We are in the midst of a transformative time in payments; COVID-19 has fueled an accelerated shift to digital channels, and meanwhile, new payment rails (instant) are being deployed and starting to gain adoption for the first time in decades.
As the various participants in the payments ecosystem scramble to optimize their businesses based on this accelerated shift, it’s worth noting the following key payments issues that will impact strategy and decisions in the year ahead.
Instant Payments: The Clearing House’s RTP® network is already live and is slowly gaining use cases and transaction volume. Meanwhile, the Federal Reserve's FedNow℠ network (set to launch in 2023) has a pilot program underway.
Digital Strategy and Customer Experience: Participants and providers are focused on meeting the increased demand for digital and contactless payments in a manner that blends optimizing experience with strong security.
APIs and Open Banking: APIs have made it easier to integrate with third-party solutions and capabilities, and are making it more feasible for community banks to offer products in a cost-effective manner. Open banking is also accelerating at a rapid pace worldwide, and as standards and regulation matures, related solutions will help meet customer demand for services and information about their personal finances, while taking friction out of the process.
Industry collaborations will also start to tick up. Examples of focus areas will include promoting interoperability across networks and schemes, leveraging directories and alias-based payments for greater efficiency and security, and exploring how providers and participants can support increased demand for QR code payments.
Against this backdrop consider the following areas for increased focus leading up to 2022.
Refresh (or develop) your bank's payment strategy and roadmap in light of the current transformation underway.
From a processing perspective, define your strategy for implementing instant payments. Review emerging lists of instant payment use cases, and consider which to prioritize and market moving forward based on your customer base and demographics.
Also, from a processing perspective, determine if leveraging a payments hub may enhance operational efficiency over the long term, as you seek to balance payment needs across rails—both old and new.
From a mobile/digital perspective, create action-oriented and value-add digital experiences. Do you offer a P2P payment capability within your mobile banking app? Give consideration to your target customers and related products on your roadmap, and how you can deliver a suitable best-in-class mobile and digital offering.
Explore ways to diversify and grow your payments income streams. This will be even more important with overdraft fees at risk of continued decline over the long-term. For example, digitization of small business payments presents a big opportunity. How might your bank capitalize?
Seek to improve communication with all the partners and suppliers on which your business depends. Risks such as labor and card chip shortages have the potential to disrupt downstream providers in a variety of ways, so constant communication and planning will be important.
While there remains much uncertainty as we start to emerge from the pandemic, the payments environment is sure to be faster, more digitized, and more competitive in the year ahead. A strong strategic focus and a thoughtful approach will help community banks position for success in 2022 and beyond.
Nick Denning is ICBA Bancard’s senior vice president of payments industry relations.