Digitization and technology innovation are reshaping of our world, transforming industries and economies by reinventing traditional models. These unstoppable forces are having a profound impact on payments.
As new real-time payment options emerge and legacy systems are modernized, the payments industry is experiencing a shift from paper to digital processes. This trend is being reinforced by the current challenging environment, which is forcing businesses to rely on the digital environment than ever.
Against this backdrop, it is critical that banks keep pace with the rate of change, supporting clients as they undertake their own digital journeys by providing digital payment services that meet all their payment needs, both now and in the future. So what changes are occurring, and how can banks and their clients reap the rewards?
The new payments culture
The US payments landscape is undergoing considerable change, with new capabilities coming to the fore that are altering the payments culture as we know it.
The introduction of the US Real Time Payments (RTP®) Network , which enables instant payments and messaging, is fueling the 24/7 business model, with business-hour restrictions and cut-off times becoming a thing of the past. RTP offers substantial benefits to both businesses and consumers. For example, receiving wages in real-time could be a game-changer for many individuals – especially with over 53 million Americans earning income from work that is not a traditional 9-to-5 job with predictable hours. RTP can also speed up value chains, with quicker receipt of payments meaning goods can be dispatched sooner.
Concurrently, the ACH network is leveraging new innovations, introducing Same Day ACH (SDA) to meet the consumer and business demand for more convenient payments. And, by embracing change, the ACH network is now seeing a rise in demand – with payment volumes having increased by 41% in 2019. Further enhancements are also in the pipeline, with plans to introduce more frequent daily settlements, creating a new SDA processing window that will enable increased speed and flexibility.
Not only are developments occurring with the payments rails themselves, new overlay services are playing a key role in driving the move from paper to digital.
Currently, checks remain a significant pain point for many cash managers, with their use enduring often due to the simple fact that businesses often do not maintain the account information necessary to complete digital transactions, wishing to forego the inherent risk in doing so.
To help overcome this problem, new platforms, such as Zelle®, are being adopted that redefine the security of business to consumer (B2C) and business to small business (B2SB) payments, with a convenient, user-friendly approach. Zelle allows payees to register their details with a “token” – such as an email address or phone number – to create authenticated profiles. Banks can then leverage this database to securely make and receive electronic payments, without beneficiaries disclosing any sensitive bank information.
By harnessing these networks, banks are not only helping businesses to move away from the cost and manual effort involved in paper checks, they are also advancing organizations’ necessary path towards digitization.
A new era brings new risks
Emerging technologies can be somewhat of a double-edged sword, however, offering on the one hand an array of benefits, while also creating a new set of challenges on the other. As technology has advanced, criminals have been able to apply more complex, sophisticated methods to commit fraud in the payments space, such as account takeover and business email compromise. Real-time transactions are also exposing banks to these new cyber threats in the form of real-time fraud and money laundering. What’s more, there has been a rapid escalation in cybercrime due to the current challenging environment, with the FBI reporting more complaints of fraud by May 2020 than the entirety of 2019.
The ability to provide effective risk mitigation solutions to address such fraud concerns is therefore essential. No matter the channel used – ACH, wire, RTP, or other – providing protection against unauthorized account access and ensuring confidentiality are of paramount importance to the digital transformation of the payments landscape.
For this reason, banks are turning their attention to delivering real-time pre-validation services. Providers, such as Early Warning’s
® National Shared DatabaseSM, offer banks the ability to validate the accuracy of account information – all before a payment is sent. Through such partnerships, banks can help clients effectively manage risk associated with payment processing across a multitude of use cases, increase adoption to electronic payments and improve the quality of transactions.
Adapting to the path ahead
New technology capabilities are driving evolution in the US payments industry. Traditional payment methods are being reinvented and alternate solutions – like RTP –are emerging. And, in view of the current environmental volatility, it has become clear that digital banking is no longer just optional. But while the incentive to move to digital is growing, it is important to remember that each business is at a different stage of the digital journey, with a range of different requirements.
Banks must therefore provide digital payment services that support clients with all their payment needs, both now and in the future. As banks look to do this, it is vital that they provide clients with a suite of options and capabilities to meet individual needs. There is not a single, optimal channel that can solve every payments issue and meet all requirements – making it crucial that banks have a variety of tools in their arsenal ready to be deployed.
The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute Treasury Services advice, or any other business or legal advice, and it should not be relied upon as such.
Zelle and the Zelle related marks are wholly owned by Early Warning Services, LLC and are used herein under license. RTP is a registered service mark of The Clearing House Payments Company L.L.C.