Trends & Research

Trends & Research

Access the power of data and objective insight. Data from various sources, including NEACH surveys and member interviews, is compiled and made available as white papers, case studies, articles, benchmarking, and industry reports to provide a snapshot of both the current and future payments landscape. 

Published on Tuesday, October 18, 2022

Finastra Perspective: What’s Next for Payments in 2022

In Q3 2022, NEACH sat down with several major third-party providers to gain insights into what’s happening with payments. Kirsten Lemke, Managing Director, Payments – Americas at Finastra, 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?

Lemke: As consumers become more and more accustomed to using technology in every part of their lives – resulting in constant, real-time information – we’re seeing a growing expectation that money will be able to move immediately. Increasingly, we’re also seeing members and customers want one place to manage their money – essentially a “global view” of all their accounts.

Another trend we’ve noted is the growing awareness of cryptocurrencies, with consumers looking to their banks and credit unions to provide crypto services. For those institutions, the best way to roll out those kinds of offerings will likely be through partnering with FinTechs that will allow them to adopt solutions that seamlessly integrate with their existing systems, while not directly competing. We are likely to see more partnerships of this nature emerge as digital assets only become more mainstream. 

 

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?

Lemke: Financial institutions need more flexible solutions for their clients that allow for 24X7 access.  FIs also need solutions that allow for the tokenization of bank accounts and the ability to more accurately verify that an individual or corporate owns a specific bank account when making outbound payments. 

At the moment Finastra is currently evaluating options that fully deliver the flexibility and efficiency the FIs we work with require.

 

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?

Lemke: Finastra has been preparing for FedNow by adding FedNow functionality and ISO messages to our payment platforms. In addition, we are preparing our cloud environment to support customer onboarding beginning in late 2022.

 

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?

Lemke: Finastra expects the onboarding for FedNow to be similar to The Clearing House. Specifically, the payment integrations, workflow and use cases for real-time payments are consistent.  When using our cloud/SaaS solution, the infrastructure for immediate payments, the specific rail selected is transparent to our financial institution customers.

 

NEACH: What do you suggest FIs do now to start preparing for FedNow? Why?

Lemke: As an experienced vendor offering immediate payment solutions globally, Finastra suggests that FIs start preparation by focusing on three main things:

  1. Identify and prioritize the use cases to initially launch the FedNow service in terms of business and/or retail scenarios – specifically credit, request to pay or receive incoming payments.
  2. Ensure the settlement processes are prepared for the core system (posting).
  3. Ensure current or select new partners and vendors are experienced in immediate payments and are prepared to help the FI through the journey.

FIs are looking at the business cases and how to monetize FedNow presently. There is a lot of interest from a defensive/competitive point of view, but in addition to providing a service, there should be a focus on generating revenue.

 

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?

Lemke: Banks will have a critical and extensive role in cryptocurrencies and central bank digital currencies (CBDCs). This will begin with banks providing basic buy/sell/hold capabilities from third parties. However, I think introducing these third party capabilities will also result in the rapid evolution of a more sophisticated and embedded retail and enterprise experience. As a result, a large portion of corporate and retail banks will have to develop a robust crypto ecosystem in order to remain relevant.

 

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?

Lemke: CBDCs can be built with all of the same functional advantages as blockchain-based cryptocurrencies like Ethereum, without the decentralization and immutability of the transaction history. What they have in common with those blockchain-based cryptocurrencies is that they are programmable, composable money, with the added advantage of having the credibility of the issuing nation.

Banks will be central to deriving value from the raw capability of programmable money, and integrating it into the traditional financial system globally. They will also be responsible for providing the customer interfaces and workflows to enable mass adoption. Given their position in the financial ecosystem, banks will also likely be the safest and most reliable places to hold these currencies. 

 

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?

Lemke: At our core, we believe in providing our customers with solutions that allow them to grow and adapt to their own clients’ changing needs. FusionFabric.cloud is an industry leading open development platform and API marketplace that offers FinTech capabilities and contextually incorporates them into our solution portfolio. For example, our Fincom.co screening solutions are packaged with and integrated into our payment hub solutions.

Core providers need to have cloud-native real-time platforms that easily post and consume APIs with clients and partners. These platforms need to be flexible enough to ingest new technologies like digital currencies and digital assets in the form of NFTs—we are not talking about overpriced JPEGs, but smart contracts, digital titles and the like. Clients may be surprised to see that core systems can start to replace legacy tech silos such as card processing, card management platforms, loyalty solutions, and others.

 

NEACH: What recent or forthcoming product rollouts do you have that FIs should be exploring?

Lemke: Finastra’s open architecture allows our FinTech partners to create solutions that can easily be consumed by our clients through our FusionFabric.cloud offerings.  In addition to this, we are introducing new payment rails including FedNow and enhancing our ACH processing.

For our PaymentsToGo payment hub, we are updating usability features, including an improved user experience, while simplifying the use of the application spanning multiple payment rails and offering streamlined operational processes. As we look ahead, we are constantly searching for innovative ways to continue leveraging APIs and improving data insights that allow for seamless integration and actionable insights to improve customer relationship management.

 

NEACH: What else would you like to add?

Lemke: We are well positioned to help financial institutions as they move from legacy payment systems to cloud solutions and look forward to continuing to leverage open architecture to allow financial institutions to implement APIs and microservices to provide value-additive solutions for their corporate and retail clients.  We are also excited about participating in the FedNow pilot and helping our clients get connected.

 

 

Joe Casali, AAP, NCP

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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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