COVID-19 and the challenges presented by state-mandated operation limitations offer vital insights into payments innovation priorities for NEACH, its members, and the industry as a whole. To speak to these points, NEACH convened a group of payments experts and innovators at its Aug. 3, 2020, town hall.
Joe Casali, AAP, NCP, executive vice president of payments innovation at NEACH moderated the panel. Panelists included:
“As we adapt to this new normal, forced upon us by a worldwide pandemic, we pause and identify that something’s changed here,” said Casali in his opening remarks. “We want to aid you in navigating these changes. We are open to your suggestions and demands as you approach innovation your way and develop your own strategy.”
In today’s environment, customers are demanding a different experience, one that mirrors what they receive from alternative service providers and the Facebook and Googles of the world. And speed of payment matters, a lot, to meet customers’ expectations of instantaneous results.
How do we address these changes — internally or through strategic partnerships? That’s a question each financial institution will have to answer for itself. Answers will vary by financial institution and the organization’s customer base and strategic plan.
We hope that the highlights below from our town hall discussion help spark innovation within your financial institution and clarify your organization’s priorities during and post-COVID-19.
We start with comments from panelist John Macaluso.
John Macaluso, Principal CCG Catalyst Consulting Group
“Financial institutions are at an inflection point,” affirmed Macaluso, Principal CCG Catalyst Consulting Group. “It’s very important for financial institutions in the U.S. to be having this conversation [around payments innovation priorities].”
Financial institutions, says Macaluso, address customers in "a very legacy way."
His slide below offers a holistic view of the payments landscape.
The middle circle represents the various payment channels from the perspective of financial institutions. Financial institutions often view these rails as siloed components of the payments system. But the disruptors like the neo-banks or fintechs, featured on the outer ring of the diagram, do not view their rails as separate channels. They hide the disparity, focusing instead on the customer experience.
Finally, the inner circle raises questions financial institutions should consider—for themselves and their customers—as they navigate the new norm.
According to Macaluso, the differentiator between FinTechs (and others like them) and traditional financial institutions is customer experience and perception. For the customer, it boils down to getting their money faster. For financial institutions, It’s about meeting customers’ demands.
"We have to get our share of the revenue because if we don't, there are people along the supply chain that are going to grab all of it," says Macaluso.
Kevin Olsen, SVP, Payments Solutions, VSoft Corporation and The Payment$ Professor
One way to help meet those demands is with faster payments.
Faster payments is an important option to consider when looking for ways to enhance the customer experience, said Kevin Olsen, SVP, Payments Solutions, VSoft Corporation and The Payment$ Professor.
"I think of COVID as the great reset," explained Olsen. "Change has become normal all of a sudden, and we have to choose a position and go with it.”
However, with the rapid increase in technology and service offerings, many financial institutions have adopted a perpetual "wait and see" approach, which over time, has developed into a form of paralysis analysis, explained Olsen. The fear of making the wrong decision keeps many FIs from making any decision at all.
“You need to put your foot in the sand and take a stand,” says Olsen. “It’s at a point that you have to choose something.”
He also speaks to timing, pointing out that due to COVID-19, many people have stopped using cash. They are looking for safe alternatives. They want to know: What are the options I can use that will keep me safe? Is my money safe?
Now is an excellent time to make the move to faster payments.
For many, it's a budgeting issue. Financial institutions often set their information technology budgets for two to three years in advance. Still, the best move financial institutions could make is to start now.
"Go with what you can do now," advises Olsen. "Then put together a plan, a strategy, where you can eventually put everything you want into place.”
Connie Loveland, CFO and treasurer, Fidelity Bank and Chairperson of the NEACH Board of Directors
Fidelity Bank had been discussing shifts in the market for some time prior to the coronavirus pandemic.
"Here at Fidelity Bank, before COVID, we had a strategic initiative to discuss payments strategies," says Loveland. "All of the topics you've already heard were things we were discussing."
As a result of those discussions, Fidelity Bank made a strategic move last year, investing in a strategic innovation lab where bank employees serve as programmers. The focus is on robotic processing automation to create efficiencies.
“We’ve leveraged that technology through COVID,” says Loveland. “We used it to automate back-office functions to help process improvements while our workers have been working remotely.”
When the Payment Protection Plan (PPP) came out, Fidelity used robotic automation to leverage the information it collected to send to SBA. But according to Loveland, that only worked until SBA couldn’t handle the volume and had to shut it down.
She points out the challenge and opportunities for financial institutions around payments innovation.
"If you don't have a dedicated resource that is focused solely on innovation, that will likely be the last thing someone will do within their job function," says Loveland. "We needed a lab to drive innovation forward."
Although Fidelity's lab is strictly internal, it also belongs to a national lab where it can leverage resources from other institutions and FinTech partners. Because everyone is seeking assistance to develop technology around payments, opportunities for strategic and innovative partnerships are more numerous than you might realize.
All three panelists highlighted opportunities for financial institutions in the current and post-COVID culture. We are at an inflection point—a place in which customers have different expectations and demands around the speed of payments, how they interact with their financial institutions, an appetite for products and solutions that focus on the customer experience, and innovative, strategic partnerships.
Consider NEACH your strategic partner. To help you address these challenges and maximize opportunities at your financial institutions, we have launched a new Innovating Payments site. There, you will find articles, discussion boards, and new learning opportunities that dive deeper into the topics we touched on today. We also cover related topics on the site—the new role of operations, data analytics, and ISO20022, to name just a few.
The site also includes three new on-demand classes, “Real-Time Education for Real-Time Payments 101,” “RTP®: Risks, Rules and Regulations,” featuring Kevin Olsen, and “Building Blocks of Faster Payments.”
Also coming mid-September, watch for NEACH's Faster Payments Playbook classroom series, taught by NEACH's Joe Casali. Look for additional details in the new Innovating Payments website in the weeks ahead.
Be sure to also save the date for NEACH’s annual Innovating Payments Conference, Nov. 16-17, 2020. The conference is going virtual this year, and we look forward to providing the same best-in-class educational experience our members have come to expect.
As always, NEACH staff are available to answer your questions via the Payments Hotline at 855-NEACHQA. Or contact us via email at firstname.lastname@example.org.