In Q3 2022, NEACH sat down with several major third-party providers to gain insights into what’s happening with payments. Jill Flaherty, Vice President, Business Development at COCC shared thoughts on how payments are shifting and what to expect in the coming months. What follows is a summary of the dialogue.
NEACH: Financial institutions customer and member payments behaviors have shifted because of COVID. What are you seeing as the next big shift in payments that banks and credit unions need to be considering?
Flaherty: With the pandemic more so accelerating the emerging payments horizon, I think the two most critical payment areas that banks and credit unions need to be aware of and, in the very least, evaluating are real-time payments and cryptocurrency/digital asset accessibility options.
With real-time payments, it’s not a matter of ‘if’ our banks and credit unions will offer and/or need this to stay competitive, it’s a matter of ‘when.’ The Clearing House has been the industry-leader in rolling out a real-time payment network (RTP) and is continuously growing their client base, with COCC being one of the first core providers to integrate their network into the underlying core technology. In today’s environment, without offering some type of instant payment interaction, whether that be letting your customers and members receive funds and/or send funds via a secure application, will over time cause banks and credit unions to fall short on most consumer and business expectations. The portfolio of big-time corporations and merchants using the real-time payment railways has grown immensely and is allowing their users to not only cash out funds instantly, but small businesses receive payments in seconds, employees can collect payroll at the end of their shifts, cryptocurrency and investment owners can cash out their assets in real-time, etc. The ability and appeal of managing money in real time will become more apparent in existing applications and eventually be a standard in the banking community.
The global market for cryptocurrency and digital assets has skyrocketed over the last couple years and is continuing to trend in that upward direction. Consumers naturally turn to banks and credit unions for financial management with U.S. Dollars and whether these financial institutions be a holding place or a transaction facility, cryptocurrency has similar needs and the opportunities to deliver on those has arrived. Secure buy/sell networks and technology exist today for those looking to enter the digital asset space, both through major/well-known players, like Venmo, but also through the black market and unsecure spaces. Banks and credit unions are now at an advantage to get involved in the digital currency space and allow users mechanisms to purchase and hold Bitcoin and other currencies directly within their digital experience. The future of crypto has been controversial, but the opportunities to get involved and remain relevant in the industry is not.
NEACH: How has the growth in payments digitization (i.e., e- and m-commerce, digital wallet use, P2P digital payments, etc.) changed what FIs need from their providers? How are you responding to that shift? Are there solutions that all FIs should have as table stakes today?
Flaherty: Digital payments, in general, have skyrocketed in use since the pandemic and have only been rapidly growing from there. This growth has increased the need for contactless payments, digital cards, digital wallets (like Apple Pay and Google Pay) and easy access to person-to-person payments. We’ve also seen the Buy Now, Pay Later (BNPL) avenue pick up pace and adoption. Clients have turned to their core providers for integration points and the ability to offer these payment services. Ultimately, services like P2P, instant payment capabilities, and digital cards are going to be crucial to staying ahead and on par with industry and consumer trends. COCC recognizes its critical role in ensuring we continue to educate our clients and deliver the necessary emerging services as they arise.
NEACH: FedNowSM comes online in 2023. As a pilot participant, what can you share about preparations? When do you anticipate being ready to begin onboarding FIs?
Flaherty: COCC anticipates that FedNow will be an essential real time payment network and will work cohesively with similar providers in the industry, like The Clearing House’s RTP. Instant, real time payment processes are not only becoming an expectation of our community banks and credit union’s client base, but they are also being widely adopted amongst major merchants and corporations for payment acceptance, payroll, and more. COCC continues to explore the level of integration and options available with FedNow and are committed to providing a variety of payment solutions like FedNow, RTP, etc.
NEACH: To that point, what do you expect the FedNow onboarding experience to be like for FIs? How similar/different will it be from your RTP experience?
Flaherty: As COCC closely monitors the progression of FedNow, we can deliver a better estimation of implementation timelines. As with any new service or rollout, COCC strives to make the implementation as seamless and easy as possible on our clients. We are committed to delivering the necessary integration and emerging payment services in the industry.
NEACH: What do you suggest FIs do now to start preparing for FedNow? Why?
Flaherty: The biggest component of preparation typically starts with the education around instant payments and what it means to our clients. ‘What benefits are there to offering multiple real time payment networks,’ or any network at all, are questions we frequently hear. General use case scenarios, as well as proven success amongst COCC clients on the RTP network, have been extremely helpful with educating those on the fence. Ultimately, we see these real time networks as huge opportunities to provide innovative payment solutions and gaining a competitive edge in a constantly evolving payments industry.
NEACH: Switching topics, cryptocurrency not only has had a lot of buzz of late, but it has also been gaining traction as a less fringe/more mainstream as a payment type. What role do you see banks and credit unions playing in the cryptocurrency space?
Flaherty: With the state of digital currency progressing forward, banks and credit unions are going to need to find a way to embrace the changing market. Short term entrance into the crypto space can initially consist of acting as a holding place for their digital assets. Banks and credit unions also have the upper hand in terms of helping those more hesitant and on-the-fence consumers adopt Crypto by offering them the ability to hold/buy/sell digital assets in as safe and secure location.
With merchants evolving into accepting crypto as a currency for purchasing merchandise, services and other goods, the role our financial institutions play is going to evolve.
NEACH: Similarly, between executive orders and requests for comment, Central Bank Digital Currency (CBDC) has been gaining a lot of attention in the U.S. How do you see this impacting FIs offerings and plans now and in the future?
Flaherty: There will be a journey for banks and credit unions to take in the crypto space. At the same time, that space will continue to evolve where it started as bitcoin and now includes many crypto currencies - along with a constantly expanding use for other digital assets in the form of non-fungible tokens. A starting point for many institutions may be to offer their customers the ability to buy and sell crypto. That will evolve to include additional types of crypto, allow spending and accepting crypto as payments, and even account rewards in the form of crypto. Many FIs are already doing this or have it on their radar. Beyond that, the potential touchpoints for an FI are many and constantly increasing. They may hold crypto as collateral. They may hold the dollar reserves that back a stablecoin. Or maybe regulations will evolve such that FIs can partner in what today is handled as decentralized finance. Also unknown is the value of commerce and finance in the Metaverse. This will likely be a whole new digital world for acquiring customers and meeting their financial needs.
It will take a long time for the world’s most stable economies to adopt a CBDC at scale. With that, it seems we are several years away from this having a substantive impact on the banking system. When it happens, the expectation is that the Treasury will remain in control of key systems critical to our financial infrastructure. In turn, we expect financial institutions to remain an integral part of the safekeeping and movement of a new [digital] currency.
NEACH: With these new payment options coming to fruition, FIs are finding FinTech partnerships even more necessary. How do you support your banks and credit unions in engaging with FinTechs? What innovations should FIs expect from their core, and what innovations do you think your customers would be surprised by?
Flaherty: COCC acknowledges the need for innovation and technology advancements to remain competitive in today’s environment and has assisted several clients with various levels of FinTech integrations. Transaction based functionality is now an expectation, financial institutions need to look beyond tradition and find ways to offer niche products or products competitive to retain and attract generations here and to come. Along with that, consumer and business behavior has evolved immensely.
One of the biggest challenges banks and credit unions face today is, not just finding the unique services to roll out, but finding the talent and funds to manage the project. With COCC’s open architecture and flexibility in integrating with third parties, accessibility is not the concern. To aid in finding the right expertise and developers during these initiatives, COCC has an offering where clients can outsource a developer directly through our company. These developers are trained by our own skilled development teams and managed by the client to meet their project and development needs. Training the developers on our processes and how our core products work while also sparing the client from having to go through the time-consuming process of hiring and bringing on a new staff member helps make the process less cumbersome and allows them to focus on the sole task at hand.
NEACH: What recent or forthcoming product rollouts do you have that FIs should be exploring?
Flaherty: COCC is constantly evolving its product offerings and delivering new solutions to remain competitive and help our clients succeed. A big focus this upcoming year ahead is going to zero in on our digital channel and general user experience across applications. It’s imperative to stay on course and ahead of competition in delivering capabilities that compel our clients customers and members to use their offerings and stay engaged. We are working on bringing essential solutions into our digital suite like the capability to offer cryptocurrency buy/sell/holdings as well as additional person-to-person providers to stay ahead with larger competitors in the market.
We also have had a strong focus in helping our clients leverage their data in an effective manner to deliver results. Data has been a struggle for many in our community given that there is just so much of it. We believe our banks and credit unions hold more data than some of the huge players like Amazon and Google do and are focused on providing them technology to help them leverage that to grow their business.
NEACH: What else would you like to add?
Flaherty: The best direction and advice we can provide community banks and credit unions is to develop a solid understanding of what new payment channels are available and/or emerging and reach out to their core provider to learn how various APIs and SDKs can be utilized for potential FinTech opportunities and/or integration. Most importantly, develop a strategy and risk appetite for how their bank or CU will plan to participate, in this fast and ever-evolving technology environment. COCC is committed to monitoring the industry for new and emerging services while providing our client base with as much education and direction as possible.
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AUTHOR: Joe Casali, AAP, NCP
Executive Vice President
As the EVP of Payments Innovation for NEACH, Joe focuses on exploring innovative solutions and technologies that will help position members for success, both now and in the future. Connect with Joe to read more of his blogs, articles, and posts.
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