Taken from the blog of Sean Carter, AAP, NCP, President & CEO, NEACH
In today’s dynamic financial services landscape, there’s always an emerging opportunity or a new technology. And while not all new trends will stick, financial institutions must evaluate changes in the market to ensure they don’t let a new business opportunity pass them by or an emerging risk miss their filter. There’s a lot to stay up-to-speed on as the industry continues its transformation.
At NEACH, it’s our job to stay on top of the trends that impact FIs at strategic and operational levels. Through education and member events, we address timely and relevant topics. For example, our Payments Management Conference (PMC) is a crucial way to learn about the latest developments and trends in payments.
With that in mind, I want to highlight the top areas discussed at PMC; these are areas FIs should consider in the coming months.
Get ready for faster payments
Faster payments: They’re moving fast. Leaders will need to, as well. But this is good news for both customers and financial institutions. It’s not something to fear: It's an opportunity. Think of it like upgrading your financial institution’s software for a security update: a necessary change that’s important to your customers.
For example, Same Day ACH payments have been already in place since last March, allowing the option to both send and receive same-day credits and debits. The growth in volume in this type of transaction continues to soar, Nacha reported. There were 52.7 million Same Day ACH payments in Q1 2019, up 24 percent from the same period last year. Next up: same-day credits earlier in the day, an increase in the per-transaction dollar limits to $100,000, and later daily deadlines for ACH transactions. This should all be completed by March 2021.
In the meantime, real-time payments have gone live in the U.S. with The Clearing House’s RTP Network. In addition, the Federal Reserve has been surveying the landscape to determine if they have a role in supporting real-time gross settlement. At PMC, Jim Cunha, senior vice president, Federal Reserve Bank of Boston, shared that we should expect to hear more concrete information from the Fed on this topic by year’s end.
From where I stand, this faster payments evolution begs the question: What else can your organization do to speed things along?
Thankfully, new resources are emerging that support your journey. For example, Nacha’s Payments Innovation Alliance and the U.S. Faster Payments Council (FPC) have launched a partnership to develop an “educational and online decisioning platform” called the Faster Payments Playbook. Co-chaired by NEACH’s senior vice president of innovation, Joe Casali, the work group collaborating on the development of the Playbook is doing so with the objective of helping financial institutions and other payments organizations identify opportunities for their customers and create their own faster payments systems. Other resources will continue to be developed for FIs, business end-users, and consumers as faster payments heat up.
Embrace the digital paradigm
But in addition to faster, our customers want smarter and simpler payments. We’ve all heard it, but it’s true: Millennials and Gen Z are accessing financial services in a way that’s turning our industry on its head. By 2020, 85 percent of consumer interactions will be managed without a human. Young people spend about 11 hours a day on their mobile devices. Banks face increasing competition from non-banks—which is where a lot of the innovation is coming from.
What does this mean? For starters, a digital strategy is critical to growing and maintaining deposit accounts. At PMC we heard about emerging opportunities to streamline processes and procedures with AI, making certain digital transactions more efficient and less risky for FIs.
But a digital strategy should complement the broader institutional business strategy. In many cases, relationships reign supreme. Banks can continue to lead by realizing the human experiences need to remain strong despite—or maybe because of—digital capabilities. The branch is still the most important sales channel for digital services, so a strong digital strategy examines the complete user experience and journey, ensuring that the right messages resonate, both online and offline.
Financial inclusion and the deposit account
We’ve also heard a lot of talk of late about the importance of the deposit account. Recent conversations have started to look to the underserved segment as a target for digital solutions that make for opportunities to grow deposits.
You have likely heard of “The $400 Problem”: 40 percent of all Americans can’t cover an unexpected expense of $400. If they choose to even pay that expense (many don’t), they’ll find it by borrowing from friends or family, selling something, accessing a line of credit if available, or using a payday loan.
As financial institutions, this signifies an opportunity to help our current customers and grow our business in the process. How can we assist them in living their daily lives and helping them plan for the future? Are there unique accounts that can be created—financial emergency accounts like the Christmas Clubs of yesterday? Or, are there new technology solutions that allow us to reimagine savings and lending? Could there be treasury products we can offer employers to extend to their employees? How creative can we be?
There’s potential here to go beyond general savings and building wealth and reimagine the savings deposit account to truly partner with our customers to help them in case of the unexpected.
And these trends are just the tip of the iceberg. We are at a point where our customers are starting to demand these faster, better, smarter payment solutions. If we want to remain relevant, we need to understand the importance of this need, start acting on it, and collaborating with one another.
Forums for continued dialogue among peers are so critical right now to the future of banking. It’s why NEACH is holding its Innovating Payments Conference this fall—to address the trends that are changing the face of financial services. We hope you’ll join us October 9 – 10 at the Hilton Boston Logan Airport. We have to continue these discussions so we shape the future of payments, rather than have it created for us.