earns store credit that can be used for any future purchases. Tavilla explains that although this is a niche option, a use case certainly exists.

The Future of Debit Payments is Instant

When it comes to the outlook on debit payments, the possibilities are endless.

“Consumers are increasingly using mobile wallets, like Apple Pay, Google Pay as well as others,” Tavilla said. “Many of the wallet users are using their debit cards to fund their payments through the wallet.

“There’s also been an uptick in contactless cards. Most debit cards are now contactless. Our data shows that 64% of consumers say that they have at least one debit card that is contactless. Shoppers are increasingly tapping to pay with debit cards and mobile phones, especially for everyday purchases.”

More forward-looking statements by Tavilla reveal that as more financial institutions adopt real-time payments, funds will move a lot faster than they do on the current system those payments rely on, which is ACH. With ACH, payments still need a couple of days to settle.

When it comes to moving money from P2P platforms to your bank, it can easily take a few days. However, certain banks have already made it possible to move funds instantly if they support real-time payments.

What Customers and Merchants Want

Customers and merchants ultimately share the same goal to meet their needs, and that is to pay less. Customers are budget-conscious, and they want to maximize savings while ensuring that they still receive value.

Merchants want to be able to control costs and ensure a profitable margin. This includes minimizing the amount they pay for transaction fees. “Regardless of whether you’re a consumer or merchant, cost reduction, savings, and discounts seem to be top of mind and an objective,” said Tavilla.

The post Instant Debit Payments: The Next Phase of Real-Time Payments appeared first on PaymentsJournal.

With consumers’ growing demand for instant payments, convenience, and immediacy, instant issuance just makes sense. Providing a personalized, on-demand, active debit and credit card that promotes top-of-wallet use as well as boosts security—instead of making consumers wait for their card to arrive in the mail—can be a game-changer. By offering this service, financial institutions are doing more to potentially help solidify a long-term relationship with their customers.

In a recent PaymentsJournal podcast, Rob Dixon, VP of Digital and Business Development at CPI, and Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research, discuss what instant issuance is, why financial institutions should offer it, and why offering more sustainable options for customers is a forward-looking, strategic move.

What is Instant Issuance?

Instant issuance programs can help financial institutions gain a competitive edge, giving their customers instant access to their card of choice, thereby reducing incidences of lost cards and promoting increased spending. But what is instant issuance?

Dixon explains:

“Instant issuance really is the ability for a cardholder to walk into a branch or another facility and walk out with a fully capable card, being able to transact anywhere that the cardholder wants to.”

And it’s not just any run-of-the-mill card that these FIs are offering via instant issuance. Dixon said that many of the current instant issuance programs provide EMV or dual interface contactless cards, as well as a multitude of substrates (recycled plastic cards, traditional PVC, and some wood cards).

But as Riley points out, having an instant issuance program is more than just getting a card on demand.

“That card really reinforces the brand,” Riley said. “Getting into instant issuance is important because you’re really at the height of the relationship.

“This is your core contact with the customer, whether they’re opening an account of one sort or another. Having the ability to get that (card) right away really keeps the momentum of that relationship going.”

Why FIs Should Offer Instant Issuance

When FIs eliminate the lag time between issuance and the  customer’s receipt and activation of their card, the customer is more likely to use the card sooner and more often. Consumers certainly appreciate this service, and it could influence a customer’s decision to bank with the FI in the first place.

“Instant issuance enables higher activation and utilization of that card for the cardholder,” Dixon said. “The cardholder is going to use that card more often, not only in the short term but in the long term. It’s also more likely that that card becomes top-of-wallet when it’s issued through an instant issuance program because that cardholder is transacting immediately.

“The higher activation utilization within the portfolio of cards is a significant benefit to the financial institution and could result in higher interchange revenue, as well as cost savings within the card program because you don’t have to mail the card.”

For FIs, it’s all about satisfying the immediate demands for customers to access their funds. Limiting or delaying that can cost FIs loyalty and trust.

On the issue of activation, Riley said, “You’re in that moment of truth where the customer wants the card, and if you can’t give it to them at the point that they want it, they’re going to use an alternative.”

“That could push that card back down deeply in the wallet,” he added. “So getting that (card) activated early is important—to start that muscle memory of the account being used for the transaction.”

Looking Ahead for FIs

With the tsunami of change and competition facing financial institutions amid a rapidly changing digital payments landscape, FIs must keep their finger on the pulse of consumer preferences to ensure they stay in the game. Where FIs leave gaps in customer demand, a fintech company is ready to scoop up market share with innovative solutions.

“It’s important that financial institutions support all channels of customer preference in all ways they can,” Dixon said. “It’s important not only to leverage instant issuance for some of the non-traditional issuance checkpoints like call centers but also that we start to support customer preferences and the instant issuance channel around digital as well and ensuring that card is top-of-wallet both in the physical wallet as well as the digital wallet, too.”

Long-Term Strategies

Consumers are increasingly concerned about the impact on the environment and are demanding more sustainable products from their financial institutions.  This movement can be seen more prominently in Europe, especially in the United Kingdom. Financial Institutions should think about following suite as normally it’s only a matter of time before it’s adopted in the U.S.

“I think it’s important, as we move forward, to look at recycled products as the world continues to have sustainability initiatives emerge,” Dixon said. “As customers continue to look for sustainable options, it’s going to be important that you evaluate your options and your instant issuance program.

You have to support things like recycled plastic or recycled ocean-bound plastic types of cards or other eco-friendly options.”

Instant Issuance Should Be Table Stakes

Although some financial institutions are still debating whether to adopt an instant issuance program due to costs and the move toward mobile banking, it is still a highly sought-after program among customers. The selling point is that customers have a fast, convenient, and safe way to continue their daily transactions. FIs should consider the competitive advantage that could come with instant issuance.

The post Adopting Instant Issuance Programs Give FIs a Competitive Edge appeared first on PaymentsJournal.

Is the UK going to turn its Faster Payments Service (FPS) over to an Indian company? Sky News is reporting that Tata Consultancy Services (TCS), an arm of the giant conglomerate Tata, is a leading contender to become the administrator of the service.

FPS is responsible for processing more than 90% of salaries, over 70% of household bills, and almost all state benefit payments. The current administrator is Vocalink, a British payments processor that has been owned by Mastercard since 2017. Vocalink also operates Canada’s real-time payments system, Payments Canada.

FPS was established in 2008 to supplement Britain’s BACS (for Bankers Automated Clearing Services) system. It cuts the time to settle transactions from days to as little as 80 seconds.

But the system has come under fire more recently for lagging behind more state-of-the-art payments processing. In November 2023, a report called Future of Payments Review charged that FPS has become clunky and was in need of updating. The report said that the FPS system was now slower than its foreign rivals, many of which can settle transactions in 30 seconds or less. The author called on the payments industry to embrace open banking technology that could offer an alternative to industry giants Mastercard and Visa, which process the majority of payments in Britain.

All Eyes on Tata

One concern about handling over control to Tata is recent scrutiny faced by another part of the conglomerate. Tata Steel is planning to cut 3,000 jobs in Wales as a result of switching to more eco-friendly furnaces. That decision has engendered much controversy because the switch was partly funded by a £500 million government grant.

In recent weeks, Tata Consultancy Services has announced that it would be focusing its growth more on areas outside of North America. “I wouldn’t say we are consciously reducing our North America exposure, but we are consciously increasing our play in other geographies because we want to work more in markets like Latin America, Southern Europe or Japan,” TCS CEO K. Krithivasan told Reuters in January.

According to Sky News, the FPS appointment is on hold until the UK government publishes Vision for Payments, a new strategy statement for the sector.

The post Tata Poised to Run the UK’s Faster Payments Service appeared first on PaymentsJournal.

Validating account information is key to ensuring ACH payments continue to be safe and reliable.

In a recent PaymentsJournal podcast, Rob Unger, Associate Managing Director of ACH Network Development at Nacha, spoke with Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, about payment innovations to help safeguard banks and consumers. They discussed how Phixius by Nacha helps financial institutions and fintechs verify bank information to mitigate risk, reduce costs and meet compliance requirements.

Collaboration Is the Key

As ACH payments grow in volume it is important to ensure these payments are accurate and safeguarded as well. As the bad actors come up with more sophisticated scams, it’s important for participants to stay ahead of these new risks to ensure optimal security for payments. 

“Collaboration is the key,” said Unger. “By working together and sharing information, the entire industry could not only reduce risk but also create new risk mitigation tools to enhance security.”

“There is no standard way of validating accounts in the U.S.,” said Tavilla. “We have some folks using micro deposits, screen scraping and several other methods, which creates a clunky customer experience. Having something that’s more standard and consistent would make for an easier and more convenient way to pay.”

Phixius by Nacha

Created and operated by Nacha, Phixius uses standardized APIs so customers can validate accounts with validation sources. Phixius is a peer-to-peer network where participants can exchange and verify payment-related information quickly and securely.

Specifically, Phixius participants can verify routing and account numbers, as well as any associated names on the account, and will soon be able to evaluate the related ACH return history before executing payments. The goal is to simplify the spider web of connections that organizations must maintain.

“If you want to increase coverage, you have to go to multiple options and multiple providers, which entails multiple contracts, different API standards, and different API gateways,” said Unger. “We’re looking to simplify that friction and be that connective tissue.”

Phixius has successfully validated information for more than 4 million accounts since its debut in March 2021. Its first use case involved helping organizations comply with Nacha’s WEB Debit Account Validation Rule. Whenever a biller or other payment originator sees the authorization for an account number for the first time, the rule requires that entity to validate that the account has been opened. 

While participants are welcome to share information, Phixius does not require connected banks and fintechs to provide information to access the Phixius services. However, a new, optional API will soon facilitate the sharing of information related to ACH returns, giving the entire community further insight into potential fraud or suspicious activity. 

As organizations assess their need to validate accounts, the waterfall approach can be very valuable. “Phixius very much fits into that,” said Unger. “You can ping Phixius and get responses from multiple sources. But if it’s a very high-risk payment, you may need to consider other tactics to de-risk that payment.”

Who Can Benefit from Phixius?

Direct customers of Phixius are credentialed service providers, fintechs and banks providing services downstream, as well as their customers, businesses and consumers trying to be compliant with the Nacha web validation rule or that have other use cases around risk mitigation. 

“These capabilities would also be helpful with the newer debit payment methods and technology that continued to evolve,” said Tavilla. “The account validation piece and a frictionless experience would be key in increasing adoption for these newer payment methods and achieving scale.”

As a one-stop shop, Phixius is particularly valuable for many smaller financial institutions that rely on third-party service providers because they might not have the in-house resources to conduct their own risk mitigation. Phixius’ partnership with Aliaswire is designed to serve businesses with smaller account verification needs. 

“Every ACH originator has a wealth of information in the ACH return file,” said Unger. 

“Every day as you send your payments out, you get returns that may include one of 70-some reasons why payments can’t be posted. That’s very valuable information. Our community said, ‘I’d like to be able to share that information.’ When an originator experiences some kind of fraud, they’ll certainly contact their bank and maybe law enforcement. But meanwhile, the community doesn’t know about this, and fraudsters are not just attacking one entity. That’s what this new API is designed to address.” 

The post Paving the Way for More Efficient Account Validation appeared first on PaymentsJournal.

Instant payments are on the verge of becoming a profit center, according to a recent survey. Participants were asked how likely it is that B2B real-time payments will become a profit center for their bank within three years, and 37% indicated it was likely, while 14% expressed an even higher level of confidence. Only 8% said it’s unlikely to happen.

The report from Finzly also looked at the path to achieving this profitability. The strongest avenue appears to be expanding the use of FedNow. 

After launching in July, FedNow finished 2023 with more than 300 participating financial institutions. But the majority of those institutions are still using it for “receive only” services.

While half of Finzly survey respondents identified “fees” for enabling their customers to send and receive instant payments as a profit opportunity, only a handful recognized the potential of Request for Pay (RfP) as a value-added service. Additionally, when attendees were asked about the biggest profit opportunity with B2B real-time payments, only 15% cited “offering RfP.”

“Identifying and executing appropriate instant payment use cases is critical to meeting customers’ needs and generating revenue,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “Being able to send and receive instant payments is also essential, especially to support RfP and other FedNow functions. While receive-only is a good start, financial institutions ultimately need to be able to send and receive funds in order to fully take advantage of real-time payment capabilities that support innovative products.” 

Rapid Payments, Rapid Adoption

Many companies are willing to pay for speedier payments, with 50% of businesses indicating as much per the Finzly survey. Respondents said that $2.50 seemed like a fair price for sending $1,000, while $100 was a reasonable fee for receiving $100,000 more quickly.

Another survey from the U.S. Faster Payments Council found that 88% of financial institutions said that they will implement FedNow and/or RTP within the next two years. RTP has been implemented more, with 61% of FIs saying that process is underway or complete. FedNow has been or soon will be implemented by 44% of respondents. Only 12% of FIs said they plan to wait more than three years to implement these payment services—or won’t implement them at all.

The post Banks’ Next Profit Center: Instant Payments appeared first on PaymentsJournal.

In today’s highly competitive economic environment, businesses must implement resilient payment strategies that prioritize speed, efficiency, scalability, and reliability. Failing to establish this vital infrastructure can result in a diminished customer experience and jeopardize an organization’s competitive advantage and revenue.

According to a survey from U.S. Bank, conducted by FT Longitude, having a forward-looking payments approach—particularly to keep up with changing consumer behavior and ongoing data security challenges—is paramount for organizations to increase their resilience.

Remaining Agile in the Current Payments Landscape

Various factors force organizations to transform their operations, including changing consumer preferences, growing competition in their market, and economic uncertainty. One of the biggest challenges, however, is data security. Nearly half (47%) of respondents in the U.S. Bank survey said that data security and fraud management risks and controls were driving some transformation within their organization, and another 39% said those factors were driving significant transformation.

Data breaches are some of the costliest events organizations can experience. They can result in substantial losses for businesses, and the card brand networks and regulatory agencies have steep fines and assessments for organizations experiencing a breach event and those who remain non-compliant with the data security standards. That’s why having a payment security strategy is so crucial for organizations to not only tackle ongoing challenges but also deal with long-term issues. According to the U.S. Bank study, 25% of respondents said they have already successfully increased payment security within their organization, and a similar number (26%) said they’re in the process of implementing it.

How Organizations Are Remaining Resilient

There’s a lot to keep up with to ensure that a payments strategy is effective. An organization needs to think about the associated costs, consumer retention, and whether the process is efficient. On top of that, they have to make sure they’re keeping the fraudsters away. Even for large organizations that may have teams equipped to handle these factors, it can be trying at times. Taking a multi-pronged approach can work.

Cost Savings

Organizations can start by keeping payment acceptance costs low. Seven in 10 respondents said that doing so is necessary when it comes to managing expenses. Businesses need to first understand their current payment acceptance and processing fees. A reputable and knowledgeable payments processor can guide organizations through interchange optimization solutions by determining which transactions qualify for a lower interchange fee.

Customer Satisfaction

Offering customers their preferred payment method should be another approach organizations consider. Although an influx of payment methods has emerged recently—including the ability to pay for goods via a hand palm—making sure there are multiple options at the point of sale will keep customer satisfaction and loyalty up. Customers are naturally drawn to businesses that offer their preferred payment method and will choose to do their business elsewhere if their choice isn’t available. Indeed, 50% of financial leaders polled said they had received complaints within the past year related to poor customer payment experiences.

Driving Efficiency

When it comes to payments, efficiency and accuracy are paramount. Manual systems, which are still being used by many businesses, are now viewed as too risky, time-consuming, and costly. Nearly a third of respondents surveyed said it’s a current struggle, stating that their operational efficiency has gotten worse in the past year. What many should consider is automating their processes to ensure the function is less tedious. More than two-thirds (67%) of respondents said streamlining payment processes could eradicate human error and enhance accuracy.

A More Secure Approach

Finally, the key to resilience—as previously mentioned—is an organization’s commitment to payment data security. Roughly 60% of respondents said that the need for security “has never been so high.” A secure payments system can help fight ongoing fraud and also bestows trust among consumers and the suppliers that organizations work with. At a time when consumers are more aware of the effects of fraud, organizations must take the necessary steps to protect themselves and their customers’ payment data.

Challenges to Developing an Effective Payment Strategy

Creating an effective payment strategy sounds good on paper, but the reality is that its successful execution often proves elusive. Of the 250 financial professionals U.S. Bank surveyed, 28% said their payments strategy was “advanced” or “very advanced.” In contrast, 39% of respondents revealed that their current payment strategies were not advanced and there’s work to be done.

This is something being experienced across various industries, with certain sectors boasting more sophisticated payment strategies than others. Notably, the retail space has forged ahead with advanced payments systems, driven by the high transaction volume and fostering fast and efficient processes. This progress has spurred innovations such as mobile wallets, elevating the overall consumer shopping experience. In contrast, the healthcare industry lags behind in developing similarly advanced payment strategies.

Budget constraints are another hurdle. Although remaining agile means giving consumers more choice—72% of financial leaders said they were aware of the importance of giving consumers their preferred payment options at checkout—it also requires more resources and financial investment. Making sure various payment options are available means businesses will need to upgrade their current systems, implement new hardware, and, overall, take on a considerable cost that may not be within their budget.

Keeping up with rapid innovations, in addition to compliance and regulations, further complicates matters. Roughly two-thirds of respondents said they were having a difficult time keeping pace with new security technologies in payments.

Despite Challenges, the Benefits are Vast

Describing updating existing payment strategies as complex would be a considerable understatement. Balancing the integration of new payment solutions within current workflows, adhering to regulations, and mitigating risks, all while meeting customer expectations, presents such a formidable task that many businesses might contemplate giving up before they even begin.

But as outlined by the U.S. Bank research, those who stay the course are rewarded. Respondents who updated their payment strategies said their reputation improved by 60%, consumer satisfaction increased by 53%, employee productivity rose by 50%, and operational efficiency grew by 49%.

An effective payment strategy stands as the key to ensuring businesses not only survive but also thrive in today’s dynamic payments landscape. By streamlining processes, satisfying customers, and ensuring secure transactions, businesses position themselves optimally to scale and grow and remain resilient against potential economic storms on the horizon.

You can download the full report at https://paymentstrategy.usbank.com/

The post Enhanced Payment Systems Are the Secret Sauce to Business Resilience appeared first on PaymentsJournal.

Shell is facing a class action lawsuit in California, alleging its gas stations have charged customers using a prepaid Shell gift card the credit card price instead of the cash price. What the suit really asks is, are prepaid cards more akin to cash, or more akin to credit cards?

It is understandable that consumers might not see any difference between a gift card and cash. The California civil code requires that any gift card sold after January 1, 1997, can be redeemed for its cash value—and the law also stipulates that a gift card cannot contain a service fee.  California also requires that a gift certificate with a cash value of less than $10 is redeemable for cash.

Given that, the lawsuit claims that gift cards should be valid for the cash price at Shell gas stations. But the extra charges that some gas stations incur aren’t result of the “credit” part of the equation. They’re a result of the “card” part.

Swiping any type of card, whether it’s credit debit or prepaid, will always cost merchants extra. The cash discount arises from merchants trying to avoid those interchange fees. While the fees may be lower for debit or prepaid transactions, the station still has to pay them.

Other States Have Made This Clear

Other states have dealt with this issue more directly than California has. New Jersey law, for instance, states that a “retail dealer may sell similar fuels at different prices to cash and credit customers.” It also requires a “conspicuous sign … posting the price per gallon (or per gallon and per liter) reduction for cash purchases of fuels.”

A spokesperson for New Jersey Consumer Affairs clarified this practice to a reporter for NJ. Com. “Retailers often do not distinguish between debit or credit card purchases due to similar transactional processing fees, and therefore charge the credit card price on all such transactions,” she said. “N.J.A.C. 18:19-2.7 does not prohibit that practice.”

On the other hand, gas stations may benefit from a little sleight of hand in this area. Researchers have long known that issuers tend to see greater sales in stores where gift card purchases are eligible for rewards programs. In the specific case of Shell, holders of their credit cards also earn an immediate discount at the pump.

Customers may perceive that the stations are encouraging them to use gift cards, as opposed to cash. And given the consumer-friendly regulatory environment in California, it’s impossible to say the suit will fail. In the meantime, though, retailers that offer discounts for cash may wish to emphasize that it’s not credit cards that cost more—it’s cards of any kind.

The post Shell Lawsuit Asks: Is a Gift Card the Same as Cash? appeared first on PaymentsJournal.

On Wednesday, the Consumer Financial Protection Bureau (CFPB) proposed a rule to curb excessive overdraft fees charged by the nation’s largest financial institutions.

The Overdraft Notice of Proposed Rulemaking (ONPR) “would close an outdated loophole that exempts overdraft lending services from longstanding provisions of the Truth in Lending Act and other consumer financial protection laws.”

Under the proposed rule, overdraft services offered by banks and credit unions with more than $10 billion in assets would be subject to the same regulations as other types of consumer loans, including disclosing any applicable interest rates. The CFPB found that customers are “typically charged $35 for an overdraft loan, even though the majority of consumers’ debit card over drafts are for less than $26.”

Excessive Fees

In the CFPB’s 2023 Making Ends Meet survey, more than a quarter of consumers said that someone in their household was charged an overdraft fee or NSF fee within the past year, and 43% were surprised by their most recent account overdraft. Many consumers who were charged overdraft fees had access to a cheaper alternative, such as available credit on a credit card.

Banks and credit unions usually charge an overdraft fee to cover a deposit account holder’s debit transaction even though the customer does not have enough money in their account. The CFPB asserts that overdraft coverage is a loan to the customer, similar to credit cards, and should therefore be subject to the Truth in Lending Act, which requires disclosure of all applicable costs.

“In the 1990s and early 2000s, with the rise of debit cards, institutions began raising fees and using the exemption to churn high volumes of overdraft loans on debit card transactions. Annual overdraft fee revenue in 2019 was an estimated $12.6 billion,” according to the CFPB. Some large banks have lowered or gotten rid of overdraft fees in recent years. For example, Bank of America reduced overdraft fees from $35 to $10 in 2022, and Ally Bank eliminated such fees in 2021. Despite the modifications in overdraft practices that reduced overdraft revenue to roughly $9 billion a year, the CFPB contends the changes are not enough.

The ONPR would require applicable financial institutions to treat overdraft loans like credit cards and other loans. Alternatively, banks could offer overdraft services as a “convenience” to customers, and charge a fee in line with their costs, which can be as low as $3. In a statement, President Biden called exorbitant overdraft fees “exploitation,” and said the new proposed rule is “just one part of my Administration’s broader plan to lower costs for hardworking families.”

Banks Warn of the Rule’s Potential Harm to Consumers

Financial institutions, large and small, are reacting to the CFPB’s proposed rule. American Bankers Association president and CEO Rob Nichols warned in a statement that: “The proposal would make it significantly harder for banks to offer overdraft protection to customers, including those who have few, if any, other means to access needed liquidity. The CFPB is effectively proposing to take away overdraft protection from consumers who want and need it.”

In a separate statement, Consumer Bankers Association president and CEO Lindsey Johnson said, “If enacted, this proposal could deprive millions of Americans of a deeply valued emergency safety net while simultaneously pushing more consumers out of the banking system.”

Credit union leaders argue the CFPB’s proposal would put all credit union overdraft programs at risk. Virginia Credit Union League President/CEO Carrie Hunt also released a statement noting: “While the rule targets institutions with more than $10 billion in assets, the realities of the marketplace mean that overdraft programs at all credit unions are endangered. We know that credit unions have responsible programs that provide members a valued service at a reasonable cost. CFPB again misses the point that not all fees are abusive. They are the cost of doing business and can be a deterrent.”

The post CFPB Proposes Rule to Curb Overdraft Fees, Banks Cite Potential Consumer Impact   appeared first on PaymentsJournal.

Real-time money movement (RTMM) is gaining traction worldwide. Although real-time payments only account for only a 1.2% share of the total payments volume in the US in 2022, transactions are expected to grow 364% by 2026¹. As more businesses and consumers expect faster, more efficient payments, this trend will only grow, with McKinsey predicting that by 2027, more than half of all payment transactions will occur in real-time (a threefold increase from today). For financial institutions (FIs), RTMM’s explosive growth is an opportunity to grow their revenue and capture new customers (86% of whom see value in RTMM²). The biggest roadblock to this growth has been outdated mindsets, roadblocks keeping FIs in the United States from getting on board and adopting this potentially lucrative payment system.

FIs have been reluctant to adopt RTMM solutions based on a few commonly held misconceptions. They include the beliefs that:

• RTMM leads to increased fraud risk
• There’s a lack of consumer interest in real-time payments
• There’s no risk in waiting to adopt, and high-risk in early adoption

These common beliefs cannot be further from the truth. Subscribing to these misunderstandings can lead to disastrous results. In today’s rapidly evolving payments landscape, standing on the sideline endangers FIs, which could lose their competitive edge as well as a significant portion of potential market share.

So what is the truth about RTMM systems and its incorporation into both the financial and fraud landscapes? NeuroID’s guidebook, Three Common Myths About Real-Time Money Movement & Fraud and How They’re Hurting Your Revenue, aims to dispel commonly held myths and discover the truth behind RTMM and fraud.

Does RTMM Adoption Lead to Increased Fraud Risk?

Fraud experts still hold on to the belief that faster payments can lead to faster fraud. And it’s an understandable fear: with no way of recovering money lost in real-time, RTMM systems seem especially scary. Fraud involving authorized push payments (APP) is on the rise as the immediacy and finality of these payments give consumers a much shorter timeframe in which to dispute or revoke them³.

But it’s not the speed that makes RTMM vulnerable, but the outdated fraud prevention systems that simply can’t adjust to new styles and speeds of bad actors. Reactionary responses and manual work can’t fight real-time, instantaneous threats.

As funds funneled through RTMM move faster, fraud solutions must keep up the pace. This means employing fraud prevention orchestration technology that reduces manual operations and can make more deterministic decisions higher in the fraud capture funnel. Switching to real-time fraud prevention automation makes the process simpler, repeatable, and more accurate—enabling FIs to capture both the fraud and opportunity that comes with RTMM systems.  

Do U.S Consumers Actually Care About Real-Time Payments?

Data highlighted in the NeuroID report reveals that only 18% of banks and 12% of credit unions actually provide RTMM services, paving the way for the argument that consumer demand is lacking. However, Generation Z is leading the way in the world of faster digital payments. In fact, 66% of that cohort use digital wallets in virtually all cases. Plus, 51% stated that digital transactions will soon displace physical transactions.

Furthermore, across various generations, close to 80% of consumers want to make payments to businesses directly and quickly. These stats clearly show that U.S. consumers, regardless of age, desire to make real-time payments as it enables them to send and receive money quickly as well as have more control over their finances.

The rise and popularity of peer-to-peer payments (P2P) are also indicative of this consumer desire to access real-time payments. Some of the most popular providers include Zelle, Venmo, Visa Direct, and Mastercard Send. The new launch of FedNow is going to continue to fuel this consumer demand.

But P2P platforms have not been without controversy. Zelle has been in the headlines for a lack of consumer protection against fraudulent transactions. Zelle’s parent company, Early Warning Services, reported that Zelle users have lost approximately $440 million to fraudsters.

Despite the lack of fraud protection, customers continue to use this platform for sending money instantly and irreversibly. Convenience is the deciding factor. For FIs, RTMM systems aren’t just about meeting an immediate consumer demand—they’re about securing a future customer base. With Gen Z exhibiting high loyalty towards FIs they trust, meeting their needs with RTMM adoption means establishing a long-term customer base.

RTMM Is a Must to Stay in the Game

RTMM is not just another strategy. It’s a competitive necessity. Traditional banking services such as ACH payments and wire transfers still have their place, but for some consumers, they are simply too slow for the rapidly evolving payments landscape. Such services can take hours or even days for funds to clear. This is no longer a viable option for those consumers who want faster payments and immediate access to their funds.

RTMM systems are still developing, and some financial institutions don’t want to take unnecessary risks when it comes to implementing them. But with 15% of consumers saying RTMM availability would be a top factor in changing banks, waiting is also risky. If you competitors have a more aggressive timeline than you do, you’ll lose real revenue: it’s as simple as that⁴.

Behavioral Analytic’s Place in Combatting Real-Time Fraud

Another issue driving hesitancy among FIs is updating fraud prevention legacy infrastructure and technologies. Revamping these systems to facilitate and support real-time payments could take considerable time and expense. But it doesn’t have to be an all-or-nothing approach: there are real-time fraud solutions able to keep up with RTMM-based fraud that don’t require a rip-and-replace, and can instead work as a new, unique signal within your fraud stack.

When it comes to tackling the potential for fraud head-on, financial institutions must partner with a solution provider that leverages behavioral analytics to detect incidents of fraud. Within it’s role as a behavioral analytics leader, NeuroID is breaking down barriers and enabling safe and secure RTMM adoption.

A pioneer in the realm of behavioral analytics, NeuroID detects the intention of users through their online behavioral patterns. NeuroID alerts to fraudulent activity by differentiating between legitimate users and potential bad actors based on form interactions (such as swipes, clicks, and name entries). All decisions are enacted in real time for the safer integration of instant payments.

NeuroID’s solution is lightning-fast, with the ability to approve, deny, and review transactions in less than a second.

Closing Thoughts

RTMM will soon be table stakes for FIs. Although adopting RTMM without inviting fraud does have challenges, they are not insurmountable.

With RTMM fraud, time is of the essence. It is critical to have a solution that can make real-time decisions on who is trustworthy, and who is treacherous. Behavioral analytics are a game-changer to ensuring proactive prevention in real-time.

Leveraging the power of behavioral analytics, FIs get the information they need to streamline decision-making and avoid fraud costs, while still reaping the benefits of RTMM adoption.

Interested in learning more? Register for NeuroID’s The Dark Side of Speed webinar series. 

¹ https://insiderealtime.aciworldwide.com/Fight-Real-Time-Payments-Fraud-in-Three-Simple-Steps
² https://insights.discoverglobalnetwork.com/fintech/5-payment-trends-in-fintech
³ https://www.pymnts.com/bank-regulation/2023/senators-warn-regulators-on-zelle-fraud-risks/
⁴ https://www.accenture.com/us-en/insights/banking/payments-gets-personal-strategies-stay-relevant

The post Real-Time Money Movement: Dispelling the Myths and Embracing the Opportunities appeared first on PaymentsJournal.

As the U.S. banking industry moves toward embracing real-time payment systems, a recent survey underscores the importance of strategic planning, the challenges faced by legacy systems, and how collaborating with trusted partners can help organizations navigate this transformative journey.

This fourth annual survey from the U.S. Faster Payments Council, Glenbrook and Volante, a cloud payments modernization partner to financial businesses, asked the opinions of 427 market participants, 60% of whom work for a financial institution or a facilitator. This year’s survey recorded the highest level of satisfaction with the industry’s progress toward the adoption of faster payments. Across the industry, 51% of respondents—including 61% of financial institutions—say they are satisfied.

Implementing RTP^® and FedNow^®

The most significant development in real-time payments has been the introduction of FedNow in July 2023. That followed the launch of Nacha’s Same Day ACH in 2016 and The Clearing House RTP Network in 2017.

Among financial institutions, plans for these services are robust, with 88% of the survey respondents saying that they will implement FedNow and/or RTP within the next two years. RTP has been implemented more, with 61% of FIs saying that process is underway or complete. FedNow, less than a year old, has been or soon will be implemented by 44% of respondents. Only 12% of the FIs say they plan to wait more than three years to implement these payment services—or won’t implement them at all.

The survey also asked about future deployment strategies. For FedNow, 44% said they will support send and receive services initially, with 48% planning to add send services eventually. Only 8% said they will remain a receive-only organization. The figures are similar for RTP: 50% say they will support send and receive services initially, with another 34% adding send eventually. This leaves only 16% expecting to be a receive-only organization long term.

Reaching for Outside Help

For companies planning to use RTP and FedNow, 46% say they will connect to both via a third-party provider, compared with 32% who say they will connect to each system directly. The preference for working with third-party providers is understandable, as the integration and operations of these systems can be resource-intensive.

To help ease the barriers to adoption, many FIs have been turning to technology providers that focus on simplifying deployment and operations. Outsourcing the entire operation can also reduce overhead, allowing institutions to focus on innovation and opportunities to monetize faster payments. Other important considerations that respondents mentioned included software-as-a-service business models, providing scalability without extensive hardware upgrades and resilient disaster recovery services.

In addition to a faster time to market and lower operating costs, the survey respondents noted that they were interested in many of the value-added services that third-party providers can offer. Among them:

• Enabling proxy/alias (e.g., phone number) for payment initiation
• Confirmations sent to sender and receiver
• Enabling a QR code
• Recurring/automatic payments
• Appending additional remittance data

Changes Over Time

Over the four years the survey has been conducted, the top challenges with faster payments has changed little in the rankings. This year’s survey found that interoperability is considered to be “very important” by 71% and “somewhat important” by 21% of those surveyed. That total of 92% has been largely consistent over the four annual surveys.

On the other side of the coin, lack of ubiquity/interoperability continues to be the most common concern. Roughly 57% of financial institutions and business respondents mentioned it as an issue.

This is the only concern that earned such a strong consensus among these two groups. On other topics, the two groups had some severe disagreements. High upfront implementation costs were the second most common concern among bankers (59%), whereas only 33% of business respondents saw this as a top challenge. Similarly, 40% of financial institutions see “insufficient readiness to manage risks in a real-time environment” as a top concern, compared with only 10% of businesspeople.

Only 27% of respondents say they see an increase in fraud related to their faster-payments operations. Although that’s not a large number, it’s important to note that it has doubled from 13% in 2020.

There is overwhelming support for including dispute resolution as an inherent feature of faster payment systems (81%), similar to what’s done by credit card networks. This support has increased by 10 percentage points over the four years of the survey.

The survey also asked about cross-border payments. With regards to the RTP Network, 39% of the respondents say they are either using or plan to use its cross-border payment capabilities. Some 50% said they are unsure if they will use it, and only 11% said they will not use the feature. With FedNow, 77% said the system should offer cross-border faster payments.

Conclusions

The survey portrays an industry in the early stages of transitioning to a real-time operating environment, particularly for FedNow.

Real-time payments are quickly becoming a necessity for financial institutions to offer so they remain competitive.

The industry needs the freedom to evolve its existing systems and operations through innovation that can complete the transition to a new level of service and a new way of imagining the payments business. Along the way, trusted partners can provide the support and insights to clarify strategy and support complex transitions.

Download Volante’s U.S. Faster Payments: The state of the nation report to learn more about the evolving landscape of faster payments.

The post Payments Processing Survey Shows Progress for  FedNow, RTP appeared first on PaymentsJournal.

Remittances are a big business. In low and middle-income nations, remittances account for most of their capital inflow, exceeding even foreign aid.

This year alone, total global remittances are expected to reach $815 billion—more than the GDP of most countries, including wealthy nations such as Switzerland. As the world’s largest economy, most remittances originate in the U.S., where friction in the process has created mass consumer frustration. Currency exchanges, requisite account creation, and the need to visit a physical location like a Western Union have impeded the free flow of money across borders. The remittance industry has long been overdue for change, and with new technology, the process of sending and receiving money is undergoing a renaissance.

The first technology driving remittance disruption is now ubiquitous—smartphones, which have become a lifeline for millions of people, especially those in emerging markets. As smartphones become the go-to device for everything from messaging to dating, it is expected they will also become the preeminent tool for money and finance. Fears about the move to encrypted messaging on smartphones have proved largely unfounded: A Pew Research Center survey of 11 developing nations found that free messaging apps such as WhatsApp are universal among users in these countries, contributing to an overall sense that smartphone connectivity has had a positive impact on education and the economy.

As was the case with other industries, the growing accessibility of technology is also cutting middlemen from the money transfer process. The need to travel to a physical location—a difficult proposition in many underdeveloped places—is slowly becoming a thing of the past. With half of all money sent going to rural areas, which are typically where most impoverished and food-insecure communities are located, overcoming this barrier is crucial to bringing equity to the remittance process.

The move toward disintermediation has created the possibility for remittances to become truly peer-to-peer without the restrictions, rules, and interference of corporations. Businesses that have long charged fees on these transactions are naturally resisting the move; fees are typically about 6.25% of total dollars sent—which can add up to a massive amount over time. There is, however, historical precedence for slow and costly processes to evolve into instant, free options.

Take, for example, the move from telegram to text. People once had to make a potentially time-consuming journey to a physical telegraph office to send their messages. In modern times, that morphed first into SMS—an instant process that incurs a small fee for text messages—to the free instant messaging services available today through WhatsApp and similar apps.

Remittances are on a similar path that is being facilitated through bitcoin.

Bitcoin combines the power of an app-based mobile wallet with free peer-to-peer transfer services. Its long-awaited arrival has accelerated the remittance revolution. As a universal protocol, anyone with a digital wallet app—no matter the provider—can send bitcoin through the network. Digital currency eliminates the need to visit a physical location to arrange the transaction, pay a fee, and navigate restrictions. All you need is the app to instantly reach the people you need to reach.

Before mobile bitcoin-based remittances become universal, some challenges remain. Legacy remittance providers offer a level of protection against fraud and the ability to cancel a payment or request—which is currently impossible with bitcoin, due to its instantaneous transfer. Even so, for most, the immediate availability of cash made possible through bitcoin outweighs the cumbersome, rarely used protections of legacy remittance providers.

Momentum behind technology is making the process easier, more democratic, and less expensive. When remittances shift to become app-based and bitcoin-enabled, more people will have greater access to their money and will likely send it more frequently, and in smaller amounts. This creates a greater possibility for recipients to smooth their incomes and establish more stable savings plans. With the numerous advantages these emergent systems offer, digital money transfer will continue to grow in popularity, accelerating a move toward cryptocurrency and reshaping this important element of the global economy for the better.

The post The Future of Remittances is Mobile, Direct, and Digital appeared first on PaymentsJournal.

Instant payments are poised to accelerate in the U.S. now that FedNow has launched. There’s an opportunity for banks and credit unions to take the lead again in payments. They can offer a cheap, convenient, fast and secure way to move money that U.S. consumers and businesses didn’t know was possible.

Like ACH, value can be created on instant payment rails that doesn’t necessarily require a catchy name that later becomes a verb. Consumers don’t know ACH, but they do know direct deposit – 94% of Americans get paid that way.

Unlocking instant payments in the U.S. will require innovation. When it comes to instant payments innovation and adoption, Brazil is one of the best markets to learn from. Pix is Brazil’s instant payments scheme and is arguably the most successful scheme worldwide in terms of adoption. In less than 3 years, the number of Pix transactions exceeds both credit and debit combined. Some 70% of Brazilian adults use Pix and there are over 3 billion Pix transactions per month (vs. ~30 million in the U.S.).

The innovations happening on top of the Pix rail are remarkable. Below are just a few examples that are enabling Pix to reach its full potential that may serve as inspiration for the U.S. market.

Pix Credit

Pix Credit is a product that allows a consumer to pay using Pix and re-pay their financial institution over time. Nubank, Digio, Banco BV and MercadoPago offer this today, and other very large Brazilian banks are gearing up to launch their version of Pix Credit soon.

With Pix Credit, cards don’t need to be issued, the payment networks and acquirers don’t need to be involved in transactions. And, Financial Institutions can charge interest much like with credit cards.

There are several reasons why consumers might use Pix Credit.

• If they have an urgent need to make a payment, but don’t have balance in their account (e.g. emergency medical or utility bill).
• When a store offers a discount on purchases for payment with Pix – consumers can take advantage of the discount, but pay back over time.
• Repaying for purchases over time may align better with their incoming cash flow.

Pix Credit is a way for financial institutions to offer a credit card-like product using the instant payment rails, but profit in a way that doesn’t hurt merchants by offering a more efficient payment system with fewer players.

QR Codes

QR codes are accelerating consumer-to-business instant payments in Brazil.

Currently, over 30% of the 3 billion Pix instant payments a month are person-to-business transactions (up from 13% two years ago).

This P2B Pix adoption was made possible by QR codes. When consumers go to a store to pay with Pix, they don’t share their bank account information with the cashier at checkout. Instead, the merchant presents a QR Code, the consumer scans it from their mobile phone, reviews the transaction details on their phone, hits pay, and the transaction is done.

This P2B instant payment is simple, fast and all that’s needed is a mobile phone. The exchange of bank accounts and related information is all handled behind the scenes via QR code.

Merchants and billers love Pix. It’s 1/10th of the cost of credit cards and they get their money instantly. As a result, they are offering material discounts to consumers if they pay with Pix, using QR codes. Amazon, for example, offered consumers an additional 10% off if they paid with Pix on Amazon Prime Day this year.

Amazon isn’t the only company that presents a QR code to a consumer at online checkout. QR codes are commonly used to initiate instant payments across many verticals and at many recognizable brands. Examples include large retailers, mobile operators, fast food (e.g. McDonald’s, Burger King, Pizza Hut), Gasoline (Shell), e-commerce and many others.

Instant payments to all of these verticals and companies wouldn’t be possible without QR code technology. Also the use of QR codes grew much faster than cards in the past because there were no hardware requirements. The QR code can be presented on the payment terminal, cashiering system or printed on the receipt. Any payment alternative requiring new hardware in every store is likely to fail.

Loyalty Point Redemption

One of the most creative applications of the Pix rail is its ability to process different currencies—such as loyalty points.

With over 400 partners around the world, ties to more than 40 Financial Institutions, and approximately 40 million consumers on their platform, one of the biggest rewards programs in Brazil recently began leveraging the Pix rail for points redemption. It’s a win-win for both consumers and merchants.

Consumers earn points when making purchases from select partners. When they redeem those points, they pay directly from their mobile app and the transaction flows over the Pix rail. The merchant receives cash instantly in its bank account, and the loyalty points are deducted instantly from the consumer’s loyalty account.

What Now?

RTP and FedNow enable U.S. financial institutions to meet modern digital demands with a 21st century payments solution. Adoption of instant payments requires pairing innovation with these rails. And, the blueprint of what’s possible is available in other countries who are 3-5 years ahead of the U.S.

“For FedNow to reach its full potential, we’ll need to harness the creative energies of all kinds of people including fintechs to think about how we enable this platform for innovation.” – Mark Gould, Chief Payments Executive, Federal Reserve on Fintech Takes Podcast Aug 23, 2023

No one in Brazil thought Pix would be a success when it launched. Financial institutions who weren’t prepared lost commercial business as a result. While it’s impossible to predict the inflection point of when instant payments will accelerate in the U.S., it is widely-agreed that instant payments are coming. What are you waiting for?

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In the intricate world of financial operations, interchange revenue stands as a critical yet often misunderstood component. How financial institutions allocate interchange revenue is a sophisticated mechanism. Interchange revenue is a significant stream of income derived from card-based transactions. Understanding this allocation process is crucial for comprehending the economic interplay between banks, merchants, and consumers.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: Revenue Dynamics of Debit Cards Since Dodd-Frank

Top 5 Components of Interchange Fees

• 44% – issuer rewards
• 35% – issuer other costs and profit margin
• 9% – issuer processing
• 4% – network processing
• 4% – network servicing

Source: Federal Reserve Bank of Kansas City

About Report

Amid the ever-shifting payments landscape, debit also stands to be transformed by changing regulations and shifting consumer habits. New routing regulations could have an impact on cost and revenue, given the flourishing world of e-commerce and mobile payments. Proposed federal legislation on credit cards could blunt popular rewards programs and shift usage toward debit cards.

This Javelin Strategy & Research report looks at the terrain of debit interchange—what it is, how costs rise and fall, how it is used by issuers—and considers the various factors that could affect it as financial institutions look to boost their interchange revenue and merchants try to control their own costs.

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BankMobile remains the largest provider of Title IV funds disbursement services under T1 arrangements with colleges, according to a new report from the Consumer Financial Protection Bureau (CFPB). BankMobile had approximately 750 university partners as of 2021, and more than $13 billion in disbursements that year. Colleges paid BankMobile more than $3 million for the 2021-2022 award year, with an average payment amounting to $8,155.

In T1 arrangements, colleges typically pay a provider to process federal financial aid disbursements. Payments typically include subscription fees, monthly account maintenance fees per user, and fees per disbursement.

In the 2021-2022 award year, financial institutions generated more than $15 million in fees from these accounts, with accountholders paying an annual average of $26.50 in fees. BankMobile, the dominant player, charged higher-than-average fees, at more than $28 per accountholder. Huntington Bank had the lowest annual fees, averaging less than $2 per accountholder.

BankMobile is a fairly recent entry into this space. It began as a subsidiary of Customers’ Bank in 2015 before acquiring former-T1 services provider Higher One the following year. By 2021, BankMobile estimated that it had access to one in three college students in the U.S. through its campus partnerships.

Credit Card Partnerships

This was the 12th annual CFPB report to Congress on college banking agreements, which is mandated by the CARD Act of 2009. Among the highlights in this year’s study:

• In 2022, credit card issuers paid nearly $20 million to colleges and affiliated organizations for partnerships. The average annual payment was roughly $138,000.
  
  
• The CFPB’s review identified 143 partnerships between colleges or affiliated groups such as alumni associations and credit card issuers. This market is dominated by the alumni associations, who make up more than two out of three of all college card accounts.

• During the 2021-2022 award year, financial institutions generated over $17.3 million in revenue from more than 650,000 student bank accounts.

• The amount of fees charged to students annually varies by institution type, Accountholders at Historically Black Colleges and Universities, for-profit colleges, and Hispanic-servicing institutions end up paying higher-than-average fees per account than other schools.

• Credit card marketing practices no longer rely as heavily on in-person marketing as they did when the CARD Act was passed in 2009. 

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A surge in card skimming incidents has occurred at several grocery stores throughout the Boston area, heightening concerns about the security of personal financial information.

The incidents, according to NBC Boston, occurred at several Roche Bros. Supermarkets this past week. Prior to these particular events, there were additional incidents reported at local Walmart and Market Basket locations where two individuals were caught on camera installing card skimmers, distracting cashiers in the process.

What is Card Skimming and Why is it a Problem?

Card skimmers discretely scan cards and steal the data encoded on them. Individuals behind these illicit operations use the stolen information to conduct fraudulent purchases.

In recent months, an uptick in card skimming incidents has been observed at several grocery stores and authorities are taking action, removing these devices and securing all point-of-sale locations.

Although card skimmers may be challenging to detect, authorities are urging consumers to be more diligent. They advise individuals to scrutinize certain components that may appear deceptive, such as keyboard overlays placed by fraudsters put on point-of-sale keypads. These overlays serve as a convenient method for gathering consumer’s personal information, including their debit PIN number.

Biometrics: A More Secure Solution

As the threat of card skimming looms, advancements in payment security offer some hope. The future of payments is increasingly moving towards biometric authentication methods, such as paying via a hand palm or fingerprint. Unlike traditional cards susceptible to skimming, biometric payment methods provide a more secure and personalized approach to verifying transactions.

Because biometric payments leverage unique physical traits to identify a user’s identity, it makes it significantly harder for fraudsters to replicate or steal personal information. As a result, biometric payments ensure an additional layer of security, reducing the risk of unauthorized access to sensitive financial information.  

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In the rapidly evolving world of financial transactions, the Request for Payment (RfP) system emerges as a game-changer, offering unparalleled efficiency and convenience. This innovative approach to payments revolutionizes the traditional billing process, allowing businesses and individuals to request payments directly within a secure banking environment. The advent of RfP not only simplifies transactions but also enhances the control and flexibility for both payers and payees.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: How Financial Institutions Can Plot Their Instant Payment Strategy

6 Benefits of Request for Payment

• 32% – avoiding late payment
• 26% – immediate confirmation that payment was received
• 19% – immediate payment posting/transfer of funds
• 13% – faster option
• 5% – more secure option
• 5% – simpler option

About Report

Consumers and businesses alike are clamoring for faster and easier payment options. With the recent launch of FedNow, as well as the continued presence of The Clearing House’s RTP network, instant payments are poised to transform money movement in the United States. This will require careful consideration and planning by financial institutions as they assess the needs of their customer bases, the potential for growing revenue, and the products and services they want to push out to consumers and business clients.

This Javelin Strategy & Research report looks at U.S. instant payments, assessing the differences between FedNow and RTP, the essential use cases, and the factors financial institutions must sort through as they plot out an instant payment strategy.

The post What are the Benefits of Request for Payment? appeared first on PaymentsJournal.

The Consumer Financial Protection Bureau’s recent proposal to expand its oversight powers to digital wallets has begun drawing a backlash. The CFPB wants to add services including Google Pay and Apple Pay to its portfolio.

The CFPB argues that since it is providing the same services as traditional banks, it should be subject to the same consumer safeguards. In addition, payment services collect a great deal of personal data from consumers, creating a system where the lines between payments and commerce are blurred.

In response, Google and Apple are gearing up for a lobbying effort, according to published reports. Last week, The Financial Technology Association (FTA) led seven other industry groups in calling for an extension on the public comments period for the proposed rules. The FTA complained about “the complexity of the potential rule, the Bureau’s lack of clarity on what constitutes a larger participant, and the lack of a cost-benefit analysis in asking for an extension of the comment deadline.” The Chamber of Progress, a tech industry coalition whose partners include Apple and Google, has already proclaimed that the CFPB’s move was “about giving Wall Street a leg up.”

All told, the proposal would affect 17 companies, including PayPal and CashApp. The CFPB already monitors PayPal and CashApp for international money transfers, but Apple and Google would be subject to CFPB oversight for the first time.

A Potential Victory for Big Banks

This has been a rare instance of big banks taking the side of the CFPB. The banking industry had been lobbying financial regulators for a while to take a closer look at tech giants that have been offering payments services. The Bank Policy Institute called for the CFPB to invoke its authority under Dodd-Frank to designate online payment processors as “larger participants” in the nonbank market for consumer financial products.

Javelin Strategy & Research’s analysis has highlighted that the status quo is critical in enabling digital wallets to gain significant market share or grow into the default entry point to financial services. To the extent that regulators become more aware, present, and active, the advantages that Apple—in particular—has accrued may be eroded. For example, if regulators demand that non-Apple wallets be allowed to use the NFC chip, those wallets may gain market share. If Google is forced to reduce its cut of payments made through the Google Play store, the market for digital distribution and financial services in digital worlds looks very different.  

“At the most extreme, control of data may be at stake,” said Christopher Miller, Lead Analyst of Emerging Payments at Javelin Strategy & Research. “This could undercut the models of the tech giants, which have been built around hardware and services that keep customers engaged as data producing machines that can then be sold to in a variety of ways.”

“It’s no surprise that Apple and Google would see this kind of regulatory intervention as an existential threat,” he said. “They and other tech companies have made a decade or more of money based on a regulatory arbitrage whereby they pretended to be tech companies rather than companies engaged in whatever regulated vertical they were competing in.”

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In the ever-evolving landscape of retail, the methods consumers use to pay for their in-store purchases are rapidly changing, reflecting broader shifts in technology and consumer preferences. There is a diverse array of payment options now available, ranging from traditional cash and credit cards to emerging digital wallets and contactless technologies.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: Global A2A Retail Payment Systems: Lessons for the U.S.

Preferred Payment Methods for In-Store Purchases

• 39% prefer swiped/chip card
• 24% prefer contactless card
• 19% prefer cash
• 7% prefer mobile wallet

About Report

The recent launch of FedNow—the Federal Reserve Bank’s instant payment service—seems certain to be a game-changer in payments. The ability of financial institutions to offer their customers 24/7/365 access to transactions that are initiated, cleared, and settled in seconds will spur the development of new payment methods, deliver new use cases for older methods, and change consumer expectations and behaviors.

One of those older methods—account-to-account (A2A) transfers—might be made new again in a world of ubiquitous instant payments. A2A payments, traditionally the province of sellers and suppliers, could see a renaissance in merchant sales now that the power to engage them is being pushed out to a wider array of payers and payees. This Javelin Strategy & Research report looks at A2A payments through the lens of successful initiatives in India and Brazil, detailing how their breakthroughs could be mimicked in the United States—and how various stumbling blocks could hinder such efforts.

The post Top 4 Preferred Payment Methods for In-Store Purchases appeared first on PaymentsJournal.

Citizens Financial Group got a very favorable stock bump after unveiling its new eco-friendly Mastercard debit and ATM card this week. Given the existing pressures toward more environmentally-friendly cards, this could be the start of a larger trend.  

The card is made from 90% recycled PVC and carries the Mastercard sustainable card badge, reflecting its lower environmental impact in terms of energy, material consumption, and carbon footprint.

The response from Wall Street was immediate. Citizens Financial Group’s stock jumped 7.61% in a single day, ending a two-day losing streak.

Mastercard itself plans to produce all of its plastic payment cards using sustainable materials by 2028. This would include not just recycled PVC plastic as in the Citizens Financial card, but substances like Polylactic Acid and recycled Polyethylene terephthalate plastic as well.  

New Modes of Eco-Friendly Cards

The Citizens Financial card is the latest in a series of moves designed to make plastic less of a factor in the cards we carry. California came very close to banning plastic retail gift cards this year, simply to cut down on the environmental impact of single-use plastic.

Governor Gavin Newsom vetoed the measure over concerns about how it would affect small businesses, but that type of legislation is likely to come back at some point as concern for the environment grows.

The trend could possibly make even more of an impact on prepaid cards—which are single use—than on long-term credit cards. Future prepaid cards could be constructed out of eco-friendly recycled materials or even cardboard, depending on local laws and trends. If it becomes unrealistic for issuers to produce different stock of gift cards for different states, that could accelerate the move to digital cards.

“Debit and credit card products realize the benefit of being ahead of potential legislation on environmental topics,” said Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research. “In this way, they’re much like other card stock products in gift carding or even access cards, hotel keys, and such. Issuers also understand that the option creates goodwill among customers who value eco-friendly products, providing residual benefits in customer acquisition and retention.”

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Two major fintechs made moves towards initial public offerings this week, foreshadowing what may be a robust year ahead for the industry. Clearing firm Apex Fintech said on Tuesday it has confidentially filed for a U.S. IPO. Meanwhile, Danish fintech Pleo has appointed a new chief financial officer, in a signal the company is readying itself for its own IPO.

Founded in 2012, Apex offers digital clearing, custody, execution, and routing solutions to financial institutions. This would be the second time that it has embarked on the IPO process. The firm had hoped to go public in 2021 via a merger with the special purpose acquisition company (SPAC) Northern Star Investment Corp II, but the deal fell through.

Apex CEO Bill Capuzzi had said at a conference last September that the fintech firm might consider an IPO if the markets improved. “The path for us, if the markets come back around over the course of the next 24 months, maybe we’ll take another run at going public,” he said. Apparently, he’s seen enough strength to warrant an offering.

Pleo, which has been called Europe’s premier spend management platform, recently achieved unicorn status, reaching a $1 billion valuation in just over six years. While the company says it is not in a rush to go public, a new CFO often indicates that its accounting and compliance teams are also ramping up in preparation for a stock offering.

Jeppe Rindom, Pleo’s CEO, told CNBC that “no definitive plans have been set in motion.” But he added that it’s “only prudent” to start thinking about the question of an eventual IPO, which could be happening by 2025.

Other IPOs in the Offing

Digital payment processing company Stripe has also filed paperwork showing its intent to make a public offering, with a valuation hovering around $50 billion. No IPO date has been set yet, but the offering has been hotly anticipated for several years now.

Waiting on deck are Klarna, the Swedish online payment services firm, and Chime, a banking platform targeted to younger people. In November, Klarna started the process of setting up a holding company in the UK, which many see as a precursor to an IPO. Chime explored an IPO in 2022 before pulling back, but many stock watchers expect a stock offering in the coming months.

The post Two Fintech IPOs Are Poised to Debut, with More on Deck appeared first on PaymentsJournal.

The practice of charging doctors additional fees to receive electronic insurance reimbursements may be coming to a close.

According to an investigation by ProPublica, insurers currently charge physicians as much as 5% to get paid electronically. But the U.S. House has introduced a bill that would prohibit insurers and their intermediaries from levying fees on doctors for receiving electronic payments.

The Affordable Care Act encouraged doctors to use electronic payments in health care, since they are faster and easier to process than checks. In 2012, the Centers for Medicare & Medicaid Services (CMS) predicted that shifting from paper to electronic billing would save $3 billion to $4.5 billion over 10 years.

Initially, the agency prohibited fees for electronic funds transfers. As of August 2017, CMS posted a notice informing insurance companies that they weren’t allowed to charge physicians a fee when the companies paid the doctors for their work. But in 2018, as the result of lobbying by the payment processor Zelis, CMS changed its stance. That year, the fee statement disappeared without explanation. In July 2022, CMS issued a directive explicitly stating that additional fees were permitted.

Breaking Down the Fees

Nearly 60% of medical practices said they were compelled to pay fees for electronic payments at least some of the time, according to a 2021 survey conducted by the Medical Group Management Association. At that time, the fees broke down as such:

• 10% were charged 1% of their total reimbursement

• 43% were charged 2%
• 43% were charged 3%
• 4% were charged 4% 

According to the Physicians for a National Health Program, even when doctors have asked to be paid by check to avoid the surcharge, insurers often resume the electronic payments—and the fees—against their wishes. 

The AMA Signs On

The proposed legislation has the backing of the American Medical Association. Last month the AMA adopted a resolution officially opposed to “growing and excessive” fees on electronic funds transfer payments.

“We don’t tolerate paying fees to receive direct deposit of a paycheck,” said the bill’s lead sponsor, Republican Rep. Greg Murphy of North Carolina. “Likewise, doctors and patients should not be forced to pay predatory fees on electronic payments on essential health services.”

For its part, Zelis has positioned itself as improving the B2B payment environment for healthcare providers. Although it hasn’t commented on the pending legislation, the payment processor told ProPublica that its services remove “many of the obstacles that keep providers from efficiently initiating, receiving, and benefitting from electronic payments.”

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Contactless debit cards have become the most frequently used digital payment method in Europe, according to a new survey from BearingPoint. Cash remains the most frequently used payment method overall, perhaps because half of respondents said they had encountered some kind of problem when making or receiving digital payments.

On average, 56% of respondents said they used a contactless debit card. That makes it the second most frequently used payment method, after cash.

Key Findings

The survey covered Germany, Finland, France, Ireland, the Netherlands, Austria, and Switzerland—and the differences in payment usage among these countries seems significant.

In Finland, the contactless debit card was the most frequently used payment method across all age groups at 71%. But Finland also has the lowest use of non-contactless debit cards among the seven countries, at 17%. Finland was also the only country where less than half of respondents reported cash usage.

The survey found that many respondents had experienced problems or concerns with digital payment methods, but that varied widely by country. The lowest rate of people reporting such issues was in Finland, with just 38%, which may help to explain the widespread adoption of digital payments there. The country where the majority of respondents said they had experienced problems or concerns was Ireland, at 63%.

There were also significant differences among age groups in the types of payments used. France and Ireland showed the lowest frequency of contactless debit card use among people ages 18 to 24, at just 31% and 40%, respectively. Mobile payment services were used more frequently in the 18 to 24 age group in both France (at 33%) and Ireland (at 54%).

Important Omissions from the Survey

It’s worth noting that these results are narrowly focused on just seven European nations. “These results should be taken with caution,” Sophia Gonzalez, Debit and Payments Analyst at Javelin Strategy & Research, said. “The U.K. has been the birthplace of payments innovation in Europe and was not part of this survey.” 

The findings are of particular interest in their insight into which countries have had the least penetration of digital payment processes. As such, the reluctance to use digital payments in France, especially among the young, may be the most important news here. There, the 18 to 24 age group reported that they preferred no particular payment method for frequent use.

France is also, interestingly enough, the only country surveyed that still makes widespread use of checks. Among those in the 55-plus age cohort in France, 41% still use checks.

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Rampant fraud has led the state of California to hire a new provider for its unemployment debit cards. The Money Network, owned by Fiserv, has taken over the account from Bank of America (BoA), which did not have fraud prevention chips in its cards or allow for direct deposit.  According to a report from KCRA TV in Sacramento, California’s Employment Development Department (EDD) paid out more than $32 billion to fraudsters.

At one point, the fraud got so bad that BoA had to stop making new credit cards for its own customers due to the high volume of EDD cards it needed to send out. The bank was also the subject of a class-action lawsuit filed by a San Francisco real estate agent in 2021. She claimed she received a debit card after becoming unemployed, but that unauthorized transactions on her card eventually emptied the account.

California Governor Gavin Newsom assembled a task force of experts to examine the problem. They recommended using direct deposit, chip technology and tap-to-pay as means of streamlining the process and combating fraud. Money Network, which already had the contract for California’s Middle Class Tax Refund, won the contract through a competitive bidding process. In awarding the contract, EDD praised Money Network for its “enhanced customer support, and a 24/7 help center with staff who speak multiple languages,” as well as its capacity for providing direct deposit.

BoA Responds

Bank of America has downplayed its role in the fraud claims. “The vast majority of unemployment fraud is committed by those filing false applications,” the bank claimed in a statement. “When fraudulent transactions occur on benefit cards, we review those claims and restore money to legitimate recipients.”

But the bank had also decided to stop providing unemployment services. “We have advised the state that we would like to exit this business as soon as possible,” BoA said in the summer of 2021. Its agreement with EDD gave the state the “sole option” to renew its two-year contract, which it had done as recently as June 2023.

Money Network is taking over full responsibility for the benefits on February 15, and the BoA cards will remain active until April 2024. Direct deposit, according to EDD, will finally be available to California’s unemployed sometime next year. EDD will pay Money Network an estimated $32.3 million over the next five years to cover the costs of the direct deposit transactions.

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I’ve said it before and I’ll say it again: cards aren’t fit for digital commerce. They’re costly, they’re clunky, and they provide an experience that’s stuck in the past. At a time when consumers want fast and frictionless online payment experiences, cards just can’t keep up.

This is why I believe we are at an important inflection point. Account-to-account (A2A) payments, powered by open banking rails, are gaining traction. At the same time, card payments are slowly losing payment share. 

So I still see a future without cards—or, at the very least—a world where cards are no longer the incumbent. In this future, which is far closer than you think, we’ll all be paying (and getting paid) by bank. 

What’s the Problem with Cards?

There’s a saying in business that we all need a nemesis. And it’s easy to pitch cards, owned and operated by behemoth companies, as that nemesis. It’s just as easy to see why I, the CEO of an open banking payments network, want to position TrueLayer as the David to the card Goliaths.

But let’s recognise the reason we all, myself included, still rely on cards. Cards enabled digital commerce. They paved the way for us to do exactly what TrueLayer is doing today, seizing the opportunity to rewire and reinvent the way we transact online. 

The simple reason that a world without cards is so important is that cards were never designed for online commerce. They’ve been retrofitted from a physical payment method into an imperfect online option. Whether it’s the sixteen-digit number you need to input before a transaction, the ongoing battle of card-not-present fraud (for which 3Ds2 has been built, yet hampers conversion), or the various fees that are so painful to SMEs, cards are no longer fit for purpose. 

That’s why the next generation of payments are being built from the ground up, with online commerce in mind.

What will Replace Cards?

So what does a perfect digital payment experience look like? Ideally, payments should flow directly from the payer’s bank to the recipient. No plastic you need to carry around, obviously, and very few intermediaries to keep the process simple and low cost. 

Most importantly, the process of paying should be easy. No long numbers or passwords to remember, while still knowing the method is secure by design. In short, a good UX.

Open banking payments can deliver this experience. You may have seen them called bank to bank payments, A2A payments, pay by bank or instant bank payments. But whatever we call them, the core of it is a native mobile experience, where payments are made directly from the bank to the merchant (and vice versa).

Collaboration is Key to the Future of Bank Payments 

When it comes to account to account payments, we are on a journey. Four or five years ago, open banking was basically just a concept. It’s now grown to an industry that handles 11 million payments every month in the UK, with over 7 million active users. 

That growth has been strong and consistent, but we shouldn’t pretend we can sit back and relax. There are still many things we need to improve and fix in the name of creating a payment experience that works for everyone.

Bank payments benefit everyone in the value chain—the banks, the merchants, the consumers, the third party providers. Understanding that will unlock the kind of long-term growth to challenge the card incumbents. For example, when we first started out, we realised we were lacking a payment feature entirely. Collectively, as an industry, we came together and made that happen. The fact that we’ve done it already—and there were naysayers back then—shows that we can do it again.

Earlier this year, I chatted to Megan Bramlette, Director of North America & EU Payment Acceptance at Amazon, as well as Mark Bryant, Chief Payments Officer at NatWest Group. The core of the conversation was collaboration. As Mark so succinctly explained. “We [banks, merchants, TPPs] need to work together to find the right way for bank payments to succeed, on behalf of the customer.”

I’m so energised because I see the likes of NatWest going beyond what was originally mandated by PSD2, and Amazon actively working towards embedding bank payments in their checkout flow. 

As Megan explained: “My job is to ensure [Amazon] customers have all payment options that meet their needs. We want to do that in the most low cost, frictionless and easy-to-use way possible. Bank payments are a part of that revolution.”

This proves everyone involved sees the future on the horizon, but we still have a way to go. One of those areas for improvement is the payment experience.

Payment Experience is Customer Experience

During the Money2020 panel, Megan said something that I think sums up the biggest step we need to take to really unseat card payments: “In order for bank payments to take flight, the customer experience (CX) will have to be better than cards.”

Mark, looking at it from the banks’ point of view, agreed: “With bank payments, and our suite of APIs, we’re enabled to take things to market quickly, and test and learn. But at the heart of it, we need a great CX for the user.”

I think CX goes double when we’re talking about ecommerce. We’ve seen bank payments gain traction in iGaming and financial services, but ecommerce is a much bigger step, where we need to improve the experience for every use case and fill in any missing gaps.

“Gone are the days when cards were a necessary part of online payments.

Take VRPs for example, which can enhance the shopping experience for merchants and consumers when it comes to recurring payments. In a YouGov survey, more than half of the respondents said they would sign up for more subscriptions if they had one easy way to cancel them. 

As I said before, we’re on a journey. That journey will take more than a decade, but card payments have had 50 years to get where they are now. When you think in those terms, the pace of change for bank payments is much more exciting.

A World Without Cards? Or a World with More Choice?

I know the title of this piece is bold. A world without cards entirely? A more reasonable prediction is that we will all have more choice. Merchants won’t need to default to cards because, despite their shortcomings, they’ve historically been the only way to give customers something approaching a good customer experience.

From the merchant’s point of view, Megan believes that payment choices at checkout will be more varied: “I think the online paying experience is going to get a lot more diverse… my job is to make sure we offer the full complement of payment methods to customers in the best way possible. Bank payments are part of that, and a huge area for growth.”

So no: cards aren’t going to vanish in the blink of an eye. But don’t let that lull you into complacency. Gone are the days when cards were a necessary part of online payments. More choice and a better experience are out there. And it’s only a matter of time before people realise there’s a better way forward.

The post Are We Approaching a World Without Cards? appeared first on PaymentsJournal.

In a world of immediate payment options like Venmo and Zelle, most U.S. banks are still using the same payment-processing technology they installed in the 1980s. Consumers have come to embrace real-time payments, looking increasingly to digital-first nonbank financial players for increased speed and convenience. It has created a landscape where many legacy banks are lagging behind both their customers’ expectations and their competitors’ capabilities.

To explore how legacy banks can get up to speed on real-time services, PaymentsJournal sat down with John Brady, Chief Architect and Head of Engineering at BillGo, as well as Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research.

Moving Away from Batch Processing

Legacy U.S. banks have several real-time payment options right now, with FedNow going live in July as well as other options like working through the Clearing House and debit card and credit card networks. The key question is whether banks’ legacy infrastructure can truly process real-time payments. 

As Brady explained, most banks’ payment processing today is still batch-oriented. But for the first time in over 40 years, there’s a new real time payments infrastructure and technology that can move money in real time, whether that’s through RTP or FedNow.  “The rest of the financial infrastructure as well as operation needs to catch up and update to a 24/7/365 environment in order to get the most value and benefit out of real-time payments,” Tavilla said.

Most banks handle Same Day ACH by running batches multiple times a day. “To get to a truly real-time system, you’re not going to be able to run the batch for every single transaction,” Brady said. “Some of that fundamental infrastructure really needs to change in order to handle real-time payments going forward.” 

The Components of Real-Time Banking

For legacy institutions to truly come up to speed, they need to address real-time payments, real-time settlement, and real-time core processing. Given the demand for faster as well as actual real-time payments, the infrastructure behind the scenes will need to be caught up. 

“As more systems process transactions in real time, it’ll be increasingly important for the legacy core systems to be able to clear and settle in real time,” Tavilla said. “Otherwise, the lag and the complexities where the different types of payments and transactions aren’t aligned in terms of the actual movement and settlement time can pose challenges, whether it’s fraud or insufficient funds or other issues.”

Many banks will rely on a memo post so the customer perceives the transaction to be happening in real time, but it won’t actually post against the core system in real-time. “So the banks are kind of faking it in terms of this real time aspect of things,” Brady said. “As payment products get more sophisticated, it’s going to be harder for banks to do that fake-out type of real-time posting.” 

According to Tavilla, consumers in recent years have become accustomed to being able to send money to friends and family or other uses in real time, although behind the scenes. The money might not be moved and or cleared and settled in real time,” Tavilla said. “That emphasizes the importance of financial institutions adopting systems that are actually able to move the funds in real time.”

In today’s world, these banks impose transaction limits, putting a dollar limit on Zelle or debit card transactions. As banks move toward real-time settlement, those limits could potentially be increased because there is more of a guarantee that the funds will clear.

The Impact on Legacy Infrastructure

Real-time capabilities are having an impact on legacy infrastructure. Under normal payment flows in bank systems today, a bank will process an ACH transaction in a batch file, then pass it to a money movement hub or run it through its fraud systems. These fraud systems are necessarily designed to expect a delay in settlement. Once the transaction goes into the core systems, there are multiple balances, including the memo balance, available balance, collected balance, and available balance. Those balances are updated multiple times through multiple batches throughout several days as the various funds settle and clear with other banks. 

“If you think about a true real-time settlement, that whole payment processing up front is going to have to change,” Brady said. “The fraud models are going to have to change, the funds availability models are going to have to change, and the core processing on the back end is going to have to change as well.” 

Said Tavilla: “The top real-time payments use case for both FedNow as well as RTP is the ability for consumers to be able to make a last-minute, real-time bill payment. Based on Javelin’s research as well as other studies, one of the aspects that consumers appreciate most about paying bills is the instant notification or confirmation. With real-time payments, the messaging and the finality of instant bill payment would improve the customer experience as well.”

Breaking Free from the Silos

Another impediment to the full embrace of real-time payments is the siloing that is prevalent at banks.

“I’m concerned that a lot of these systems today are owned by different departments within the bank,” Brady said. “If banks don’t take a holistic approach, each of these departments is going to devise their own strategy for how to deal with real-time processing.”

There is broad agreement on what needs to happen: Bill pay needs to be fully integrated with payment acquisition systems, risk systems, and core systems. Banks also need to consider how regulations interact with that. It’s only within that kind of comprehensive framework that banks can continually improve and, ultimately, provide their customers with better service.

The post The Challenge of Real-Time Payments for Legacy Banks appeared first on PaymentsJournal.

The American Bankers Association (ABA) continues to kick back against the Federal Reserve’s proposed rules that would lower the cap on debit interchange fees. The ABA has now asked the Fed to extend the public comment period for its notice of proposed rulemaking. Nine financial sector associations also signed the joint letter making the request.

The current deadline for public comments on the proposed rule is February 12, 2024. In their letter, the associations asked that the deadline be pushed back at least 90 days given the significant changes the Fed will potentially pursue.

In October, the Fed proposed revising Regulation II to lower the cap from its current rate of 21 cents and .05% of the transaction, plus a one-cent fraud adjustment, to 14.4 cents and .04% per transaction and a 1.3 cent fraud prevention adjustment. The rule would take effect June 30, 2025, then be revisited every two years.

The benefits and potential drawbacks are not immediately clear. “Issuers say the interchange fees help keep debit card transactions safe from fraud,” Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, wrote in an October article for PaymentsJournal. “However, changes could lead to less fraud prevention, decreased access to credit, and other negative consequences.”

The ABA’s Stance

In the group’s initial statement, ABA President and CEO Rob Nichols said the Fed was using flawed data and an incomplete process. The Fed’s plan “has the potential to make checking accounts, debit cards and a range of financial products more expensive for American consumers, while delivering an unprecedented gift to big-box retailers that have shown no inclination to pass any savings along to customers,” Nichols said. “Far from holding community banks harmless as the Fed claims, smaller institutions will be sharply impacted by this change, as revenue they use to pay for a range of financial products and services is reduced.”

The latest letter noted that given the number of proposed banking regulations currently under consideration, the ABA needed more time to analyze the potential cumulative effects on consumers and the financial sector. “The data presented to support the board’s proposal is complex, dated and incomplete,” the letter said, “requiring the private sector to invest significant time to digest and supplement it.” The Federal Reserve has yet to respond.

The post ABA Continues Pushback on Debit Fee Proposal appeared first on PaymentsJournal.

Venmo announced the launch of its newest in-app feature, Venmo Groups, which facilitates the splitting of bills among a group for ongoing expenses. This launch underlines consumers’ growing use of digital payment apps to divvy expenses among friends and family members.

By eliminating the need to designate one person to keep track of all expenses, Venmo Group enables all users to add expenses, see what amounts are due, and settle up. As long as the group exists, new expenses can be added and calculated.

Venmo users simply need to go to their “Me” page to access the new Groups feature. Users can create a new group under the “Group” tab. With a couple of taps, new members of the group can add expenses and settle bills.

“We know managing ongoing expenses in a group can be challenging, in particular when each member covers different costs with different amounts at different times,” Erika Sanchez, Vice President and General Manager at Venmo, said in a prepared statement. “As one of our most requested features, Venmo Groups offers a seamless solution for users to better track and settle shared expenses in group settings.”

“Consumers are increasingly using digital payments for all types of transactions, and it may be difficult to keep track of all of them,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “Venmo’s new feature allows users to better manage their various expenses, especially those that they regularly split with colleagues, family, friends, roommates, and others.

“Venmo Groups helps eliminate cumbersome spreadsheets and awkward social interactions, such as constantly having to ask your roommates for their share of the rent or utility bill. It seems like a valuable feature that will help Venmo users maintain healthy financial accounts and social relationships.”

Venmo Moves Forward as Regulation Looms

Venmo has been dipping into a variety of ventures and partnerships this year. In its recent foray into the cryptocurrency space, Venmo announced that its users can now transfer cryptocurrencies between Venmo wallets, PayPal accounts, external wallets, and exchanges. This followed the 2021 launch of its in-app trading platform for crypto assets. At that time, only buying and selling cryptocurrencies was available.

In line with the growing consumer interest in secure digital payments, Venmo partnered with Hallmark to enable customers to send money securely via Venmo within a physical Hallmark card. It also highlights the bridging of the gap between two generations, with older consumers preferring to send cash or checks with a greeting card and the younger generation preferring to receive digital payments.

Amid Venmo’s numerous undertakings within the growing P2P space, the Consumer Financial Protection Bureau (CFPB) recently proposed a rule that could bring large, non-financial digital payment providers under the same regulation and oversight as banks and credit unions.

It is still early to determine whether, if passed, these regulations would fuel or hamper growth within this emerging market.

The post Venmo Launches Venmo Groups to Split Common Expenses appeared first on PaymentsJournal.

Time is money, and more consumers and businesses want instant payments.

Worldwide, the transaction value of real-time payments is predicted to soar 289% by the end of the decade, from $97 billion this year to $376 billion in 2030.

Responding to that demand, in July the Federal Reserve launched FedNow, a new instant payment infrastructure. FedNow allows banks, credit unions, and other providers to offer services that enable individuals and organizations to send and receive payments in mere seconds, 24/7.

The new capability has the potential to roil the market as industry players jockey for position with new bill pay, account-to-account transfer, and other products. It will also likely scramble technology budgets as firms take a hard look at their systems to make sure they have the capabilities and capacity to meet customer requirements.

But FedNow is just the latest in an avalanche of industry changes that has disrupted the market and raised the bar on technology. All of these developments point to one conclusion: that financial services companies must finally fully commit to a cloud-native payments system. Only a modern cloud platform will give firms the cost-efficiency, scalability, portability, and flexibility they need to serve today’s customers and compete in today’s market.

The Cherry on Top of Constant Change

The payments market has endured ongoing upheaval over the past six to seven years. Much of the turmoil has come from fintechs and Big Tech vendors such as Apple, Google, and Samsung, disintermediating traditional financial services companies with new payments products. These startups and technology-first behemoths have ushered in new ways of interacting with customers and have raised expectations for speed and ease of use.

At the same time, new regulatory and cybersecurity requirements have sounded a continual drumbeat. These range from rules like the European Union’s Payments Services Directive 2 (PSD2) and forthcoming PSD3, designed to give consumers more control and make payment providers more accountable. They’re also meant to cyber safeguards like two-factor authentication (2FA), a validation mechanism to reduce the risk of fraud.

FedNow will accelerate funds transfer from the three to five days required for Automated Clearing House (ACH) transactions to near real time. It will also provide the digital plumbing to permit older banks and credit unions to participate in the payments market.

But FedNow-enabled real-time payments won’t just allow firms to offer new customer-facing services. They’ll also require changes that ripple throughout the organization. For instance, per-transaction costs and fees will change. So will the way liquidity is managed. Because risk of fraudulent transactions will increase, organizations will have to invest in stronger validation and security. And because transactions will occur faster and more frequently, many firms will need to boost the performance and capabilities of their core systems.

This last requirement could be a stumbling block, because many organizations still run their core processes on decades-old legacy systems. Those systems weren’t designed to accommodate the flexibility and rapid change required in today’s market. It’s time for those systems to go.

The Case for the Modern Cloud

How should organizations respond? Not by thinking about technology first, but instead, by starting with customer demands—for speed, convenience, and flexible new services. This customer-first mindset will point to the right technology platform that positions you to rapidly bring new products to market and deliver superior customer experiences, while still maintaining strong security and resilience.

Your firm might already have migrated some services to the cloud, but if you’re like many, you’ve resisted modernizing core systems because of concerns around cost, business disruption, security, and data sovereignty. It’s possible to take a progressive approach to cloud adoption that allows you to modernize components of your payments platform and run them where it makes the most sense—and these capabilities are enabled by a modern cloud platform.

A modern cloud platform is built around microservices, which organize software applications as a collection of small, independent, and loosely connected services. Each service handles a specific task, but together they provide complete functionality. This approach makes it simpler to continually enhance and scale applications. It also makes applications more resilient, because if one service goes down, it can be remediated while the other services remain functional.

A microservices architecture is enabled by capabilities such as:

Container management. Containers are standalone software packages that include everything needed to run an application, such as “libraries” of prewritten code and other “dependencies” required to make an application functional. Containers make it easier to build, deploy, and move applications from one environment to another. You can automate the deployment, scaling, and management of containers with a container orchestration platform. That enables you to balance loads across containers and scale containers up and down based on demand. It also permits you to run applications on-premises, in a public cloud, or in a hybrid of the two. The most common open-source orchestration platform is Kubernetes, which is maintained by the Cloud Native Computing Foundation (CNCF).

Event-driven architecture. This approach uses system events—such as a transfer of funds—to trigger and communicate among microservices. Event streaming lets you capture such events as they happen in real time, store them in an organized way, and share them across services and applications so they can respond immediately.

Open source. Open-source software is developed collaboratively by individuals and organizations and made freely available to the public. This approach fosters innovation, stability, and security. Open-source solutions are also more portable across cloud environments than proprietary offerings.

Advantages for Today’s Payments Marketplace

Some financial services providers might be concerned about the perceived cost and complexity of moving to a new platform. But open-source solutions are available from established, proven providers, with security and support. And the long-term benefits of open source can deliver a higher return on investment than proprietary solutions. Those benefits include:

Flexibility. With a cloud architecture built on open-source solutions, you can develop, deploy, and consume payments and other core banking applications across on-prem, public cloud, and edge infrastructure. This agile, modular approach can help you more quickly and easily respond to shifting customer preferences, tightening regulatory requirements, and disruptive new competition.

Portability. An open-source, microservices approach means you aren’t locked into a single cloud environment. You can run in a cloud environment that’s on-prem, public cloud, or both. You can also migrate quickly from one environment to another as your needs dictate.

Security. Popular public cloud offerings include security controls, but payments providers typically require customized configurations to comply with strict industry regulations. Mature, proven open-source solutions deliver the robust security required for core banking systems. And on-prem private clouds ensure data sovereignty, reducing your cyber risk. You can also benefit from open-source products that automate security functions across hybrid cloud environments.

Resilience. The cloud can offer enterprise-grade resilience and business continuity. But relying on a single cloud provider can increase the operational risk to your business. Building on an open, modern cloud foundation can help prepare you for the unexpected. You can consistently and repeatedly adapt and scale so that your operations and your business remain resilient in the face of market changes—like the advent of the FedNow instant payments infrastructure.

As you pursue a modern cloud strategy, keep in mind that your major decisions should be less about technology and more about your business. Identify your business needs and define the business outcomes you’d like to achieve. That will enable you to measure progress toward your goals.

Then you can define the technology principles and approaches that will serve as a cloud road map across your organization. With a modern cloud architecture based on microservices, container management, an event-driven architecture, and open-source software, you’ll have the foundation to deliver new real-time payments solutions, maintain security and resilience, and achieve value for both your customers and your business.

The post Why the Rise of Real-Time Payments Requires Firms to Embrace a Modern Cloud Platform Now appeared first on PaymentsJournal.

Africa’s instant payment systems (IPSs) processed 32 billion transactions last year, totaling $1.2 trillion U.S. dollars. The volume of payments and the total value of payments processed has grown since 2018 by 47% and 39%, respectively.

These figures are derived from a new report issued by AfricaNenda, an African-led organization dedicated to accelerating the growth of IPSs. In addition to the growing payment numbers, three new IPSs in Ethiopia, Morocco, and South Africa have launched in the last 12 months. That brings the total number of live domestic and regional IPSs on the continent to 32. 

But even that $1.2 trillion figure understates the value of these transactions across Africa. According to Sabine Mensah, Deputy Chief Executive of AfricaNenda, the figures were based on data from only 22 out of the 32 countries that have active IPSs on the continent to date.

Currency Effects Downplay the Impact

As of June 2023, when the report was finalized, there had been an average of about 30% depreciation of currencies in Africa against the U.S. dollar, according to Mensah. If the value of the transactions had been based on the exchange rates prior to June 2023, she said, the value would have far exceeded $1.2 trillion.

Mensah said retrieving this data from central banks and payment switches in Africa is still a challenge. Out of the 22 countries that made data available, only five were obtained directly from the respective central banks. For the remaining 17 countries, AfricaNenda gathered their information from the internet.

The report also noted that 27 African countries have yet to set up a domestic IPS, although 17 have plans on the way and three regional payment systems are also in development. In addition, according to Mensah, only three of the 32 active African IPSs that her organization tracks facilitate cross-border payments at this time. So despite the rapid growth over the past year, there is plenty of room for further development.

The post Instant Payment Systems in Africa Topped $1 Trillion in 2022 appeared first on PaymentsJournal.

Retailers and brands have been fiercely competing for customers’ wallet share with enormous discounts, entertaining livestream e-commerce, and innovative strategies during China’s Singles Day (also known as “Double 11”) festival, an annual shopping event that was created by Alibaba in 2009 to celebrate those not in a relationship.

Historically, Singles Day sales total more than Black Friday and Cyber Monday sales combined. Bain & Company estimated that the total gross merchandise value for last year’s Double 11 festival topped $140 billion, while Adobe Analytics reported U.S. consumers spent  $35.3 billion online during the week of Thanksgiving, Black Friday, and Cyber Monday in 2022.

Consumers in China Are Spending Mindfully Amid Slowing Economic Growth

With uncertain economic conditions, consumers in China are spending more cautiously and conservatively this year. More than three-quarters (77%) of Singles Day shoppers plan to spend less or maintain spending at 2022 levels, a Bain survey found. The Double 11 retail extravaganza’s relative attraction has also declined over the years, which is likely due to more promotions being offered throughout the year. Only 53% of consumers reported they were excited by Singles Day, compared with 76% in 2021.

Some consumers are hunting for the best deals, while others are shopping for experiences and health and lifestyle products. Several retailers developed catchy slogans to promote sales, including Alibaba’s “Double 11, Low Price Everyday,” JD.com’s “Truly Cheap,” and Pinduoduo’s “Truly Low Price Every Day.” Spending is down on fast moving consumer products, such as food and beverage, and large durables which are closely tied to the property sector, according to WPIC Marketing + Technologies.

Higher income consumers are generally still spending, especially on categories like athletic apparel, personal wellness, pet care, and luxury products. Brands like Lululemon, Nike, and Starbucks are reporting soaring revenues. More than 200 luxury brands joined Tmall’s Double 11 festivities, including Gucci for the first time. The five major luxury giants, LVMH, Richemont, Kering, Hermès, and Chanel, have collectively released 100,000 new products, including limited edition items, co-branded models, and highly collectible, out-of-stock pieces. Some luxury brands are also offering other perks, such as financing options. Gucci and Burberry offer a 24-month interest-free installment payment plan.

The Rise of Live Commerce

In addition to steep discounts, retailers are trying to capitalize on the livestream commerce trend by combining shopping and entertainment during this year’s Singles Day. Livestream shopping started on social media in China and has grown into a $521 billion market, according to Coresight Research. The trend involves a seller broadcasting live video of themselves showing and explaining products while viewers ask questions and make purchases in real time. Imagine a real-time, interactive social version of QVC where every influencer can channel their inner Billy Mays.

Alibaba launched its livestream app Taoboa Live in 2016, and sales skyrocketed during the COVID-19 pandemic lockdowns. Within the first 30 minutes of Singles’ Day 2020, Taobao livestreams generated $7.5 billion in transactions. Douyin (the Chinese version of TikTok) has also become a major social commerce platform. 

Livestream commerce has not taken off in the United States. While nearly three-quarters (74%) of Chinese consumers said they have bought products through a shoppable livestream in 2022, 78% of U.S said they have never even watched one. Some retail outlets, including Amazon, eBay, Poshmark, Shopify, TikTok, Walmart, and YouTube have been trialing and introducing livestream commerce capabilities.

Amazon launched its Amazon Live platform, which allows influencers to pitch products live from their own homes. Viewers can react with emojis and ask questions that the host can answer live. Each product has an embedded link to streamline purchases.

Best Buy partnered with TalkShopLive to host a three-part 2023 holiday livestream shopping series. Viewers will be able to take advantage of limited-time deals during each show, ask questions about the products, and add items to their cart live by clicking a “buy” button in the video.

With the holidays just around the corner, U.S. retailers are employing traditional and new innovative tactics to attract the most shoppers leading up to Black Friday and Cyber Monday.

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Did you ever imagine that you could pay for your subway and bus fare as quickly as for your morning cup of Joe or a new pair of shoes? When I started researching contactless and mobile payments for transit about a decade ago, it seemed like a distant reality. However, today, people can pay for public transit with contactless credit/debit cards, Apple Pay, and Google Pay in more than 500 cities worldwide.

Historically, transit riders could only pay for fares using transit cards, cash (exact change), paper tickets, and tokens. Commuters commonly worry about missing a bus or train while waiting in line to buy or reload a fare card, not having exact change, and not having enough cash to pay for a fare.

More U.S. and global transit operators are implementing contactless payment systems where customers can tap their credit and debit cards or mobile phones to pay fares like they would for other retail purchases. According to Visa’s Future of Mobility survey, 94% of transit riders expect public transit to offer open-loop, contactless payments.

Digital Payments Evolution

Last month, I visited Vancouver, BC, for the first time. As a tourist (and payments enthusiast), I was ecstatic to see that Translink accepts contactless payments. As I explored the city, I tapped my credit card to pay for bus and subway fares without having to calculate the distance or number of rides I would take in advance. I also did not have to worry about exchanging USD for CAD to pay for transit. I could tap to pay for my Tim Horton’s coffee, new John Fluevog shoes, and transit rides in the same way.  

Many transit systems also offer fare capping by setting a maximum limit on daily, weekly, or monthly fares. It has been well received by riders who appreciate the flexibility of not having to purchase passes ahead of time. Nearly half of riders (47%) said they would use public transit more often if rides were fare-capped, according to the Visa survey.

Some riders prefer using fare cards for budgeting purposes or to track their transit expenses. These customers can also tap to pay, as more transit agencies update their fare card systems. New York City’s MTA is introducing contactless OMNY card vending machines at select subway stations that will replace magnetic stripe MetroCards. Additionally, MTA riders can reload their OMNY cards online. Mobile wallet users can also save digital transit cards, such as Chicago’s Ventra, Portland’s Hop Fastpass, San Francisco’s Clipper, and Washington’s SmarTrip cards in Apple Pay and Google Pay.

However, for riders who want to pay with their credit or debit card and track how much they have spent, Google Pay will offer a new feature showing a customer’s ride history and how much they have saved from time-based fare caps. This new feature will begin rolling out later this year, initially available with Brighton and Hove Buses in the UK, with plans to bring this feature to more cities next year.

Digital technology is enhancing transit experiences for riders in cities worldwide with more convenient payment options, real-time information, and end-to-end trip planning features that help consumers optimize their journey to their final destination.

The post Digital Payments Transform Global Transit Experience appeared first on PaymentsJournal.

Deposit processing appears to be back to normal after a “manual error” caused delays at many U.S. banks on Friday. The Automated Clearing House (ACH) system, which allows banks to send electronic payments to each other, said it had experienced a processing error on the evening of Thursday, November 2, with a batch of bank transactions. ACH said the error originated with the Electronic Payments Network (EPN), its private sector operating partner.

As a result, customers reported deposit delays at many major American banks on Friday morning, including Bank of America, Chase, Truist, PNC, U.S. Bank and Wells Fargo. According to the Clearing House, which operates the ACH, the delay affected around 900,000 deposits, which is less than 1% of the daily volume of ACH transactions. 

The good news is that the glitch looks like a one-time event that was caused by human error rather than systemic issues or a malware attack.

“There was a processing error with an ACH file last night, said Gregory MacSweeney, Vice President and Head of Communications at the Clearing House, in a statement issued on Friday. “It was a manual error associated with the file.”

On Friday, the Federal Reserve issued a more technical explanation for what had happened: “On November 3, 2023, a processing issue at EPN, the private sector ACH operator, resulted in a number of ACH entries having certain data elements obscured (file dated for November 1, 2023, processed on November 2, 2023, with effective dates from November 2-3). This error was contained in a single interoperator file that was distributed by EPN to its participants during the November 2 6:00 p.m. processing window. These entries contain valid Nacha syntax, but obscured account information and recipient information.”

Banks Scramble to Respond

Banks were caught somewhat flat-footed by the problem. PNC sent out a notice to customers on Saturday, a day after the delays, stating: “PNC will waive any non-sufficient funds or overdraft fees you may incur as a result of this delay.” Bank of America issued the following through its mobile app: “Some deposits from 11/3 may be temporarily delayed due to an issue impacting multiple financial institutions. Your accounts remain secure, and your balance will be updated as soon as the deposit is received. You do not need to take any action.”

The delays appeared to be resolved by Friday afternoon, although consumer complaints continued to trickle out via social media throughout the weekend. The problem was exacerbated—and more widely noticed—given that it fell on the first Friday of the month, a common payday for many Americans.

The post Deposit Delays Blamed on “Manual Error” appeared first on PaymentsJournal.

Last week, the Federal Reserve Board voted in favor of a proposal to lower the maximum interchange fee that covered debit card issuers (with $10 billion or more in assets) can charge merchants to process a transaction. The Fed’s proposal would revise all three components of the “interchange fee cap” in Regulation II, which includes the base component, ad valorem component, and fraud prevention adjustment.

The Fed based its proposed revisions on the latest data that covered issuers reported regarding debit card transactions in 2021. The proposal would lower the base debit fee rate by approximately 30%, from 21.0 to 14.4 cents. The ad valorem component would decrease from 0.05% of the transaction amount to 0.04% of the transaction amount. The fraud prevention adjustment would increase from $0.01 to $0.013. For a $50 transaction, the revised interchange fee cap would yield a maximum interchange of 17.7 cents compared to 24.5 cents with the current rates.

The proposed revisions are intended to be “reasonable and proportional” to the cost incurred by the issuers related to debit card transactions. The Fed determined that transaction-processing costs have nearly halved, issuer fraud losses have fallen, and fraud-prevention costs have risen since the current interchange fee cap was developed in 2010 (based on 2009 issuer-reported debit transaction data).

Key industry stakeholders, including merchants, issuers, and the card networks, have mixed reactions to the Fed’s proposal. Representing the global convenience and fuel retailing industry, NACS General Counsel Doug Kantor said: “The proposed new rates are an acknowledgment that the rates that were initially set in 2011 are out of line with the costs of processing transactions, but they still don’t accurately reflect the market, and consumers deserve better.”

Issuers say the interchange fees help keep debit card transactions safe from fraud. However, changes could lead to less fraud prevention, decreased access to credit, and other negative consequences. “While the current debit card system benefits merchants and consumers, it does not come close to covering the real costs debit issuers incur as it was intended to post-Durbin Amendment, and the Fed’s proposal would widen this gap even further,” said CUNA President/CEO Jim Nussle.

During the firm’s latest quarterly earnings, Visa CEO Ryan McInerney acknowledged ongoing uncertainty about several interchange-related issues and told analysts, “I think what’s notable about our business model is we’ve proven that we can be resilient and have a strong business in regulated interchange markets, unregulated interchange markets and in markets that have higher regulated interchange and lower regulated interchange…We feel good about our ability to compete.”

Federal Reserve Governor Michelle Bowman noted in her statement that lower debit interchange fees could have mixed effects on consumers. Merchants could potentially pass on savings to shoppers, but financial institutions could also increase fees related to debit cards or deposit accounts.

The proposal would also establish a regular process for updating the maximum amount every other year from now on. At this point, no final decisions have been made. The Fed is currently seeking public comment on the Federal Register Notice: Debit Card Interchange Fees and Routing and will review and analyze comments received.    

The post Fed’s Proposed Debit Fee Changes Garners Mixed Reactions appeared first on PaymentsJournal.

Bank connectivity and payment processes are critical operations for any business. With the introduction of multiple banking relationships, payment processes have become increasingly complex, requiring more internal knowledge and even external expertise.

In a recent PaymentsJournal webinar, Jonathan Paquette, Senior Vice President of Solutions in the Americas at TIS (Treasury Intelligence Solutions), and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, delve into the most common hindrances to bank connectivity and payment strategies, the consequences of not optimizing bank connectivity and payment management on a global scale, and key strategies in implementing bank connectivity and payments effectively.

Common Challenges to the Implementation of Efficient Bank Connectivity and Payment Strategies

According to Paquette, companies typically have multiple bank relationships. Each bank has its own protocols, payment methods, and formats. Bringing all of these elements together under one single and unified connectivity strategy poses a significant challenge. To address these connectivity protocols, organizations have resorted to using outside resources or relying on their internal knowledge base to manage all of these elements.

Another issue is the complexity of systems. The implementation of global bank connectivity and payment processes requires them to be integrated into a back-end system.

“A lot of companies are multi-ERP,” Paquette said. “I think at the minimum a company is going to have an ERP system, likely a TMS. Also, a payroll application, and each one of those systems is going to need to leverage that communication to the bank or have their own independent communication channel to the bank, too. So that’s a big consideration for a lot of companies.”

Paquette added that a designated person who is well-versed in these matters will be best suited to put connectivity strategies into place.

Lack of internal knowledge is another issue organizations face. It becomes increasingly complex to maintain different formats and the various connectivity protocols among the vast number of banking relationships. The revolving door of banking relationships and the IT bandwidth required to support those changes add more complexity to the process.

“And I’ve been very outspoken with our large corporate clients about the need to have external expertise because I’m finding that even some of the largest corporations in the world don’t have the resources to do this type of thing,” Bodine said. “And it is just a bear to manage all this.”

The Consequences of Not Implementing Connectivity Processes Fully

It is not recommended that organizations attempt to implement connectivity processes in a partial or fragmented way. Doing so could lead to a host of problems. Paquette has seen this firsthand, revealing that route inevitably leads to a partial automation of the process. Cash management banks might process 60% to 70% of their transactions via bank connectivity and payments and decide that this requires a tremendous amount of work, thereby ending it there. However, the remaining 30% to 40% still needs to be processed manually. This introduces the possibility of human error as well as security risks.

There is also the question of data aggregation and analysis. Many times, the data is siloed into different sources.

“If some things are flowing from the ERP straight through processing and others are going through an e-banking portal or some other system, right then you’re suddenly finding yourself with all these sort of data silos,” Paquette said. “No way to bring all these data points together for analysis purposes and to make your business better.

“So, all the usual ones, excessive costs, the maintenance and the upkeep of multiple different processes come into the fold as well.”

Said Bodine: “I was writing recently about the costs and the downsides associated with halfway strategies, as I like to call them, and people sort of do the bare minimum and then they forget about it. But they’re not focused on continuous improvement like a full API first strategy or ISO standards to the extent that they are standards, but those are super important.”

Key Strategies for Optimizing Connectivity

The solutions to enhancing the implementation of connectivity will greatly depend on the level of complexity within the business. For example, if it is a treasury operation with one or two banking relationships, then one or two systems would be recommended to connect with. It can potentially be managed in-house as well.

“If you do have resources that are really knowledgeable about this or maybe just the opportunity to bring in some process redesign consultants or bank connectivity experts who can help you get everything connected up through whatever method you might have,” Paquette said.

“Maybe your ERP has a connector and can centralize all this information in.”

For companies that have more than 100 bank relationships worldwide, outsourcing is recommended for this task. With that many banking relationships, it’s inevitable that inconsistencies will be high. Maintaining different formats daily to execute transactions will be a daunting task. Many of these strategies can be reined in by using a connectivity hub where most tasks would be managed by a specialist in a unified place.

TIS Helps Companies Understand Their Payments Process

Paquette noted  that it’s vital for companies to understand the way they make payments. It is important that organizations get familiar with how their ERPs send files to the banks, know the inventory of all the e-banking portals available, and be familiar with the manual payment processes that are occurring.

One recommendation he makes to clients is to map out all of these variables. Businesses must process payments in an efficient, secure, and cost-effective manner. Finally, once all of these details are mapped out, organizations must determine what knowledge base they possess internally. If they are missing elements of that knowledge base, the next step is to seek external expertise.

The post Bank Connectivity and Payment Processes Must Follow Best Practice Protocols appeared first on PaymentsJournal.

The launch of FedNow was the most highly anticipated payment system news in the United States this year. The system enables users to send and receive money, 24 hours a day, seven days a week, 365 days a year.  

However, a recent study by Fenergo reveals potential fraud risks that were not anticipated since the launch of FedNow. Although the immediacy of these payments is valuable, it can create hurdles regarding security protocols, regulatory compliance, and fraud prevention. Moreover, because faster payments reduce transaction clearing times, the potential for fraud is magnified. This requires more adept and advanced security and fraud protection solutions.

After a survey of high-level risk and compliance officers in various fintech companies, it was discovered that 42% considered it a challenge to ensure a seamless user experience while undergoing compliance operations for FedNow adoption. Furthermore, 78% of risk and compliance officers voiced concerns about inadequate staff training.

“In the rapidly evolving landscape of financial technology, compliance and risk officers at fintech payment companies are navigating uncharted waters with the launch of FedNow,” said Stella Clarke, Chief Strategy and Marketing Officer at Fenergo. “Our research highlights the significant hurdles in financial crime prevention and compliance efforts, painting a vivid picture of the challenges faced in this new era.”  

A New Frontier for Faster Payments

The buildup to the launch of FedNow was abuzz with optimism. As the first government-developed instant payment system in the United States, FedNow was set to democratize access to instant payments for larger banks, smaller banks, and credit unions.

PaymentsJournal recently cited a study by Cornerstone Research that suggested 30% of FIs will launch real-time payments in 2023 and that 25% were waiting until FedNow was officially launched.

FedNow launched only in July, so it’s still early to determine how it will balance the sheer volume of payments that come through the system and customer privacy and security. Compliance processes associated with anti-money-laundering, know your customer (KYC), and fraud move at a much slower pace than the speed of payments.

The post Fenergo Study Sheds Light on Fraud Prevention Challenges After FedNow Launch appeared first on PaymentsJournal.

The Consumer Financial Protection Bureau (CFPB) has proposed a new rule that will enable customers to freely share their financial information with third-party financial service providers.

The rule prohibits financial institutions from stockpiling their customers’ personal data and  mandates that companies release this information if the customer requests it. Essentially, at the very core, the CFPB is looking to protect consumer data and put more control back in their hands.  

Companies that receive consumer financial data are forbidden from misusing or monetizing this information. Consumers are also free to leave a bank if they are receiving bad service. 

“With the right consumer protections in place, a shift toward open and decentralized banking can supercharge competition, improve financial products and services, and discourage junk fees,” said CFPB Director Rohit Chopra in a prepared statement. “Today, we are proposing a rule to give consumers the power to walk away from bad service and choose the financial institutions that offer the best products and prices.”

Open Banking and Consumer Data

Open banking gives third-party financial service providers access to data from consumer banking and transactions, derived from both banks and non-bank financial institutions.

Open banking regulations can be traced back to the European Union in 2015. Since then, many countries, including Australia, Brazil, and the United Arab Emirates, have moved forward in adopting open banking regulations.

Although open banking can transform the financial system, protecting personal data has been tricky. With personal data accumulating, being stored in various places by various companies, data is now more susceptible to risk.

According to James Wester, Director of Cryptocurrency and Co-Head of Payments at Javelin Strategy & Research, having “data silos and fragmented security measures is unsustainable.” As more companies fear the potential liabilities for data breaches or the mismanagement of customer data, now is the time for them to look into a more secure data management strategy—including multi-factor authentication, role-based access control, and encryption.

The post CFPB Proposes Open Banking Rule to Protect Consumer Data appeared first on PaymentsJournal.

Businesses are becoming keenly aware that offering a variety of payment methods for their customers is essential to remaining competitive in the digitally evolving market. Consumers want the choice to pay in a way that is convenient, secure, and efficient. Not offering their preferred form of payment could prompt them to take their business elsewhere.

Mastercard and J.P. Morgan Chase have addressed the importance of the customer payment experience by launching a pay-by-bank solution that enables billers to let customers pay their bills through their bank accounts.

With pay-by-bank, customers can now pay for recurring payments such as insurance, healthcare, utilities, rent, and tuition. Billers, whose customers are already using ACH to pay for their bills, can easily enable the pay-by-bank solution on their payments page. Customers simply must choose “pay-by-bank.” Then they will be asked to choose their bank and allow their bank information to be securely shared via Mastercard’s open-banking platform.

“This innovative payment option aligns with our commitment to providing our customers with convenient and secure payment choices,” Darrell Conn, Executive Director of Verizon, said in a prepared statement.

“We believe that Pay-by-bank will enhance the overall customer experience, making it easier and more efficient for our customers to pay their bills. We look forward to this partnership with J.P. Morgan and Mastercard to bring more innovative solutions to our customers.”   

Pay-by-Bank Growing in Popularity

Pay-by-bank is increasingly preferred by merchants across the country as it reduces payment processing costs, as there are no swipe fees. And with inflation, high interest rates, and other economic factors negatively affecting the average consumer, more are turning away from credit card purchases and opting for debit cards and pay-by-bank at checkout.

Amid the current economic conditions, expect pay-by-bank to continue to gain ground as a payment method. It is likely that it will join the ranks of other current interest-free methods of payment, such as debit cards and cash.

“The JP Morgan-Mastercard pay-by-bank launch reiterates the growing interest and demand for direct-debit and open-banking solutions in the U.S.,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “It’s not surprising that Verizon is piloting the solution, especially given AT&T, T-Mobile, and Verizon have all been pushing customers to set up autopay with lower-cost debit cards and ACH payments. Verizon was also one of the first merchants to allow its customers to make instant bill payments via RTP and Citi.

“Many recent developments, including the CFPB’s proposed Personal Financial Data Rights rule, the Fed potentially lowering the debit fee cap, and the possibility of credit card fee regulation, could have a significant impact on the U.S. payments landscape. Additionally, growing real-time payment adoption could enhance pay-by-bank solutions and generate new revenue opportunities.”

The post Mastercard and J.P. Morgan Chase Launch Pay-By-Bank 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.

With the rollout of the FedNow instant payment service, the realm of real-time payments and immediate reconciliation has opened up new possibilities for independent software vendors (ISVs) and their clientele. This transformative service not only accelerates payment processing to unprecedented speeds but also dismantles the layers—and in some cases—the fees that traditionally stood between ISVs and their customers.

While adoption of FedNow may be gaining momentum at a measured pace, it is essential for ISVs to recognize that it will soon become a prerequisite for staying competitive. Consequently, early adopters who swiftly integrate FedNow as an embedded payments solution can wield it as a potent differentiator, influencing purchasing decisions significantly. ISVs can leverage FedNow to their advantage in the following ways:

Elevating the User Experience

FedNow has the capacity to streamline the entire payment process, delivering a seamless, instant embedded payment experience to customers. In a world where buyers increasingly demand speed and convenience, FedNow becomes a value-added feature that can not only attract but also retain customers through heightened satisfaction and loyalty. It signals that your organization is at the forefront of technological innovation, underlining a commitment to forward-thinking.

Accelerated Settlement

For ISVs, real-time payment systems not only expedite the receipt of funds, but also eliminate the delays associated with traditional methods like checks and ACH transfers. This elimination of pending transactions grants both vendors and customers real-time control over their accounts and financial transactions, enhancing efficiency and reducing uncertainties.

Unleashing Growth Opportunities

FedNow can be seamlessly integrated into various software applications and platforms, spanning e-commerce, invoicing, and financial management tools. This integration empowers ISVs to offer more comprehensive services and facilitates the adoption of digital business models such as subscriptions and one-time purchases. This versatility is especially valuable for SaaS providers, e-commerce platforms and digital marketplaces. Moreover, it paves the way for global expansion and partnership opportunities by enabling faster cross-border transactions and collaboration with financial institutions and payment processors, expanding capabilities and access to a broader customer base.

Harnessing Data Insights

Data stands as a strategic asset driving business growth. Implementing FedNow as an embedded payments solution provides access to valuable real-time transaction data, offering insights into customer behavior, preferences, and trends. This wealth of information can inform critical business decisions, including the development of new offerings, the refinement of customer engagement strategies, and the enhancement of the overall customer experience through well-timed outreach and support interactions.

Mitigating Fraud Risk

FedNow offers a safer transaction environment for both ISVs and customers, backed by robust security measures that reduce the risk of transaction fraud, identity theft and payment card breaches. This heightened security provides peace of mind for customers and effectively consigns chargebacks to history for merchants, reducing risks on the seller’s end.

The implementation of FedNow as an embedded payment solution offers ISVs a myriad of advantages, ranging from an enriched user experience and faster settlement to expanded growth opportunities, data-driven decision-making, and reduced fraud risk. However, with this formidable real-time payment capability comes the responsibility of fiscal prudence. ISVs must judiciously manage their cash flow and make informed decisions regarding expenditures and investments.

Additionally, the selection of a knowledgeable and reliable partner is crucial. A partner well-versed in the technical intricacies of FedNow implementation, as well as its integration with existing solutions, can ensure a seamless transition.

By avoiding cumbersome processes, such a partner can preserve the speed and convenience benefits offered by FedNow, ultimately contributing to a positive customer experience that is paramount for long-term success.

The post Leveraging FedNow for Competitive Advantage: 5 Strategies Software Vendors Should Consider appeared first on PaymentsJournal.

Mastercard is betting big on open banking, working with leading players in the space—including Worldpay from FIS—to provide consumers and small businesses with the ability to authorize trusted entities access to their financial information.

Through its collaboration with Worldpay, consumers can facilitate direct bill payments from their bank accounts and authorize the sharing of their data—without it being stores—between trusted parties. Mastercard is also working with J.P. Morgan Payments on a pay-by-bank solution that leverages its open banking technology to simplify bill payments.

“Open banking solutions can speed up the lending process so consumers and SMEs are able to get quick access to funds they need and get back to running their businesses and completing purchases,” said Daniel Keyes, senior analyst at Javelin Strategy & Research. “It’s particularly important that SMEs and consumers are only given funds that they’re in a position to pay back, and open banking can help make sure underwriters have access to the financial information needed so neither ends up overextended.”

Trust is Fundamental

According to the company, trust is a vital component of open banking, and Mastercard is particularly keen on safeguarding consumer data.

“We’ve been in the data space for a very long time, so we have a very high bar on compliance, security, safety,” said Jess Turner, EVP, Head of Global Open Banking and API at Mastercard. “Even in the way we transmit things and how we use data, that’s a core focus of ours. And so we put a lot of energy into digital identification and into fraud reduction.”

“What we do with open banking is we embed those assets into the data flow,” she said. “When we talk about open banking, we talk about connecting to a bank’s APIs. And that is the most secure way to move data. When you bring these assets together, you have an ability to have consumer consented data with clear transparency for what they’re using it for.”

Tackling Fraud

Last year, consumers in the U.S. and Canada experienced $3.2 billion in losses from fraudulent opened accounts.

“That’s a lot from opening fraudulent accounts,” Turner said. “If that happens, and you’re a victim of that, you’re not going to try it again next time.”

“Consumers and small business own their data, and they should have access to it—and it needs to be protected. Everything we build around that is to support those policies and principles. We also believe that you should not be bias in the data, and it should be used in a clean and concise way,” she said. “That’s really important, because with that, we have boards across Mastercard that check all of the data products we have—whether it’s a new model, whether it’s an attribute to make sure we’re following our data principles and how it’s leveraged, and then to, to make sure there’s no bias in it. We take it very seriously.

The post Trust Is at the Center of Mastercard’s Open Banking Efforts appeared first on PaymentsJournal.

U.S. banks are finding themselves at a crossroads, balancing the advantages of relying on dominant service providers with the pressing need to maintain operational autonomy.

From core banking systems to payment processing, service providers offer banks the ability to scale their operations, increase efficiency, and reduce costs. But too much reliance on third-party service providers has pitfalls.

During a recent PaymentsJournal podcast, Oscar Munoz, Vice President of Sales, Ren Americas at Euronet, and James Wester, Director of Cryptocurrency and Co-Head of Payments at Javelin Strategy & Research, discussed the double-edged nature of relying on large service providers and the imperative for banks to have the flexibility to innovate.

A More Autonomous Outlook

Banks face a potential erosion of operational autonomy when they delegate to external providers. They also risk losing control over data security, customer experience, and regulatory compliance.

“Many financial institutions are taking back control of their issuing and acquiring offering from the full outsourced model that we have seen become so popular in the U.S.,” Munoz said. “A lot of the sponsor banks in the U.S. are looking to own their own tech stacks instead of continuing to refer that forward to another company, which many times puts them at risk.”

Munoz emphasized the need for banks to control the final mile of customer interaction, highlighting its increasing importance. When banks take back control, they regain influence over how they communicate with their customers, something that’s especially critical for mid-tier and smaller financial institutions that place a high value on their customer relationships.

Striking the Right Balance

In the search for operational efficiency, banks must strike a balance between in-house capabilities and external services, all while staying compliant with evolving regulations. However, excessive reliance on third-party service providers—as mentioned before—can lead to generic, one-size-fits-all solutions that may not align with the value propositions every bank offers.

Wester pointed out that adaptation is not just a choice but a necessity. Banks must reevaluate their legacy systems and technologies in this fast-evolving landscape, even if they have been reliable and effective.

“For the longest time, that was acceptable,” Wester said. “But fast-forward to now, and suddenly fintechs are coming in, offering things that maybe weren’t seen as important. Or there were things that a financial institution might look at and say we don’t even really need to worry about that, nobody’s asking for—I didn’t know they could get it. Now that I know they can get it, they’re going to start asking for it.”

However, Munoz cautioned that modernization isn’t as simple as flipping a switch and moving from traditional systems to the cloud overnight. Banks must carefully consider the pace of their transformation and ensure they adapt to new technologies while meeting regulatory requirements.

Combatting Fraud in Real-Time

The rise of real-time payments has brought an increase in the speed at which fraud occurs. Traditional fraud prevention methods employed for credit cards—which allow chargebacks and reversals—are not applicable to instant payments. Munoz emphasized how important it is to recognize the differences and deploy fraud prevention strategies accordingly.

“If you’re managing different worlds, they’re going to need different tools because the way you can fix the problem after the fact is very different depending on what kind of transactions you’re working with requires unique expertise and tools and modern technology,” Munoz said.

“Compliance and fraud require that unique expertise, tools, and modern technology to manage both. We’re handling those concerns every day because we’re having these discussions with clients every day, and it’s one of the first things they bring up.”

Wester added that he’s had similar discussions with financial institutions.

“Compliance is something they’re absolutely paying attention to because, as we all know, compliance is baked into the DNA of financial institutions,” Wester said. “They have to be paying attention to all sorts of things across different lines of businesses and across different types of payments.

“And the other thing is, nobody believes that compliance is going to get easier anytime soon.”

Solutions in the Market

Euronet’s Ren Payments platform aims to help banks modernize their legacy systems and maintain the autonomy to adapt at their own pace.

Ren Payments offers banks connectivity to various real-time payment networks and card processing platforms—and bridges the gap between multiple payment channels, including wires, ACH, instant payments, card issuing and acquiring—all under one unified platform.

As financial institutions grapple with compliance and fraud prevention challenges, solutions like Ren Payments offer a lifeline. Compliance will only become more complex with regulatory changes, and banks need to be prepared to handle these changes swiftly.

“Our solution leverages over 12 years of experience in instant payments to deliver fraud prevention solutions tailored to the specific characteristics of each payment type,” Munoz said.

Conclusion

Navigating operational efficiency for U.S. banks is a balancing act. While third-party service providers present enticing solutions to streamline operations and enhance capabilities, banks retain their autonomy, particularly when it comes to the pivotal area of customer experience.

This autonomy becomes even more crucial when viewed through the lens of technology. With Fintechs reshaping the financial landscape, banks, especially mid-tier and smaller institutions, must be agile and responsive. It’s not just about the present efficiencies but ensuring that these institutions are resilient and adaptable for the challenges and opportunities of tomorrow.

But operational efficiency goes beyond the mere act of balancing. It’s a strategic move to future-proof the bank. By modernizing and adapting, banks equip themselves to cater to evolving customer demands, traverse the intricate maze of regulations, and safeguard against real-time fraud threats. In this ever-changing financial ecosystem, the success mantra for banks lies in harmonizing in-house strengths with external services. This synergy will determine which institutions merely survive and which thrive.

Interested in learning more about integrating and adopting the newest solutions in technology? Speak to Euronet at this year’s Money20/20. It will be at booth 44117.

The post How Banks Can Navigate the Path to Operational Efficiency appeared first on PaymentsJournal.

Marked by an accelerated rate of change and evolving consumer needs, the financial sector has undergone a digital transformation unlike anything seen before.

From small businesses reimagining their operations in response to the pandemic to the challenges larger corporations face in today’s uncertain economic climate, the financial sector is in the midst of a fundamental evolution. PaymentsJournal recently sat down with Chris Giamo, Head of Commercial Banking at TD, who spoke about the notable changes and challenges brought about by this digital transformation and shed light on the key strategies and technologies that are shaping the industry.

You spoke at Finovate Fall, and a lot of conversations that came out of that conference centered on the digital transformation the financial industry has experienced recently. What noticeable changes have you seen on your end?

The pandemic set the stage on how businesses behave and how they’re looking at their organizations. For the first time in a long time, businesses—particularly small businesses—had to reinvent themselves. If you recall, restaurants were doing DoorDash and were finding ways to have outdoor seating. Retailers were looking at ways to get products and services to clients without in-person interactions.

Small businesses are mainly entrepreneurially led, and those founders wear so many hats in the company. They can’t be an expert in every realm and have to rely on their banks, their accountants, their attorneys, and other third parties to guide them. And so I think the businesses that came out of the pandemic came out stronger and came out recognizing that they have to be present in not only delivering their products and services, but they also have to be forward-thinking. Large publicly traded companies have a lot of infrastructure and employees, and they have the ability to think ahead and plan in a way that sometimes smaller businesses don’t.

Now fast forward to today. The macro economy is challenging, and there’s a lot of uncertainty out there. Businesses are going back to the muscle memory that they had to get through during the pandemic. The pandemic accelerated the need for automated, digitized ways of consuming products and services. For us, it’s important to balance and prioritize investments. You have that innovative cutting-edge technology so businesses can self-serve themselves and they can have an automated way of doing their banking. But how do you balance that with subject matter experts and trusted advisors who are able to guide that business as well? That’s how we’re seeing it and how we’re looking at serving our customers.

It’s certainly a delicate balance. Leveraging technology, such as automation, has been a learning curve for many financial institutions. How do you make sure—especially in the commercial space—that you’re meeting customer needs?

Clients want customization; they can’t have a one-size-fits-all (approach). And it doesn’t mean every part of the functionality is customized. But we have seen the ability for businesses to customize, whether it be invoicing or payments capabilities, with some of these digitized and automated platforms.

We’ve spent a lot of time and money building embedded banking into clients, so when they’re conducting other non-banking services, they can click a link and get to their banking as well, with a single sign-on. We’re definitely spending some time there. And we found that’s resonating with clients, because they’re bookkeepers, treasurers, and CFOs who want the ability to do everything in one place if they can.

You mentioned customization. How has technology like AI changed the way financial institutions run their organizations? Does it help with personalization and creating more of that seamless end-to-end experience?

Banks have a tremendous amount of data, and we’re in the early stages of figuring out how do we leverage that available data. Outside of the specific application that the data is supporting, it may not always be usable. So we’ve worked on how do we get that data in usable formats, and then use third-party data to build models where we have a better idea of what solution a client may need. Because from there, we can predict, for example, that this cohort of clients may need this type of product or solution. And then we can personalize and arm our relationship managers with those lists that they can prioritize for their outreach with the client.

There was some recent survey data that TD collected at Finovate Fall, which found that outdated legacy systems in a fast-paced technology-focused landscape are the banking sector’s greatest technological challenges. Roughly 44% of respondents agreed. Can you speak to those findings?

Safety, soundness, and cybersecurity are critical. Making the necessary investments to keep systems current and updated—and develop functionality that can automate the process—is critical. It’s not just about the customer applications; it’s the back-office operations, too, and we have to look at things from an end-to-end perspective. So we can shorten the timelines, right? A client’s waiting for an answer and we want to make it easier for them to interface with us—whether that’s the ability to upload documentation, or it’s a tax return, or an e-signature is needed. You want to have that go straight through. That way, you improve both your customer experience and your client experience.

There’s a lot of work and focus on that, in addition to finding the new shiny object, whether it’s a new app or a new product capability.

Speaking of shiny objects, we’ve seen tech including AI, machine learning, and embedded banking really take off this year. Do you anticipate any new shiny object making waves soon?

I don’t think there’s anything specific other than further advancements and iterations of the tech you mentioned. With the advancements in AI, that’s moving at a very rapid pace depending on how you apply and use that. There’s a lot of white space out there.

As we head into 2024, what are you most excited about?

I’m excited to continue on our journey of improving our product offerings for our clients. The macro environment continues to throw unprecedented challenges at us, and the resiliency of the globe—but particularly U.S. businesses—really showcases their resilience.

(Most) businesses in the U.S. are small businesses, and that really drives our Main Street economies in the communities that we live in. We still have inflation, there’s still a tight job market, but I’m really excited and proud to serve as that trusted advisor to the customers.

The post Q&A: An Insider’s Perspective on the Shifting Trends in Banking appeared first on PaymentsJournal.

The choice of where to bank is one of the most important decisions in any consumer’s life. The right choice can lead to sound economic decisions and services, and the wrong choice can result in inconvenience, high fees, poor service, and dissatisfaction.

There remains a fierce competition to attract and retain banking customers.

To remain competitive, community financial institutions must continually balance service offerings and profits with the needs of consumers. At the same time, the industry has seen a radical transformation. The pandemic lockdowns spurred an already-in-motion move away from traditional branch services to online and mobile services. This means that everyday services on debit, credit cards, and new and evolving payments systems are the biggest areas of competition.

The Opportunity to Innovate

The rise of digital services is creating opportunities for credit unions. Studies have shown that many generations, especially Millennials and Gen Z, are more budget-focused and want better customer service. Credit unions typically have lower fees and pride themselves on their customer service.

During this period of change, credit unions can take advantage of the opportunity to attract and keep new customers—and win in the current evolving marketplace. While there are various paths credit unions can take in their journey, below are a few things they can consider.

For one, credit unions can develop robust card services for credit and debit cards. Payments and card services have evolved over the past decade and their presence in most consumer lives is ubiquitous. This means that options to boost card programs, rewards, and services are now available to most, if not all, credit unions.

Credit unions are also embracing the movement to mobile and online banking by leaning on the heritage of customer service. Chatbots and elaborate phone trees aren’t going away, and credit unions can use them when necessary, but it’s vital that customers are able to connect with a live person. This option can be potentially expensive—especially when compared to a chatbot—but banks’ reliance on bots and automated service provides has resulted in customer frustration. Therefore, it would be wise for credit unions to stay personal and remove as much friction as possible from the customer experience.

Another factor to consider is personalizing credit card reward programs. For example, one reward option could be to let cardholders donate to local non-profits. Credit unions can work with local businesses to offer discounts on a rotating basis, and this would not only help them support local businesses, but those same businesses might jump at the chance to offer credit union cardholders a discount.

Finally, it’s important to always offer both online and in-branch educational programs which speak to the benefits and potential drawbacks of having and using a credit card. Knowledge—particularly financial education that teaches consumers on the many ways they can live a financially responsible lifestyle—is a great way for credit unions to separate themselves from competitors.

Evolving with the Times

The retail banking world is changing. Consolidation at the national level, creating larger and larger banks, opens a door for credit unions to gain market share. By taking advantage of their position as a local neighborhood resource—one where bank employees know their customers and their customers’ habits and needs—credit unions will grow.

There’s no doubt that the changing landscape could signal the start of a golden age of credit unions. They can use their partnerships with local businesses and other stakeholders as a way to go above and beyond and build relationships with their members. 

As credit unions are mainly praised for their ability to provide exceptional customer service, they also offer lower fees, better interest rates, and services that provide education on financial literacy. And credit unions continue to be successful as they lean further into what credit unions do best: member service.  

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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.

U.S. consumers are happy with their current banks and have confidence in their ability to cater to the ever-changing financial landscape, according to new data conducted by Morning Consult on behalf of the American Bankers Association.

Roughly 84% of account holders polled said they’re “very satisfied” or “satisfied” with their current bank. What’s more, a majority (94%) of respondents regarded their bank’s customer service highly, classifying it as “excellent,” “very good,” and “good.”

Bank Innovations

The banking sector has evolved over the past few years, with banks working to meet consumers where they are—and this hasn’t gone unnoticed.

According to the study, 79% of respondents at least somewhat agree that innovation and technology improvements by banks are making it easier for account holders to have access to financial services.

Many respondents also feel that they have a variety of financial product options at their disposal, ranging from bank accounts to loans to credit cards. Indeed, 40% said they strongly agree, while just slightly fewer (39%) somewhat agreed.

Reasonable Expectations

For the most part, consumers believe that the financial services industry is highly competitive. And one of the reasons they’re satisfied with their primary bank is the fact that the institution is transparent about disclosing fees and letting consumers know why they’re being charged. Trust was high among those surveyed, with 43% of account holders saying they believe their bank is being “very transparent.” In fact, only 3% of respondents felt that wasn’t the case, saying their primary institution was “not at all transparent.”

When it came to their thoughts on being charged for fees such as overdrafts, many respondents felt that it was fair—with nearly two-thirds of account holders saying it was at least “somewhat reasonable.”

“This new survey shows that Americans remain happy with their bank and its ability to meet their evolving financial needs,” said Rob Nichols, ABA president and CEO in a prepared statement. “The results also speak to the highly competitive financial services marketplace, which ensures that consumers can pick and choose the banking products and services they want from a wide array of providers.”

The post New Survey Finds Most Consumers Are Content with Their Bank appeared first on PaymentsJournal.

There are two universal truths when it comes to banking and customer loyalty. First, banks want their credit card to be the preferred payment tender at the time of purchase, and second, they want to retain customers.

Back in 1984, Diners Club created the industry’s first card-based rewards program. The company sought to incentivize card usage by assigning points to different purchases, making it even more appealing to be a Clubmember. It worked—the trend caught on, demand for Diners Club cards grew, and eventually, card-based rewards became standard practice.

Ever since then, card issuers have continued to invest in the consumer relationship, adjusting their loyalty programs to align with the way people shop. The Diners Club card was “version one” of customer incentives, providing a baseline for rewarding purchase behavior. 

Striving for Customer Loyalty

As consumer shopping transitioned online, so did credit card rewards. First movers in this space, including Chase Dining and Cardlytics, made it easier for banks to promote card-linked offers and experiences. These exclusive offers served up on a bank’s website or mobile app were “version two” of customer incentives, meeting consumers at a time and place when they are thinking about their buying habits—and giving them more reasons to use their card.

These types of rewards programs help banks meet their strategic priorities by cultivating customer loyalty and increasing average revenue per user (ARPU). On the loyalty side, we know that saving money is a big incentive for consumers. Serving up a discount can influence behavior and also increase the likelihood that consumers will keep making purchases with their credit card. Another benefit of rewards and cash back programs is that they increase customer retention – which is incredibly important to banks – and can help lower the cost of acquiring new customers.

But the rewards program space has become more crowded as new players enter the field, and with it, consumers now have set a higher bar for which programs are worth their time and attention. Banks need a way to differentiate the value they offer to their customers, and to do so, they need to participate in e-commerce in a more meaningful way. Owning the customer relationship higher up in the funnel—such as the point of discovery—provides the opportunity to direct customer eyeballs and stay top-of-wallet regardless of payment tender. Since there’s no “sticker on the door” in e-commerce, banks need ways to remind consumers to use their card when shopping online. At the same time, banks need to expand their average revenue per user, and they are exploring innovative ways to do so.

Building on Loyalty

The next evolution of credit card loyalty is delivering offers that are built for the way people actually shop online. Rather than opting into an offer before the customer is ready to make a purchase, or navigating through a multi-step conversion path, discounts and deals should be made available right in the browser, surfacing a relevant discount for a site where they’re primed to spend. The next generation of shopping rewards is just part of the shopping journey—no detours, enrollment, or extra steps.

White-labeled, embedded rewards platforms are “version three” in the evolution of customer incentives. Embedded rewards providers such as Honey, Capital One Shopping, and Wildfire have tapped into this format, offering discounts to shoppers wherever they are, at the moment they need them: as they are shopping at an online merchant’s site. These solutions connect a bank’s brand with offers like cash back rewards that incentivize shopping—enabling banks to cultivate consumer loyalty by seamlessly integrating themselves into the natural purchase path to surface a relevant offer, all while keeping their card brand top-of-mind. It also allows banks to tap into new revenue and profit pools through merchant-funded rewards. Through this implementation, banks can achieve their goals of brand awareness, expanded revenue per user, and reduced customer churn. 

As we look ahead, I anticipate that we’ll continue to see more innovation in this arena. While the ways we shop and earn rewards have evolved since the 1980s, banks’ desire to cultivate customer loyalty and stay top-of-wallet has remained consistent—and that’s something that won’t change.

The post Investing in the Next Evolution of Banking and Customer Loyalty appeared first on PaymentsJournal.

UK startup BuildMyCreditScore is leveraging open banking technology to let consumers boost their credit scores.

The company is offering consumers a Mastercard debit card that can be integrated within their current bank account, and consumers are encouraged to make purchases like they normally would. Finextra, which reported on the recent news noted:

“While the debit card works instantly like a regular bank card, the money—up to a daily cap of £30 per day—is collected via Direct Debit by BuildMyCreditScore around two working days after, allowing it to be reported to credit reference agencies. As a result, cardholders are able to build their credit score by demonstrating their ability to manage rolling outgoings and repay credit promptly.”

Boosting Credit

The primary advantage of this approach is that it empowers cardholders to strengthen their credit scores by showcasing their capacity to effectively handle continuous expense and swiftly settle any credit debts. Rather than depending on conventional credit-building offerings—which frequently entail obtaining credit and ensuring timely repayments—BuildMyCreditScore’s solution incorporates itself into an individual’s everyday spending patterns.   

According to Finextra, the company conducted a pilot program where it tested the credit building approach with 632 consumers between Dec. 2022 and June 2023. It found that most participants experienced a notable improvement in their credit scores within the first three months. In fact, score increases ranged from 11 to 55 points.

In a prepared statement, James Lynn, CEO and Co-Founder of BuildMyCreditScore, noted:

“Traditional credit builder products typically rely on someone making prompt repayments on credit they’ve taken out. If they fail to do so for any reason, they risk falling into debt and harming their credit score further. BuildMyCreditScore’s innovative use of open banking disrupts this model by integrating seamlessly with a person’s usual spending habits, allowing them to build their credit score in a safe, low-risk way through their everyday spending.”

The post UK Startup Looks to Open Banking Tech to Transform Credit Building appeared first on PaymentsJournal.

Early Warning® has been at the forefront of developing financial technology solutions for more than three decades. Early Warning’s success can be traced back to its ability to excel in mitigating risk and establishing trust. By partnering with well-established banks and credit unions, the company also gave rise to one of the most successful P2P payment solutions today: Zelle®.

Early Warning began as a specialty consumer reporting agency, helping financial institutions know the status of demand deposit accounts and now looks to reimagine e-commerce and the consumer checkout experience again with the launch of Paze^SM, a new digital wallet.

In a recent PaymentsJournal webinar, Early Warning’s VP of Product Management, Robin Love,  Ryan Riveland, VP of Market Development at Early Warning, Paze’s VP of Product, Matt Miller, and Daniel Keyes, Senior Analyst of Merchant Services at Javelin Strategy & Research, dig into how the company has helped shape the financial industry and the profound impact Paze will have on banks and credit unions.

Establishing trust between consumers and financial institutions is essential

As challenges in the financial realm evolve, banks and credit unions must balance risk management and customer support using advanced identity and payment risk tools.

“Early Warning offers a suite of services that are leveraged by thousands of institutions, agencies, and merchants across the country to help prevent not only synthetic identity fraud but mule detection, as well as the ability to determine if the applicant is likely to commit first-party fraud or default on the account,” Love said.

“From the best-practice perspective, I think they just need to have the right tools in their arsenal to ensure that they’re really identifying that this individual is who they say they are.”

Zelle® and Paze Have Their Distinctions

Zelle® and Paze are notably different products addressing entirely different sectors and use cases. Zelle® supports a use case that helps small businesses that exclusively used cash and checks for their daily operations. Zelle® was made available to eligible small businesses as a result of research conducted by Early Warning which revealed that 80% of small businesses surveyed did not accept cards as a form of payment.

“Zelle® is focused on digitizing check and cash, and that is not necessarily a Paze principle,” Riveland said. He added that Zelle® was never intended for the purchase of goods but rather for P2P transactions and small-business services.  Furthermore, Zelle® is embedded within the mobile banking apps of participants in the network to boost consumer engagement within the apps.

Paze, on the other hand, is an easy-to-use digital wallet that consumers can use for e-commerce purchases. Because Paze is offered by banks and credit unions, consumers can access their debit and credit cards from all participating financial institutions in the network. Miller explained that because the bank can already authenticate customers, there is no need for them to create another identity or download another app.

On the merchant side, Paze leverages the relationship already established via the bank to provide a more enhanced front-end experience, eliminating the friction typically seen in online checkout.

How Paze Aims to Change the Payments Industry

Paze is set to launch to all eligible consumers in 2024 and is anticipated to be a game-changer in the digital wallet space. Currently, Early Warning is partnering with large institutions that will help scale Paze much in the same way that Zelle® has been able to scale for more than 2,000 financial institutions.

Paze is launching in 2023 to a limited consumer population ahead of general availability. The rollout will primarily focus on consumers who are actively shopping online.

The goal is to also bring Paze to consumers and spotlight the security aspect, particularly as it’s supported by the many financial institutions those consumers know and count on.

“It’s about finding the opportunity to reduce that key component of friction, which is establishing a new relationship with the consumer either in the form of guest checkout or in the form of account creation,” Miller said.

Scaling Paze

Paze is set to fully launch this fall and is anticipated to be a game-changer in the digital wallet space. Currently, Early Warning is partnering with large institutions that will help scale Paze much in the same way that Zelle has been able to scale for more than 2,000 financial institutions.

The company is also working with a closed group of individuals to test and expand Paze for a full launch starting this fall and into the following year. The rollout will primarily focus on consumers who are actively shopping online.

The goal is to also bring Paze to consumers and spotlight the security aspect, particularly as it’s supported by the many financial institutions those consumers know and trust.

“It’s about finding the opportunity to reduce that key component of friction, which is establishing a new relationship with the consumer either in the form of guest checkout or in the form of account creation,” Miller said.

What’s Next

Paze is one of many solutions that is bringing banking, merchants, and consumers together, facilitating fast, efficient, and secure payments. With the help of its parent company, Early Warning, Paze leverages decades of experience, a suite of services, and extensive banking relationships. Those resources will be pivotal to its scale and expansion.

©2023 Early Warning Services, LLC. All Rights Reserved. Zelle and the Zelle marks used herein are trademarks of Early Warning Services, LLC

The post A Digital Wallet Game-Changer? Paze^SM Is Ready to Reimagine the E-Commerce Experience appeared first on PaymentsJournal.

Starting next week, commuters will be able to use MTA’s OMNY contactless payments system to travel to and from John F. Kennedy International Airport.

The OMNY “Tap and Go” readers will be installed at select gates in the Jamaica and Howard Beach stations, and travelers will be able to tap their phone, smartwatch, or contactless card to pay for the $8.25 fare.

According to New York Governor Kathy Hochul, this is the first step of the integration, and she expects more OMNY readers to be integrated into all fare gates by the end of next year.

“At the airports, our job is to provide a consistent, world-class customer experience for travelers from around the world,” said Kevin O’Toole, Port Authority of New York and New Jersey Chairman in a prepared statement. “Contactless readers offers travelers an intuitive, hassle-free fare payment option and will greatly improve the customer experience at AirTrain JFK.”

Janno Lieber, MTA Chair and CEO also added: “In September subway and bus customers tapped more than 2 million times on a single day, and now they’ll be able to use OMNY at the AirTrain JFK for much quicker passenger flow to and from the airport. Whether you’re headed to catch a plane or returning home to New York, AirTrain riders can now take full advantage of this time-saving and seamless way to travel in the city.”

Contactless Transit Systems

New York isn’t the only region that’s embraced contactless payment systems. In fact, riders in the U.S. can also use contactless payments with Chicago’s Ventra, Dallas’ DART or Portland’s TriMet.

Globally, transit systems in London, Japan, and South Korea—to name a few—have also embraced contactless payments in a move to offer riders convenience and choice in the way they pay.  

And more regions are modernizing their transit systems as well. Earlier this year, the Netherlands launched a contactless payment system, which works across its public trains, buses, and trams, letting riders pay seamlessly without worrying about purchasing different tickets or having to use different types of payment systems.

The post AirTrain JFK Will Soon Accept Contactless Payments appeared first on PaymentsJournal.

It’s been a few months since the European Commission (EC) published its package of proposals for the next generation of payments regulation in the EU. The proposals—which will see PSD2 split into a new directive (PSD3) and regulation (Payment Services Regulation/PSR)—have generated plenty of headlines since their release.

But what are the proposals’ potential implications for the open banking ecosystem specifically? And do they have the potential of realising the EC’s stated objective of “improving the competitiveness of open banking services”?

Having had some time to reflect on the proposals, let’s dig further.

Baseline Functionality and Performance Will Level Up

The size and complexity of the EU banking sector, combined with differences in interpretation of specific PSD2 requirements, has led to large differences in the level of functionality and performance of banks’ open banking interfaces, both within and between EU member states.

The EC’s proposal to introduce an explicit baseline level of functionality and performance that all bank open banking interfaces will, at a minimum, be required to meet is encouraging. This should help to level-up the minimum level of functionality and performance that can be expected consistently across the ecosystem.

As is frequently the case, however, the devil will be in the detail and the EC has left much of the specifics of the required functionality and performance to be defined in future by the European Banking Authority (EBA) in Regulatory Technical Standards.

There’s hope that the focus of these requirements will improve the quality and consistency of the end user experience, in particular for open banking-enabled payments. For example, minimum baselines for end user authentication flows (such as app-to-app redirection), as well as specific user experience guidelines, would provide a big boost to driving end user familiarity, confidence and ultimately uptake in ‘Pay by Bank’ propositions.

API-Based Open Banking Interfaces Will Become Universal

API-based interfaces offer the most secure and performant way for third-party providers to interface with banks. API-based interfaces help in delivering the most innovative, performant and secure open banking services, which ultimately drives better outcomes for end users.

EC’s proposal to introduce a new explicit obligation for banks to provide an API-based open banking interface is a good step forward. This will remove the current alternative option of enabling open banking access via modified customer interfaces (an enhanced form of “screen scraping”). While most EU banks already have API-based open banking interfaces, making this standard across the whole EU will further maximise bank coverage, as well as the potential customer base that API-focused third-party providers can offer open banking services to. Overall, this will support greater uptake and demand for open banking-enabled services overall.

Greater Visibility Into Open Banking Payments

It’s critical that third-party providers and their customers have better clarity on the status of open banking payments once they have been initiated. For example, many businesses will only release goods and services to their customers once they have confirmation that associated payments have settled into their accounts.

While PSD2 placed some limited obligations on banks to provide third-party providers with information on underlying payment statuses, the EC’s proposals strengthen these obligations. The new proposals make it clear that banks will need to provide payment status information to third-party providers both immediately after initiation and whenever subsequent information on the payment status becomes available to the bank.

This development, combined with the EC’s separate proposals mandating the EU-wide adoption of instant payments, will help further unlock the use of open banking payments in wider use cases.

A More Consistent and Enforceable Regulatory Environment

A hallmark of the PSD2 open banking regime has been divergence in interpretation and implementation of rules between different EU member states. For third-party providers operating across multiple member states, this has driven significant cost and complexity, and made offering consistent pan-EU open banking propositions challenging.

However, the structure of the EC’s new proposals—specifically the shift of most open banking rules from a directive into a regulation—will help drive a more consistent regulatory environment. Unlike directives, regulations are directly applicable in every member state and not subject to transposition into local law, which will minimise and potentially eliminate divergence between member states.

The EC’s proposals also include new elements aimed at improving enforcement activity, including against banks that aren’t meeting the required standards. A list of prohibited obstacles to third-party providers accessing bank dedicated interfaces, such as banks requiring customers to manually provide their IBAN to the bank to use open banking, has also been incorporated directly into regulation. Combined with the explicit baseline described above, these measures should further support in the levelling-up of ecosystem functionality.

Another Step Towards a Premium API Economy

PSD2 has provided—and future PSD3/PSR proposals will provide—the regulatory framework for open banking in the EU and the legal basis on which banks are obligated to provide third-party providers access to specified open banking functionality on a no-charge basis.

Premium APIs—those built on equitable commercial models, at least—pave the way for higher-quality and more innovative end-user propositions, such as dynamic recurring payments, and in the long term, will support the wider adoption of open banking-based payment propositions.

The EC’s proposals support the development of premium APIs in two ways. The proposals provide a more tangible specification of what specific functionality banks are required to offer to third-party providers on a no-charge basis. They also explicitly state that banks are free to charge third-party providers for any functionality offered beyond that required under law, removing any ambiguity that may have previously existed.

In summary, the EC’s proposals have the potential to unlock a more consistent, performant and featureful open banking ecosystem, while also helping to lay the path to an even more innovative ecosystem based on premium APIs.

The post Will the European Commission’s New Proposals Unlock Open Banking’s True Potential? appeared first on PaymentsJournal.

With the launch of FedNow, instant payments have become ubiquitous, and their adoption will only grow. But there are complexities to consider, particularly for banks and payment service providers (PSPs) that are figuring out how to best integrate this new service without incurring significant operational costs.

In a recent PaymentsJournal podcast, Nicholas Botha, Global Payments Sales Manager at AutoRek, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, discuss how banks and PSPs can overcome these obstacles and how automation can help.

Providing FedNow Payments at Competitive Rates

Instant payments, by their nature, result in a significantly higher volume of payments at a faster speed. As such, it is essential that companies are equipped with some form of automation to ensure operational efficiencies. Many are still working with legacy systems that, unfortunately, are not capable of handling instant payments.

Implementing operational efficiencies downstream will not only drive down operational costs but also ensure wider profit margins. These lower costs can eventually be passed down to customers or can bolster the financial health of the companies.

“With this new payment rail, you can expect more competition to enter the market,” Botha said. “Typically, when we see more competition, you should expect there to be pressure on those costs, which essentially means that there’s more requirement for creating those operational efficiencies to try and expand those margins as wide as possible.”

Reducing the manual components of the operation is also important. Tavilla noted that automation helps create greater efficiencies and can reduce the errors that result from paperwork or other non-digital methods.

“This is a great opportunity with FedNow for businesses and operations to improve automation,” Tavilla said. “It’s the first time in 40 years we have this new rail and this new technology, especially in the payments industry.”

Mitigating the Challenges of 24/7 Settlements  

Automation can be considered the golden ticket to ensuring that FedNow payments are leveraged to their highest potential. The use of automation ensures that payments are processed instantly, securely, and cost-efficiently—something that’s difficult to get from traditional payment flows designed for more traditional payment rails.

“Companies onboarding FedNow payment rails will need their operational flows to match the nature of what the payments are to ensure a couple of things,” Botha said. “One of the main things is to ensure customer adoption. You need to create that confidence in what has been adopted more widely and help create that fast adoption across the market by creating trust in what the process is.

“The second thing is to match your customers’ expectations. If customers are making payments in real time, and there are any issues or discrepancies, they want to know the results of those in the same nature as the payments taking place.”

How Liquidity Risk Can Be Managed Effectively

With the launch of FedNow, treasury teams now have the task of ensuring that liquidity is accessible to settle payments 24/7. Again, this is an area where the use of automation could significantly mitigate risk.

If treasury teams are reliant on legacy platforms or processes for their reporting requirements, they may be exposing themselves to more operational risk with instant payments’ 24/7 settlements.

“An effective way of looking at this would be to deploy automated reconciliation and automated reporting solutions with real-time reporting capabilities,” Botha said.

Botha emphasized that it is vital for treasury teams to have continuous access to the real-time liquidity status to manage their risk more effectively.

With Peak Times Approaching, Should Banks and PSPs Look to Cloud Hosting?

As we approach the holiday season, particularly Black Friday and Christmas, payment volumes are expected to spike. It’s important for businesses to leverage the necessary tech platforms to ensure they’re set up for success.

“Modern technology platforms that have the option to be hosted via a cloud are an effective way to reduce any risk around shortfalls or any errors within your infrastructure setup,” Botha said.

“It’s a more cost-effective way for businesses to host their infrastructure with these multi-tenanted environments that these large cloud providers have to offer. So you actually pay for the space that you’re requiring without having to provision for these huge spikes well in advance,” he said.

Where Instant Payments Are Heading

Instant payments will keep growing, and as the space evolves, banks and PSPs will need to evolve with it. Implementing and leveraging the latest technology to guarantee their customers a fast, cost-effective, and safe way to send payments will be key.

“With a new system like FedNow and instant payments, there’s a lot of potential for businesses to improve efficiency—whether it’s through automation, digitization, reduction of manual processes and also from a data capacity perspective by using cloud technology that increases capacity for businesses as well as other players,” Tavilla said.

Said Botha: “I would suggest having conversations with all different actors within the payment space, within these geographies, to really build that trust within the U.S. market with regards to FedNow payments.”

The post As Banks and PSPs Look to Offer Instant Payments, Automation Will Be a Game-Changer 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

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FedNow is continuing to gain traction after its launch in July, with roughly 108 organizations now sending and receiving on the network.

Earlier this month, Michael S. Barr, Vice Chair for Supervision at the Fed, revealed that FedNow will see steady growth stating:

“While current volumes on FedNow are small, I expect that participation will grow over time and be a significant addition to, and advance on, the existing payments infrastructure,” he said. “But decisions on how widely available the service will be rest with financial institutions. We have provided the rails. Innovation by private depository institutions will determine whether these services reach a broad range of households and businesses.”

Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, agrees and also expects to see more developing in the coming months.

“We anticipate widespread adoption and ubiquity will build over time, bringing the benefits of instant payments to communities nationwide and improving the way households, businesses and governments send and receive payments,” said Ken Montgomery, first vice president of the Federal Reserve Bank of Boston and FedNow program executive in a press release.

“RTP has currently has over 370 FI participants, which might seem like a small fraction of the nearly 10,000 U.S. banks and credit unions,” she said. “However, RTP’s network currently reaches 65% of U.S. DDAs.”

FedNow Is Here … What’s Next?

There’s no time like the present for financial institutions to leverage FedNow to help modernize their current payment systems. But before FIs jump on board, they need to consider a few factors.  

FedNow offers a plethora of advantages that any company would like to have, but it’s certainly not a one-size-fits-all solution. Financial institutions, especially, should begin by looking to their customers—are they a small bank or a large bank, for example.

“Some of the smaller financial institutions feel more comfortable working with a payment system that’s offered by the central bank because they think it’s more objective,” Tavilla said. “They don’t want to work with or offer products on a solution that’s offered by their large competitors.”

Smaller financial institutions also rely heavily on the partnerships they have with service providers. Therefore, looking to implement a new service would greatly depend on the availability and timelines of their service provider partners.

Overall, Tavilla recommends that financial institutions first determine which solutions make the most sense for their own operations.

“The key is to look internally at your organization and what you need and what makes sense,” Tavilla said. “Overall real-time payments are important and here to stay. For the first time in 40 years, you have technology that can move money in real-time, which is a critical fundamental component. It’s just a start.”

“You need to find solutions, or you can develop products that you know leverages or takes advantage of this capability,” she said.

The post More than 100 Financial Institutions Are Participating in FedNow appeared first on PaymentsJournal.

Apple is testing out a new feature for UK Apple Wallet users, allowing them to view their current bank account balance and transaction history directly within the app.

The tech giant is leveraging UK’s Open Banking API to fuel the effort, and according to 9 to 5 Mac, the feature will be available to a select group of Wallet users who have linked their Apple Pay card with one of the participating banks, which include Barclays, HSBC, Lloyds, RBS, Monzo, and Starling.

Transparency Around Finances

Apple’s move into open banking expands the capabilities of its Apple Wallet app beyond just facilitating digital payments. Open banking will allow users to monitor their financial activities and make more informed spending decisions by displaying their balances and knowing—in real-time—how much money they have in their account without having to open up their separate banking app.

This integration is a significant development for digital wallets, Apple, and open banking. Here’s why:

Digital wallets: This move enhances the functionality of digital wallets, making them more than just a tool for digital payments. By showing current account balances and transaction history, digital wallets are evolving into comprehensive financial management tools. This could lead to increased adoption and usage of digital wallets.

Apple: For Apple, this is a strategic move to increase the utility of both Apple Wallet and Apple Pay—potentially driving more users towards their ecosystem. It also positions Apple as a pioneer in leveraging open banking APIs for enhancing user experience.

Open banking: This is a validation of the open banking concept, which advocates for sharing of user-permitted data via APIs to provide better financial services. Successful integration could encourage other regions to adopt similar standards.

Future Integrations

Apple’s open banking pilot program is currently only available in the UK due to its established open banking standard that allows for such integrations. The introduction of a similar feature in other regions, including the U.S., may face challenges due to the absence of comparable standards.

That said, this may changing soon.

In a recent report, “Why Data Isn’t A Zero-Sum Game in Payments,” Matthew Gaughan, Payments Analyst at Javelin Strategy & Research, outlined how upcoming regulations will turbocharge open banking in the U.S.

The Consumer Financial Protection Bureau is working on a standardized rules framework ensuring that consumers can access their data uniformly, regardless of the data provider. If successful, this would pave the way for Apple to offer a similar service in the U.S.

The post Apple Is Piloting Open Banking in the UK appeared first on PaymentsJournal.

In an era dominated by digital innovation, the paradigm of financial transactions has undergone a transformative shift. Mobile wallets, once a novel concept, have now become an integral part of our daily lives, revolutionizing the way we manage, spend, and transfer money. From streamlined convenience to heightened security measures, the rise of mobile wallets has ushered in an era of unprecedented financial fluidity. What generation leads in mobile wallet usage?

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: Apple Savings and the Emerging Personal Payment Stack

Mobile Wallet Usage by Generation

• 30% of Gen Y / Millenial users use mobile wallets often
• 21% of Gen Z users use mobile wallets often
• 17% of Gen X users use mobile wallets often
• 4% of Baby Boomer users use mobile wallets often
• 0% of the Silent Generation users use mobile wallets often

About Report

Apple has launched a Savings account attached to Apple Card, delivered through the Apple Wallet app. From a payments perspective, Savings represents a new attempt at traditional bank cross-selling — one that uses payment functionality as the top of the customer acquisition funnel rather than the financial institution that offers the payments features. An Apple Wallet/Pay-centric approach restricted to users of Apple devices limits the reach of the Apple financial ecosystem to the admittedly large and attractive customer base of Apple devices. Future success for Apple’s strategy rests on two pillars: 1) continued growth and retained adoption of Apple Wallet, which is contingent on 2) Apple’s retaining the ability to restrict access to the near-field communication chip in phone and watch devices.

Should Apple succeed at using Pay to drive customers into other financial products such as Card, Savings, and Pay, it could emerge as a personal payment stack service provider, distributing a full suite of financial products and leveraging the broader Apple relationship to deliver additional value to consumers.

The post Who Leads in Mobile Wallet Usage? appeared first on PaymentsJournal.

The FedNow instant payments rail has the potential to be a boon for smaller financial institutions, including credit unions and community banks. By leveraging FedNow, these smaller institutions can expand into business services such as on-demand payroll services and vendor payment tools, offering faster and more convenient payment options.

During a PaymentsJournal podcast, Jon Budd, CEO of Juniper Payments, a PSCU company, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, spoke about the future of real-time payments and what they mean for small financial institutions. They explained that although participation is optional for banks and credit unions, the move toward instant payments offers new opportunities for credit unions and community banks to attract new customers and increase revenue.

FedNow Could Open New Angles for Credit Unions

The process of setting up faster payments takes time because it involves significant changes to the banking system, moving from batch processing to real-time payments, available 24/7.

“It’s a slow-rolling snowball that will build momentum over time,” Budd said. “FedNow is a top-down initiative. Now that it has been deployed, it’s up to 10,000 financial institutions to upgrade their systems to offer this technology to consumers and businesses.”

And among the financial institutions participating are many smaller institutions that have stayed on the sideline up to this point.

“Many credit unions, as well as regional and community banks, have more trust and prefer to participate in FedNow because it is operated by the Federal Reserve, as opposed to RTP, which is a private system operated by their larger bank competitors,” Tavilla said. “Overall, it is definitely a positive development because it gives financial institutions options, and it also offers resiliency for instant payments overall.”

According to Budd and Tavilla, credit unions have an opportunity to leverage FedNow as they work to get into the small-business space—whether it’s offering on-demand payroll services or tools for small businesses to pay vendors and receive money from vendors.

“According to several studies, over 70% of consumers and businesses look to their primary financial institution—which certainly includes credit unions—to offer faster payments, including real-time and instant payments,” Tavilla said. “This is a great opportunity for credit unions to participate and innovate upon real-time payments.”

Real-World Instant Payments Scenarios

Instant payments can be a real game-changer, helping consumers and businesses in various scenarios. Budd relayed a recent experience he had while buying a car.

“I purchased a vehicle online from a private seller located about 1,500 miles away from me in Kansas,” Budd said. “I flew to Reno, Nevada, to inspect the vehicle and confirm its condition matched the online pictures. We agreed on a predetermined price, and the seller opted for a cashier’s check. I provided the check, and he called the issuing bank, a small community bank in Kansas that I’ve had an account with since I was 8 years old. I’ve never waited more than about three rings for someone  to pick up a call, but this time it took 20 minutes to reach someone because the bank was going through a phone system transition.”

The experience might have gone differently, Budd explains, with instant payments.

“I could go to my app and initiate the transaction, and as soon as the seller refreshes his account information on his mobile app, he would see that the funds have been deposited. The whole process would take roughly 60 seconds,” Budd said. “That’s a game-changer. Anytime you would be using a wire or a cashier’s check is a perfect time for an instant payment.”

Budd’s example is just one of many use cases involving instant payments. Funding digital wallets, paying gig workers, and sending disbursements for car loans and mortgages are just a few scenarios we expect to see more of.

In fact, according to Tavilla, the quick disbursement of loans could be one that small financial institutions specialize in. “Many consumers prefer credit unions and smaller financial institutions due to the personal relationships and better rates they offer,” she said. “These financial institutions often serve businesses in their communities, making it possible to streamline billing, enhance transparency, and improve cash management.”

Misconceptions About Instant Payments

According to Budd and Tavilla, there are many misconceptions related to FedNow, including that the government will get rid of paper currency and track consumers’ transactions. But these concerns are off the mark.

“We’ve been operating ondigital currencies for decades,” Budd said. “FedNow is simply just another avenue, a kind of ‘toll road’ to do things quicker than some of the alternatives out there. There’s not necessarily more data that the Federal Reserve could look at as compared to what they’ve been looking at before, but that’s certainly not the intention.”

Another misconception, Tavilla said, is using FedNow as a verb. “People saying, ‘I’m going to FedNow you,’ like ‘I’m going to Venmo you,’ which you wouldn’t be able to do because the Federal Reserve doesn’t provide services to consumers. FedNow is a behind-the-scenes rail similar to ACH.”

It’s important to remember that FedNow is a product upgrade, which will be standard in the future.

“We moved from dial-up internet to high-speed internet, and now that is standard,” Tavilla said. “Similarly, one day, we’ll receive our payments instantly without having to wait for days to receive our paychecks and other payments.”

Conclusion

The FedNow instant payments rail has the potential to usher in a renaissance for smaller financial institutions, such as credit unions and community banks. These institutions, with their strong customer relationships and local presence, can leverage FedNow to expand their services into the realm of real-time payments. This shift offers a range of exciting opportunities, including on-demand payroll services and efficient vendor payment tools, providing faster and more convenient payment options for businesses and consumers.

To remain competitive and attract customers, smaller financial institutions will need to offer services that match or exceed what larger banks can provide. Failing to adopt modern payment solutions like real-time payments could lead to a loss of market share and a decline in competitiveness.

Overall, the introduction of FedNow represents a significant step forward in the world of payments. Smaller financial institutions can seize this opportunity to expand their services, cater to evolving customer demands, and solidify their positions as trusted and innovative players in the financial services industry.

The post FedNow Could Mean a Renaissance for Smaller Financial Institutions appeared first on PaymentsJournal.

Amazon is doubling down on its Just Walk Out technology, with plans to expand to sport arenas in Toronto and Calgary.

The e-commerce giant hasn’t divulged when its stores will launch in Scotiabank Arena and Scotiabank Saddledome, though various reports say it may happen later this fall. Jon Jenkins, Vice President of Just Walk Out at AWS told Yahoo! Finance that the company plans to further expand its presence in Canada, beyond just sport arenas.

A Cashierless Experience

Similar to the experience at its other locations, soon sports fans will be able to head into an Amazon store and pick up the items they want. Each location is equipped with overhead cameras and sensors, which leverage computer vision, generative AI, and machine learning to monitor which items are picked up or placed back on the shelves.

Once they’re done shopping, the credit or debit card consumers used for entry will be charged automatically and they’ll get a receipt.  

Frictionless Shopping

Cashierless shopping continues to grow in popularity worldwide. And what’s not to like? Consumers appreciate the convenience it offers as it saves them time without having to wait in line. For merchants, it helps reduce theft as the newest innovations—such as computer vision—enable them to keep track of what items shoppers take off the shelves and what gets put back.

Earlier this year, we covered Japan’s venture into the world of biometrics with its self-service point-of-sale (POS) cash register that enables shoppers to pay using biometrics such as facial recognition. To use this service, consumers simply register by providing their facial image on a website that is connected to Yahoo! JapanID and PayPay account. Once consumers are ready to check out, they scan the barcode on their product, choose the “Face Recognition Payment” option, and look into the camera provided.

Overall, it’s an area Amazon is betting big on. The e-commerce giant has been making waves with its Amazon One technology, recently announcing a partnership with Whole Foods. Beginning with a select number of Whole Food locations in Colorado, customers can link their palm and payment card at a point-of-sale station or kiosk. Once registration is completed, the customer can check out with their items by scanning the palm of their hand over a scanner.

The company has also been working with Panera Bread and Starbucks on similar initiatives.

The post Amazon to Launch Cashierless Stores in Canada appeared first on PaymentsJournal.

In a recent podcast, PaymentsJournal talked with experts from different parts of the payments world to discuss how real-time payments are proceeding throughout the world, and particularly in the United States and Australia. It featured Elisa Tavilla, Director of Debit Payments, Javelin Strategy; Adrian Lovney, Chief Payments & Schemes Officer, Australian Payments Plus; Nathan Churchward, Payments Domain Lead, Cuscal; and Kate Knudsen, Senior Program Director, BHMI.

With the launch of FedNow, the United States has fully embarked on its journey toward real-time payments. Across the globe, real-time payments are creating not only competition among payment methods but also new use cases, making previously unattainable services accessible to businesses and consumers.

Yet the road to global ubiquity in real-time payments has challenges. Technical hurdles, legacy systems, and the imperative of interoperability need to be overcome. In a world with seventy-nine countries operating real-time payment systems, achieving cross-border real-time payments requires diplomacy and meticulous planning. Furthermore, the modernization of outdated back-office systems is imperative to keep pace with the exponential growth in real-time transactions. The good news is that businesses recognize this urgency and are upgrading technology infrastructures and streamlining processes.

Real-Time Payments in U.S. and Australia

Real-time payments are quickly becoming more widely available throughout the world. In the United States, FedNow’s launch in July is starting to increase traffic and demand for real-time payments.

“In the U.S., the FedNow service recently launched with 35 financial institutions,16 service providers, the Department of the Treasury, and more set to join,” Tavilla said. “The RTP network, run by The Clearing House, hit 500 million transactions with over 370 participating institutions. With two real-time gross settlement systems live in the U.S. now, I’m optimistic that it will help accelerate the growth and adoption of instant payments here [in the U.S.].”

In many cases, real-time payments are much more developed abroad. For example, Australia in 2018 launched its New Payments Platform (NPP) for real-time payments, and it has taken off ever since.

“Around 30% of the volume that was previously processed through the bulk Electronic Clearing System in Australia has now transitioned to NPP in the past six years,” Lovney said.

Initially, purchases on the platform were mostly P2P, but now, it is increasingly used by businesses and corporations. Some examples include paying taxi or Uber drivers at the end of their shifts and making insurance or emergency payments.

According to Lovney, the next phase of use cases will involve recurring (bulk) debit payments, such as subscriptions or utility payments.

“We expect to see bulk payments coming from businesses, corporations, and government entities, such as salary or dividend payments,” Lovney said. “Australia has set a goal to potentially phase out the ACH system by around 2030, approximately 12 years after the launch of NPP.”

As Churchward hinted, all of this is slowly creating significant competition among payment methods.

“During the pandemic, as cash usage declined and electronic payment methods increased, including ACH, we saw significant growth in account-to-account payments, especially person-to-person credits, accounting for 38% of the total payment volume growth,” Churchward said. “However, NPP’s growth has outpaced that of ACH. Currently, real-time payments represent 37% of all account-to-account credit transfers among our clients, which include banks and payment service providers.”

But real-time payments are creating new use cases, not just the substitution of existing ones.

“Payment service providers, in particular, are offering receivables management services to businesses using account-to-account payments that weren’t available before NPP,” Churchward said. “Customers love using Pay ID, a feature that links their mobile number or email address to their bank account—80% of payments received by our payment service providers from business customers use this feature.”

Challenges in Implementing Real-Time Payments

The United States has over 11,000 financial institutions, and many of them, especially the smaller ones, rely on legacy systems.

“Transitioning to a payment system that operates 24/7, 365 days a year will take time, and ensuring everything works seamlessly together (interoperability) is another task at hand,” Tavilla said.

Adding to the overall complication is the fact that the United States has two operational systems in place, FedNow and RTP. As they were designed independently, interoperability is a concern.

“Both FedNow and RTP are using ISO 20022 messages, which should facilitate interoperability not only within the U.S. but also with international real-time payment systems,” Tavilla said. “Both systems are continually introducing new features, with FedNow exploring cross-border capabilities and directory services.”

And that is just in the United States.

Seventy-nine countries have at least one real-time payment system in operation, and integrating them all for real-time cross-border payments will be a real challenge. This will take diplomacy and careful planning by individual countries.

For example, the NPP in Australia is in the final stages of launching a dedicated real-time international payments business service to process cross-border transactions. The service clearly differentiates international payments from domestic ones and attaches information about the sender, including name and date of birth.

“This international payments business service is designed to accommodate various types of international payments, be it through SWIFT, TransferWise, Western Union, or others, and ensures that the domestic leg of these payments is instantly available,” Lovney said.

Dusty Back Offices Are an Impediment

Amid the technical and diplomatic challenges in implementing real-time payments, other challenges are much more mundane.

“The most significant challenge we’ve observed for companies aiming to support real-time payments is their outdated back-office systems,” Knudsen said. “While they invest in modernizing their payment front ends, the back office often lags behind. This is a big issue because the back office is where payment processing happens after authorization by the front end.”

“Many of these back-office systems were created decades ago and weren’t designed for real-time payments, making it difficult for them to keep up with the speed and increasing volume of real-time transactions,” Knudsen added.

Another problem: Because legacy systems were initially designed exclusively for card-based transactions (ISO 8583), they lack the flexibility to handle new kinds of transactions, such as person-to-person (P2P) payments.

“The good news is that many companies are recognizing the urgency of modernizing both their front-end and back-end systems to keep pace with the rapid growth of real-time payments,” Knudsen said. “We’re seeing progress in terms of upgrading technology infrastructure and implementing APIs to enable real-time processing. Additionally, companies are streamlining back-office processes, simplifying workflows, and automating manual tasks to align better with the speed of real-time payments.”

How Leading Countries are Driving Real-Time Payment Adoption

In 2022, India led the world with a total real-time transaction volume of 89.5 billion, representing 46% of global real-time transactions. In the same year, Australia processed 1.2 billion real-time payments, which is obviously far less in absolute terms but only 25% less than India on a per-capita basis. The United States recorded a real-time transaction volume of only 1.8 billion in 2022, way less per capita than India or Australia. But it seems more than likely that this will change with the advent of FedNow this year.

According to Churchward, making real-time capabilities open to non-banks and focusing on P2P payments to address customer needs is key. These steps can foster adoption and drive higher use of real-time payment systems in countries that are lagging. At least that has been Australia’s experience.

“One noteworthy feature in both the Indian and Australian markets is a focus on peer-to-peer payments and facilitating access for payment service providers that are non-bank entities,” Churchward said. “This approach has led to substantial transaction volumes.” 

“Enabling P2P payment platforms that address common pain points for consumers and businesses is a fundamental use case. These pain points include ensuring interoperability between P2P platforms and providing real-time notifications and reconciliations for businesses,” Churchward added.

As more real-time payment schemes come into play, focusing on interoperability will be key.

“Payment systems moving toward ISO 20022 is a strong foundation for cooperation,” Lovney said. “Additionally, frameworks like the Open Wallet Coalition can underpin efforts to create interoperability with other systems worldwide.”

Some companies still have skepticism about real-time payments. Churchward indicated that companies need to keep up with their clients’ demands.

“Real-time payments can be challenging but highly rewarding,” Churchward said. “They offer significant value to your clients and help them stay competitive in a rapidly evolving landscape.”

And a big part of getting real-time payments right is having the appropriate back-office software. “Software plays a crucial role in enabling real-time payments,” Knudsen said. “It needs to support any transaction type and provide connectivity for processing payments in real time, both domestically and internationally. Automation is key. Automating settlement and reconciliation processes streamlines real-time payments.”

Conclusion

Real-time payments have evolved from a budding concept to a transformative force. The industry’s focus on interoperability, adoption of standardized frameworks, and investments in modernization indicate that real-time payments are here to stay. As skepticism wanes and adoption grows, the future of payments has a real-time bent, offering immense value to clients and ensuring competitiveness in a rapidly evolving landscape.

With software playing a pivotal role in enabling such transactions, the stage is set for real-time payments to revolutionize the way we transact, offering not just speed but also efficiency and convenience.

The post In 2023, Real-Time Payments Expanding Across the Globe appeared first on PaymentsJournal.

Although cash use has experienced a decline in recent years, cost-of-living pressures have forced many UK residents to turn to cash to better manage their budgets. And for the first time in ten years, this legal tender as a payment method experienced an uptick in the UK.

According to a UK Finance report cited by the BBC, the number of payments made with cash increased by 7% last year. Making up 14% of total payments, physical money came out as the second most popular form of payment.

In an interview with the BBC, Adrian Buckle, Head of Research at UK Finance noted that while many payment methods—including contactless payments—have emerged over the years, the allure of cash is still very much prominent among consumers. And that’s evident today, as cost-of-living pressures continue to impact many households and budgeting money is ever more prominent.

Cash Isn’t Going Anywhere

With payments becoming more digitized, the use of physical currency has fallen in recent years. However, the decline does not necessarily equate to its demise. In fact, many consumers worldwide still rely on bank notes to make purchases.

In France, for example, cash is still king. We covered a recent survey, which found that cash made up 36.5% of total transaction volume in 2022. Meanwhile Sweden—a leading proponent for a cashless society—had to abort its efforts to ensure that its residents had easy access to physical money.

Similarly, Australia recently held protests against what they believe to be the intrusion of digital payments. Citizens have been vocal about it, requesting that banks and governments maintain the availability and access to physical cash for those that still rely on it.

Here in the U.S., some legislation has been drafted to protect the use of cash, arguing that by doing so would foster financial inclusivity as well as eliminate discrimination against those who still prefer to use cash.

The post Current Financial Climate Sees Surge in Cash Use Among UK Consumers appeared first on PaymentsJournal.

Florida representative Dr. Joel Rudman has proposed a new bill that would ensure most businesses in the state accept cash payments—or face hefty fines.

According to CBS News, it was Rudman’s personal experience that propelled him to take action. While attending a concert in June, it was impossible to find a business that accepted cash, and the encounter—coupled with concerns about the traceability of electronic transactions—led him to file the bill.

If it goes through, businesses who won’t accept cash at the point-of-sale may be subjected to a fine, which “would start at $2,500 for a first offense, increase to $5,000 for a second, and peak at $10,000 for any additional violations,” CBS reported.

A More Contactless Future

The cashless trend has been intensifying, with many businesses worldwide seeking to reduce their reliance on physical currency. But while this change in behavior to contactless payments has taken center stage over the past few years, cash is still very prevalent.

As we previously covered, Detroit’s City Council voted to prevent businesses from not refusing to accept cash, following in the footsteps of other cities, including New York and Philadelphia who took similar stances. And in July, consumers in Australia protested against digital payments and boycotted the use of debit cards and other transactions for a single week that month, in an effort to bring more awareness of their right to use cash.  

Promoting Inclusion by Enabling Cash Transactions

Businesses are able to reach a wider consumer base and ultimately generate more sales by offering all forms of payment methods. While digital payments are still growing prominence, they aren’t the final word, according to Elisa Tavilla, Director of Debit at Javelin Strategy & Research.

“Digital payments have become more prevalent, especially since the pandemic when people avoided using cash for hygienic reasons,” Tavilla said. “Although cards and other digital payments provide benefits, like convenience, efficiency, and security, cash is still essential for some consumer segments, in particular the unbanked. So it’s important that businesses offer cash as a payment option, to ensure financial inclusion.”

Tavilla added that this doesn’t necessarily mean that cash has to be accepted directly at checkout.

“I attended a concert at the Xfinity Center in Massachusetts last summer where vendors didn’t accept cash either,” Tavilla said. “But there were reverse ATM machines all around the venue to accommodate cash-preferred customers.”

Adopting such methods are a happy medium as they can promote inclusion, while making it easier for merchants to process transactions.

The post A New Proposed Bill Aims to Drive Cash Acceptance in Florida appeared first on PaymentsJournal.

Eastern Bank Ltd. (EBL), headquartered in Bangladesh, has introduced a suite of wearable payment devices branded as WEAREBL.

According to The Daily Star, the bank worked with Mastercard and Visa on the wearable devices, which include a ring, a phone holder, a wristband, and a compact portable fob sleeve. These devices will contain a near-field communication chip that will allow users to make contactless payments.

WEAREBL represents an exciting development in the fintech industry. By combining wearable technology with contactless payments, EBL is paving the way for a new era of financial transactions. Historically, contactless payments work long-term when the wearable technology it is tied to has functionality on its own. And it seems likely that WEAREBL will partner with other technology companies to create multipurpose devices in the future.

Are Wearables Making a Comeback?

Transacting via wearables isn’t anything new—let’s not forget Google Glass’ “Nod to Pay” feature, which was released in 2017. But this global trend towards contactless payments, particularly via a wearable device, can be attributed to the pandemic, as well as the popularity of devices such as Apple Watch. 

Wearable payment technology is a competitive market. Last year, more than 100 million people were reported wearing an Apple Watch, and Google’s Fitbit—which has a built-in NFC chip—had roughly 120 million registered users as of 2022. That’s a good target audience for many banks and financial institutions.

While these devices are used for a variety of reasons—monitoring steps, observing health patterns, paying for goods—it’s the latter that’s been getting a lot more focus lately, particularly because of convenience.

And many brands and financial institutions are looking to capitalize on the potential opportunities. For example, Lyle & Scott teamed up with Barclays to launch a contactless payment jacket powered by bPay, Barclay’s cashless payment system. The Contactless Jacket features an NFC chip that’s hidden in the cuff of the right sleeve, and allows customers to purchase items on the go in the UK.

The post EBL Rolls Out Wearable Payment Products in Bangladesh appeared first on PaymentsJournal.

The first wave of Banking-as-a-Service (BaaS) interrupted the financial services supply chain by disrupting the last-mile delivery of financial products. Where banks used to have complete ownership and control, fintech and retail brands started using BaaS to offer new products and services to a variety of customer segments—taking over the distribution to win customers and upgrading the efficiency of the financial system.

This expansion is known as last-mile delivery, where the bank does not own the last mile of the customer experience but is providing the content. BaaS created an opportunity for banks to collaborate with fintech partners who can better market, promote, onboard, and expand financial products to offer to customers. However, the first wave went too far by abstracting crucial aspects from banks’ regulatory practices and required customer due diligence, such as Know Your Customer (KYC) and fraud monitoring, leaving regulators concerned.

As embedded finance (EF) becomes more available, the Global Embedded Finance Market continues to grow and is expected to be worth around $384 billion by 2029; greater moderation will be essential to protecting banks, businesses and consumers. Let’s explore this next stage in banking’s evolution and what might be coming next. 

Initial Disruptions

In the past, HBO, Showtime, or Disney created original content and distributed it through their own network channels. Yet there was rapid evolution through last-mile disruption as agile partners delivered content more quickly and at lower costs. Roku, Netflix, and Amazon Prime became the last-mile delivery platforms, aggregating content from various providers into a niche offering that gained rapid customer adoption.

The banking industry is experiencing this last-mile disruption from fintech companies, retail brand apps, and enterprise applications providing the customer-facing experience. These fintech apps embed bank content and financial features and often bundle them with original content. With EF, banks will own some delivery mechanisms and also partner with fintechs for last-mile distribution. Simply put, EF will become a standard distribution channel that banks will accommodate—much like their online, mobile or physical channels they support today—allowing them to take back control of last-mile delivery.

Similar to the success of entertainment streaming services, the banking industry and consumers will see the benefits of banks providing their own products that can now be distributed across multiple channels.

The Start

One of the predominant use cases that fueled the BaaS movement was private branding of a deposit account with a debit or prepaid card. The non-bank program that owned the last mile of delivery would offer unique features that would attract customers to sign up. For example, a department store offers a debit card with its own branding, allowing customers who signed up to earn extra loyalty points when purchasing this specific card. The objective was to attract customers, increase deposits, and benefit from the debit card usage on the account due to the interchange fee sharing.

Currently, this setup remains a common use case as financial institutions seek additional avenues for growing their deposit base that go beyond basic deposit accounts and debit cards. But, as in all supply chain strategies, the more functions a company can take on within the supply chain, the greater its share of the economics.

Such is the case for interchange revenue in BaaS. Banks that own their own BaaS platform can directly power their deposit growth partners in a multi-tenant environment, utilizing technology to enforce compliance controls and create products and services tailored to their customers. With ownership over their digital ecosystems, banks gain more significant influence over the economics of the BaaS supply chain. As interchange potentially deteriorates going forward, the bank also mitigates risk by owning the customer relationship and ensuring their programs do not dissolve if the BaaS provider middleman disappears.

Moving Forward

With new opportunities also comes the need to review regulations. On June 6, 2023, the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (FRB), and the Office of the Comptroller of the Currency (OCC) collectively released their Interagency Guidance. This contains their final counsel on third-party risk management within the banking industry and notes that banking organizations are ultimately responsible for any activities they undertake with external parties.

The current state of BaaS highlights the need for banks to control their delivery programs and not to outsource these to BaaS providers, as it facilitates too large a risk relating to data protection and compliance. The swing of Fed regulators requiring the bank to have greater control over BaaS/EF is a good thing—because ultimately, this protects the safety and soundness of the financial system.

The bank uses technology to provide automated and programmatic oversight, ensuring transparency in customer information, accounts, and transactions. The trend leverages the bank’s technology platform, allowing them greater control over their programs, risks, and outcomes.

Initial indicators, such as consent orders, show that regulators are requiring banks to perform their own KYC and manage their own third-party risk management. Banks in control of their own technology can manage these items digitally, while also providing tools for their EF partners to self-serve their own programs, such as managing fraud, Customer Identification Program (CIP), and money movement exception management.

The FDIC is also evolving when it comes to products like digital currencies and the delivery channels used to provide banking services. The FDIC recently announced it is seeking comment on proposed amendments to its regulations, creating a notable opportunity for banks that are leading the BaaS/EF market to advance forward.

The market will continue to evolve and is already going beyond basic deposit accounts and cards. Banks that extend their distribution channels and become proficient in bundling EF products and services together will be the banks that will be in the best position to deliver across any last-mile provider. Those are the banks that will have the greatest opportunity to advance and ultimately add the most value for customers.

The post Disrupting the Disruption: Where Banking Is Heading Next appeared first on PaymentsJournal.

BNY Mellon has announced a strategic partnership with Trustly, a pioneer in open banking, to launch a new payment solution called Bankify, according to a recent press release. This innovative platform leverages the strengths of both companies to facilitate direct bank account payments for consumers, offering an alternative to traditional payment methods like credit and debit cards or third-party payment platforms.

Bankify is designed to cater to a wide range of consumer-to-business payment flows, including merchant payments, bill payments, and digital wallet funding. The platform guarantees funds for business receivables, providing a seamless user experience and ensuring secure transactions.

This alliance aligns with increasing prevalence of open banking and pay by bank.

Open banking allows customers to share their financial information securely and electronically with other authorized organizations, such as fintech companies, payment providers, and other banks. As we have covered in PaymentsJournal, open banking evangelists argue that open banking provides greater transparency and data control for account holders, and allow for increased competition and innovation in the financial sector.

The Pay by Bank trend is also gaining momentum in the banking world. This method allows consumers to make payments directly from their bank accounts, bypassing traditional payment systems.

According to Sophia Gonzalez, Research Analyst at Javelin Strategy & Research, the big winners of Pay by Bank are merchants, because they don’t have to pay interchange or transaction fees to credit card companies. But customers could benefit too if merchants pass some of those savings on by reducing prices.

Pay by Bank is not as common in the U.S. as it is in other countries. One reason is that the U.S. has a well-established credit card system, which has been the preferred payment method for many consumers for decades. Credit cards offer rewards, cashback, and other incentives that make them an attractive option for many people.

Another reason is that the U.S. has a fragmented banking system, with thousands of banks and credit unions operating independently. This makes it more challenging to implement a standardized Pay by Bank system across the entire country. However, Pay by Bank seems to be gaining ground slowly but surely in the U.S., and BNY Mellon is betting that trend will continue.

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Bank of America has introduced Global Digital Disbursements for commercial clients that have deposit accounts in the bank’s Canadian branches. This solution enables the processing of several business-to-consumer payments and consumer-to-business collections. It offers an affordable and seamless payment option for businesses that want to do away with check or cash payments.

With its Request for Pay solution, businesses can send invoices to their customers via texts and email messages. A link is included so customers can pay the amount owed, promoting faster payments.

Some use cases include insurance companies taking advantage of its faster payments feature to settle claims. Tech companies can also use the solution to pay their many freelance workers without having to manage financial information.

“Global Digital Disbursements offers our clients fast digital payments and request for payments to consumers in Canada,” Leslie Konecny, head of product for global transaction services, Canada at Bank of America, said in a prepared statement. “The payments are sent with enhanced ISO (International Standard Organisation) remittance data, and companies don’t have to store their payees’ sensitive banking information.”

Instant Payment Adoption is Expanding

The demand for faster and more convenient transactions is increasing among businesses and consumers. Faster payments can benefit businesses by accelerating their cash flow, shortening the time between invoicing and receipt of funds, and enhancing cash flow management.

For consumers, faster payments mean quicker settlement times, enhanced cash flow management, and an improved customer experience.

On a global scale, Brazil, China, and India are seeing the highest adoption of instant payments, according to a Javelin Strategy & Research report by Albert Bodine, Director of Commercial and Enterprise Payments. The report is titled “Commercial Instant Payments and the Need for Speed.”

India’s Unified Payment Interface (UPI) volume made up 40% of instant payments worldwide in 2022. By contrast, Germany, the United Kingdom, and the United States have been slower to adopt instant payments, with Germany coming in at less than 3% of total transaction volume on real-time rails.

The post Bank of America Launches Global Digital Disbursements in Canada 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.

Google and Apple have enormous influence over how tap-to-pay technology and open banking develop over the long term, according to a recent report by the Consumer Financial Protection Bureau.

At the heart of the issue lies the dominance of Apple’s iOS and Google’s Android operating systems. As of the second quarter of 2023, Apple’s iOS was found on 55 percent of smartphones shipped in the United States, with Google’s Android on 45 percent. These tech giants effectively control the tap-to-pay market, regulating app developers’ access to the near-field communication (NFC) technology required to enable the transactions.

Apple goes a step further by forbidding third-party payment apps from accessing NFC, effectively monopolizing tap-to-pay through Apple Pay.

NFC technology plays a pivotal role in contactless payments through mobile devices. Its inclusion in mobile devices and payment terminals has driven the growth of tap-to-pay transactions. Financial services providers are eager to facilitate point-of-sale payments, but the stranglehold of Apple’s iOS restricts their access to NFC capabilities. This means widely used payment apps like PayPal and Cash App can’t rely on NFC technology, forcing consumers to use Apple Pay exclusively.

Although Google’s Android operating system currently allows third-party access to NFC capabilities, the CFPB warns that this could change given Google’s market position and relationships with hardware manufacturers.

These mobile device restrictions have far-reaching consequences. They inhibit choice and innovation in consumer payments, potentially hindering the growth of open banking. Lower-cost open-banking-powered payment innovations could also be at risk, making it harder for consumers to make POS transactions directly from their bank accounts. In a world striving for open ecosystems, these restrictions limit competition and interoperability.

“The CFPB joins the European Commission in taking issue with Apple’s ability to restrict access to NFC technology on iPhones for digital wallets,” said Daniel Keyes, Head of Merchant Services at Javelin Strategy & Research. “If Apple ever opened up access to iPhone’s NFC technology it would put Apple Pay’s competitors on more even footing with Apple’s mobile wallet, but Apple Pay’s years-long head start would likely enable it to remain popular and continue as the leading mobile wallet on iOS devices.”

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Failed card-not-present transactions should never be considered business as usual. When a transaction fails, customer satisfaction, trust, and revenue plummet. If there‘s one thing that most customers want to avoid, it’s friction during the checkout process.

Merchants must not only ensure that customers experience a seamless checkout process but also need to navigate issuer preferences, network changes, growing payment options, and multiple routing options. Keeping up with these various challenges—which are becoming more frequent and costly—can be a struggle for many merchants. To address this growing concern, Worldpay unveiled a turnkey solution called Revenue Boost, which helps merchants optimize payments approvals while keeping costs down.

Taking a Proactive Approach

Most customer churn can be traced to a faulty payment process. Instead of accepting this event as the cost of doing business, merchants should consider a more proactive approach—a payment strategy that can secure a higher number of conversions, especially for first-time customers. Merchants have several opportunities throughout the customer shopping journey to make a lasting impact that customers will remember, and one of these critical moments happens during the checkout process. Once customers make the initial decision to buy, merchants need to ensure the payments process goes off without a hitch. A frictionless experience can increase the likelihood that consumers will return.  

“Increasing the lifetime value of the customer that you have can be done within an effective approach to payments to ensure that those who are coming through the funnel have the best possible chance to convert,” Jason Harding, Product Director of Optimization at Worldpay, said during a recent PaymentsJournal podcast.

In a robust payments scheme, merchants need to have access to the right data that would best benefit their organization. According to Harding, using network payment tokens can help merchants make sure they have the most up-to-date information on a customer. Network payment tokens can also reduce friction at checkout without compromising security. Account updaters are also useful, as they automatically update subscription customer card information.

A New Turnkey Solution

Worldpay is looking to help merchants process more card-not-present transactions by reducing the cost and risk of taking payments. Its Revenue Boost turnkey solution is powered by machine learning to maximize its performance.

A single strategy doesn’t work for everyone—particularly because merchants may have different goals, needs, and approaches to driving up e-commerce sales.

Personalized and tailored experiences are what many merchants have been leaning into lately, and Worldpay is as well. The company believes that its solution’s new features can help merchants tailor the payments experience to their needs and, in turn, help them create new opportunities to drive growth.

During a Revenue Boost pilot that Worldpay conducted between May 2022 and April 2023, based on a minimum of 500,000 transactions, one customer reported seeing a $6 million approval lift during a six-month period. Another customer saw a 4% acceptance increase during Black Friday.

And as Harding pointed out, the use of network payment tokens can be effective for merchants. Indeed, one merchant who participated in the pilot said it saved $1.2 million in payment costs over 12 months.

“By lowering costs and lifting approval rates, we can unlock the true value of payments for our customers,” said Gabriel de Montessus, Head of Global Enterprise at Worldpay. “We’ve already seen success for some of the world’s biggest brands, and we look forward to working with more to fuel their commerce globally.”

The post Worldpay Aims to Optimize Revenue Potential for Online Merchants appeared first on PaymentsJournal.

UK bank branches are shutting down at an alarming rate. Banks have taken these actions in response to the surge in adoption of mobile and online banking services.

Which?, a UK-based consumer advocacy organization, has kept tabs on the number of bank closures since 2015. Its data indicates that 5,600 branches have been shuttered since January 2015, an average of 54 bank branches monthly.

The bank that has had the most closures of all the banking groups, Barclays, came in at 1,077 closed branches.

According to Which?, 427 branches have been closed so far in 2023, with another 220 planned for later this year. For 2024, there are already plans to shut down 42 more.  

Will a Cashless Society Foster Financial Inclusion?

The acceleration toward a more cashless society is well underway. During the height of the pandemic and afterward, the digital payment landscape took a dramatic turn toward contactless payments. Fintech companies also delivered on rising consumer demand for cashless payment methods, including digital wallets, mobile payment apps, online banking, and cryptocurrency.

A cashless society certainly has its benefits, such as protection against theft. It’s more convenient to buy and sell without needing cash, and the cost of handling cash is mitigated. It also promotes financial inclusion as the underbanked and unbanked can still have access to financial services, even if they do not have a bank account or have a local bank branch nearby.

Although digital payment methods have gained significant popularity and traction worldwide, what will happen to those who are not inclined to get on board with these methods and prefer to use cash?

When it comes to digital banking, the elderly populations are facing the most setbacks. Many still prefer to speak to someone at their local branch. Furthermore, a significant barrier to digital adoption resides with many elderly people, who are not prepared or equipped to take on these new digital payment methods and banking. Many people aren’t ready to say goodbye to cash just yet.

The post UK Bank Branches Are Closing in Record Numbers, Leaving the Elderly Without Financial Services appeared first on PaymentsJournal.

Hallmark has teamed up with Venmo to allow consumers to send money securely with a greeting card. Erika Sanchez, Vice President and General Manager at Venmo, notes that this collaboration will essentially bridge a gap between older generations who prefer to give cash gifts in physical greeting cards and the younger generations now accustomed to receiving everything, including cash, digitally.

“It’s a creative and fun collaboration between Venmo and Hallmark that thoughtfully combines traditional mail with digital payments,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research.

“Personally, I love sending greeting cards to friends and family, and they appreciate receiving them in the mail. This provides a practical option for gifting money inside your greeting card. It’s safer and more convenient than including cash or checks. I could see people using this for common cash-gifting occasions like weddings or grandkids’ birthdays,” she said.      

Customers can select from Hallmark’s new line of greeting cards. Once a card is selected, they simply scan a QR code, unique to each card. Then they select the amount they want to send to the recipient. They can also include a personal message.

Only the recipient can access the money with this feature, which is done by scanning the QR code printed on the receipt. The sender and the receiver must both have Venmo accounts to use this feature. Furthermore, the gift must be redeemed within 180 days or the funds will be sent back to the sender’s account.

“Our new collaboration with Venmo represents an innovative new way to let someone know you’re thinking of them with simple, secure, and seamless cash gifting,” Darren Abbott, Hallmark’s Senior Vice President of Global Product Development and Innovation, said in a prepared statement.

“Gifting trends are constantly evolving, and we want to stay at the forefront of what consumers need to share thoughtful and unique gifts with the ones they love.”

P2P Payments Market Continues to Expand

With customers increasingly turning to online shopping, mobile banking, and now peer-to-peer (P2P) payments, it is no wonder that use cases will only broaden across various markets worldwide.

Another key driver in the growing popularity of P2P payments is the demand for faster payments. Consumers want not only instant payments but also convenient and secure payments. It is increasingly uncommon for consumers to walk around with cash, let alone the right amount. With P2P payments, users can pay their friends and family quickly.

This trend is ongoing, and P2P providers would do well to continually evolve to meet shifting consumer needs.

The post Hallmark and Venmo Partnership Enables Digital Cash Gifting appeared first on PaymentsJournal.

Amazon Prime members who shop on Shopify can now elect to use Amazon’s Prime product delivery experience, including free delivery in Amazon trucks and a simple returns process, according to a news release on BusinessWire. The partnership between Amazon and Shopify comes as a bit of a surprise given how intensely they compete for business.

Although both companies are in the e-commerce space, Shopify and Amazon have very different business models. Shopify enables third-party merchants to offer and sell their products on its cloud-based e-commerce platform, whereas Amazon is a diversified business model that includes not only a merchant platform but also the selling of its own products and services.

Shopify merchants, particularly smaller businesses, now have an unprecedented opportunity to tap into Amazon’s vast customer base and logistics capabilities. The partnership will also leverage Amazon Pay within Shopify Payments, facilitating smoother transactions for Shopify merchants.

“This integration gives Amazon access to Shopify’s extensive merchant network, deepening Prime’s value to consumers while making it easier for many merchants to incorporate Buy with Prime into their operations,” said Daniel Keyes, Head of Merchant Services at Javelin Strategy & Research. “This move also comes after Shopify sold off its logistics unit early this year, and is likely part of Shopify’s reimagining its logistics strategy now that it is not handling all of fulfillment and its associated tasks itself.”

Many consumers have gotten used to the convenience of Amazon’s shipping system and returns but aren’t tied to actually buying products from the online giant. In effect, Amazon is acknowledging these customers by partnering with other e-commerce sites to offer its logistics services to smaller merchants.

Amazon’s offering of “logistics as a service” is part of a strategy of developing a product for in-house use, then licensing it to other companies. For example, PaymentsJournal reported on Amazon’s palm-reading payments technology, which it is putting in its Whole Foods locations and licensing to other companies, such as Panera Bread. Amazon’s move with Shopify is a similar move with its logistics network.

The post Shopify to Integrate Amazon Prime Services into Platform appeared first on PaymentsJournal.

In the first half of 2023, the ACH Network saw consistent transaction volume growth, handling 7.7 billion payments valued at $19.7 trillion in Q1—a 6.4% increase over a year prior, and a processing 7.8 billion payments transferring $20 trillion in Q2—a 4.3% and 2.9% increase respectively. The steady rise underscores the ACH Network’s indispensable role in various financial operations, including payroll, tax refunds and business-to-business payments.

In a recent PaymentsJournal podcast, Michael Herd, Senior Vice President of ACH Network Administration at Nacha, and Elisa Tavilla, Head of Debit at Javelin Strategy & Research, discuss the current state of ACH, offering insights into its trajectory and impact.

ACH is a Booming Market

In March 2022, the dollar limit for Same Day ACH payments increased to $1 million from $100,000. This change led to a noticeable rise in the use of Same Day ACH for higher-value payments.

“The value of Same Day ACH payments for the first half of 2023 reached almost $1.2 trillion, which is more than 50% higher than the previous year,” Held said.

The higher transaction limit has influenced various areas, including payroll and consumer disbursements. Insurance companies, for example, have found it beneficial for making larger insurance payouts, including homeowner claims.

The new limit has also been advantageous for businesses making vendor payments and inter-business transfers. Such transactions often involve larger sums, and the increased limit has allowed for wider adoption of Same Day ACH.

“People are also showing a lot of interest and enthusiasm for faster payment options, including both Same Day ACH and other rapid payment systems,” Tavilla said. “There are numerous areas where these faster payments are valuable, like healthcare, payroll and real estate. It’s clear that the increased transaction limit has opened up more opportunities for businesses to make the most of these faster payment methods.”

And the demand for faster payments is set to continue to grow.

“Various payment systems will likely experience simultaneous growth, especially as transactions move away from checks,” Herd said. “It’s a reasonable forecast considering how many businesses are already accustomed to using ACH. While they become acquainted with alternatives like FedNow and RTP, they will likely begin by utilizing ACH, a method they are familiar and comfortable with.”

ACH in the Healthcare Sector

Healthcare organizations are increasingly leveraging ACH—and this adoption is driven by the need for efficiency and convenience in processing medical bills, insurance claims and reimbursements.

“People are adopting digital methods to split bills, share expenses and transfer funds among friends and family,” Herd said. “The ease of ACH transfers is contributing to this trend, making it more convenient for individuals to manage their finances seamlessly.”

Unlike retail, where payments happen at the point of sale, healthcare payments often occur after care is given. Although electronic bill payments have been common for decades, medical practices still use paper for these transactions. But the pandemic accelerated the shift to digital, with more insurance providers encouraging electronic form submissions and reimbursing providers through digital payments. But that shift is not complete throughout the industry.

“Healthcare organizations have documented the potential savings in administrative processes by transitioning from paper-based transactions to electronic methods,” Herd said. “In 2023, there remains a significant opportunity to embrace electronic submissions and payments in the healthcare industry.”

A similar shift is also occurring in the business-to-business (B2B) sector. “Efforts over the years have led to making electronic B2B payments more convenient and user-friendly than checks,” Herd said. “The need to adapt during the pandemic pushed businesses to use ACH for B2B transactions instead of checks.”

Even though some employees are returning to their workplaces, the shift back to checks hasn’t happened. Once a switch to ACH is made, it tends to stick.

These trends suggest that payment systems such as ACH will shape the landscape of payments in the coming years.

Check Fraud: A Reason to Move to ACH

Although the use of checks is diminishing, it remains active. And those still using checks should reconsider, Herd stresses, particularly because of fraud.

“When it comes to the ongoing issue of check fraud, my advice is quite straightforward: Stop using checks,” Herd said. “The irony lies in the fact that while check usage has decreased, check fraud has remained a persistent problem. Financial institution filings about check fraud have doubled in a year, and checks are the payment method most impacted by fraud.”

To reduce vulnerability to fraud and unauthorized payments, it’s best to look at electronic payment methods, such as recurring electronic debits, which offer greater security and efficiency.

“From a consumer’s standpoint, I’ve noticed news stories about thieves stealing checks from mailboxes,” Tavilla said. “It’s a bit like the scenarios portrayed in ‘Catch Me If You Can,’ which we might assume were things of the past. But check fraud remains an issue.”

For financial institutions dealing with check fraud, Nacha offers a helpful tool called the ACH Contact Registry, which provides contact information for the personnel responsible for check payments at various financial institutions. This resource helps resolve check fraud cases effectively.

Conclusion

The ACH network is steering the course of financial transactions toward greater efficiency and security. The growth in transaction volume during the first half of 2023 cements the ACH Network’s pivotal role in powering a multitude of financial operations. The industry’s embrace of electronic methods, guided by ACH’s stability and security, continues to transform the payments industry, particularly in the healthcare sector and with B2B transactions.

The post ACH Drives Efficiency in Healthcare and B2B Transactions appeared first on PaymentsJournal.

MarginEdge has introduced a new mobile bill payment solution, called MarginEdge Bill Pay, to help restaurant operators settle their payments with their smartphones. Now, owners are able to upload, approve, and even pay their invoices on the go.

PaymentsJournal reached out to Bo Davis, Founder and CEO of MarginEdge, to discuss the new solution, how this new mobile payment capability is addressing current restaurant owners’ pain points, and where the shift in digital payments is headed.

We are clearly seeing a shift toward digital B2B payments. What do you expect to see in the next few years?

Moving beyond the payment, it’s important businesses are able to move money from Point A to B in a secure, reliable manner. But what will matter the most in the few years forward are what value-added services are accompanying that capability. What processes does a company [have to] help streamline or reduce friction points? Do they help eliminate it? Does this solution help with the reconciliation process? Does this solution provide richer remittance to my vendor to help streamline their cash application process? Can I do one-click ordering to my vendor and always be in sync with their records?

It’s those problems we are tackling with [MarginEdge] finance and will continue to iterate on in the coming years as we plot a path toward being the most efficient and streamlined way to pay in the restaurant space. A product built for restaurant owners by restaurant owners. 

In your conversations with restaurants, what are the challenges they’re facing, whether it’s with new tools or keeping up with the constantly evolving payments space?

Restaurants are surrounded by noise. New tools and technology vendors are promising to help them gain back time or streamline processes, but most of these providers are not built and created by former restaurant owners or general managers who have actually experienced the pain points day in and day out.

Other solutions tend to only address 70 to 80% of the problem while missing industry nuances that can help streamline the entire process. Moreover, these companies are still charging per invoice or per payment. With [MarginEdge] finance, we have stuck our flag in the ground and are going to market with a fixed flat rate of $100 per month with unlimited invoices processed and payments made.