The New Year is bursting with promise, and nowhere is this more evident than in the area of faster payments. Let’s start with a recap of 2018 and consider how these events pave the way for what lies ahead in 2019. While it’s impossible to predict with certainty what the future holds, we’ve taken a stab at making a few predictions about what we believe we’ll see in 2019.
FinTech and financial institution partnerships took off in 2018, and collaboration not competition was the name of the game. The paradigm shift was on full display at NEACH’s 2018 Innovating Payments Conference, a first-of-its-kind event that brought together New England financial institution executives and FinTech players at the intersection of innovation. The conference revealed what many already know — the area is a hotbed for innovation, and New England financial institutions are uniquely positioned to capitalize on building strategic partnerships that generate innovate solutions.
Speaking of innovative solutions, The Clearing House’s Real Time Payments System ended the 3rdquarter strong (Q4 2018 numbers are pending), with 36 institutions linked to its Real-Time Payments (RTP) network. Tim Mills, vice president of business development and product management for The Clearing House, told Digital Transactions:
The number will grow fast, exceeding 1,000 next quarter and 3,000 by the end of June. A year from now, it is projected on current trends to grow to 5,065…By the end of 2019, those projections show some 7,068 institutions connected to the RTP platform either directly or through a third-party servicer.
Time will tell if these numbers pan out, but it certainly seems that adoption of RTP is accelerating and trending upward.
NACHA also ended the year with impressive numbers. According to a NACHA news release, the number of ACH payments totaled more than 5.6 billion in the third quarter of 2018, a 6.7 percent increase over Q3 2017. There were 43.2 million Same Day ACH payments made in the third quarter of 2018, an increase of 192 percent compared to the same time period in 2017 when Same Day ACH debits were just being introduced. Same Day ACH credits, which have been available since September 2017, increased by 90 percent in the third quarter of 2018. We expect the numbers to continue to rise.
Also of note in 2018, the Fed’s announcement that they are exploring real-time gross settlement sent shockwaves through the industry. Industry leaders are wondering whether the Fed is contemplating becoming an operator for a real-time payments system. In an Oct. 24, 2018, article that ran in Digital Transactions, Peter Davey, vice president and head of innovation at The Clearing House pointed out that the Fed has “a long road to go if they put their hat in the ring.” While this may be true, the Fed may have intentions of considering this approach if the industry supports their engagement. In the article, Davey does commend the Fed “for its willingness to share its thinking on real-time payments, whether as a referee in the game or as a potential active participant.”
2019: The Year Ahead
The payments landscape is growing more and more complex, and predicting what’s next in the world of payments in 2019 is challenging. But from where we sit, here’s what we think you can expect for the year ahead.
- Financial Institution/Fintech Partnerships: In 2019, look for a surge in strategic financial institution/FinTech partnerships. ICBA’s ThinkTech Accelerator, a community bank focused fintech accelerator focused exclusively on product development, is just one recent example. We expect to see more of this in 2019. Forward-looking financial institutions will recognize that partnering with the right FinTech partners will accelerate growth and meet customers’ demands, allowing financial institutions to focus more on their strengths, which will ultimately show up in the bottom line. Financial institutions that prefer to devise their own technology solutions may find that they are spending the bulk of their time playing catch up.
- B2B Faster Payments: Look for a rise in B2B faster payments in 2019. In a December 2018 article published in Digital Transactions Magazine, The Clearing House reported that B2B payments would be the first transactions to go over its new Real-Time Payments network. With 2018 projections for RTP coming in at around 7,068 institutions, we expect to see a significant rise in B2B faster payments. We also expect to see new players in the 2019 B2B payments game, and with them, a rise in B2B faster payment volumes
- Machine Learning and Artificial Intelligence (AI): We expect artificial intelligence and machine learning to take off in 2019. According to the Fed, “Some banks are experimenting with artificial intelligence and digital identity technologies applicable to their BSA/AML compliance programs. These innovations and technologies can strengthen BSA/AML compliance approaches, as well as enhance transaction monitoring systems.” With more and more financial institutions exploring and employing these types of solutions to automate repetitive tasks, staff will be free to focus on customer experience, innovative solutions, and strategizing for the future.
- Increased Risk: You’ve heard it before, and you’ll hear it again — faster payments can equal faster fraud. With payment speed increasing, the number of fraud attempts will likely rise as well. But we believe the greatest risk to the industry right now is the risk of falling behind by failing to engage in the new payments ecosystem.
- Faster Payments Ubiquity: When it comes to faster payments, don’t expect ubiquity in 2019, but do expect forward thrust in this area. With the Federal Reserve’s goal of making faster payments ubiquitous by 2020 and its recent request for comments on proposed actions it could take to advance faster payments, there’s no question movement will be fast and furious on this front.
So what does it all mean?
As an industry, we find ourselves in a new payments ecosystem, one that is fast and increasingly disruptive. Despite its destabilizing effect on individual financial institutions and the industry as a whole, disruption is an opportunity and an invitation to innovation.
Use it to your advantage.
To stay abreast of these and other new developments in the world of faster payments, visit NEACH's Pacing Payments website.