In Q3 2022, NEACH sat down with several major third-party providers to gain insights into what’s happening with payments. Sunil Sachdev, SVP, Head of FinTech and Growth at Fiserv 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?
Sachdev: During the pandemic, we saw a big shift toward digital engagement, with many people making digital the primary channel through which they engage with financial institutions. The data shows that the digital banking gap has closed between the younger generation and the older generation. So now a majority of your customer base is leveraging your digital channel as the front door to your institution.
Stemming from that, the two big trends we’re seeing greater demand for are real-time money movement and real-time notifications. It’s consistent with the experience that a lot of people have using mobile apps in other situations, where there’s almost immediate gratification. Now, that expectation has extended to financial institutions. Real-time notifications have seen tremendous growth because they help inform customers by providing SMS or text messages that their paycheck hit their account or their account has been debited for their Uber ride or DoorDash delivery. That immediate validation really helps people manage their funds more efficiently.
A third piece to watch is FinTech collaboration. I think a lot of financial institutions have realized that even if they were able to provide everything within the bank through an awesome digital channel and experience, that still would not cover all the needs of their customers. FinTech collaboration allows financial institutions to uncork new potential and revenue pools that they may not have had before. That said, this needs to be done thoughtfully as regulatory agencies are monitoring how financial institutions are enabling fintech experiences to ensure the financial institution is not compromising their existing compliance framework.
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?
Sachdev: An omni-channel or digital banking experience is table stakes today. I think people want to have a similar look and feel from their digital banking application regardless of the channel through which they’re engaging that application.
We’ve recently invested in what we believe is the best Gen3 core in the country called Finxact. It’s a cloud native core, 100% API enabled. It’s also a multi-asset core, but it basically lays the foundation to enable the digital experiences we’ve been talking about: real time, 24/7/365, with an ability to interact and engage with not only solutions that are within the Fiserv ecosystem, but also with third-party solutions. We’re opening our technology stack by enabling APIs where it makes sense from our core banking systems, we’re enabling APIs from our digital banking platforms to allow institutions to integrate whatever type of ecosystem they feel provides them an edge in the market.
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?
Sachdev: We know that the FedNow platform and rails are a huge priority for a number of our community institutions. We have built out over the past couple of years something called our NOW® Gateway, which basically facilitates access to multiple payment rails for our financial institution clients through a single connection. We think that it’s a huge differentiator for us, and it also simplifies a lot of the management FIs need to do across all of these different rails. So through Now Gateway, we're going to enable receipt of funds as the first use case for FedNow, and then over time enable the origination of transactions as well.
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?
Sachdev: It should be similar because of the philosophy in the way we’ve built out the Now Gateway as a single connection to multiple rails. If you’re already an RTP user, the FedNow message type, while not the same, is pretty similar, so we believe it’s the same playbook. Receive was first with RTP before we got to origination, and we’re going down the same path with FedNow. So, our customers who are using us for the Now Gateway and RTP should experience a similar or even faster speed to market.
NEACH: What do you suggest FIs do now to start preparing for FedNow? Why?
Sachdev: I think that for one they can absolutely call us and talk to us about timing in terms of their FedNow integration. The second thing they should be doing is thinking about how they’re going to deliver the FedNow experience across their existing digital banking experience. We appreciate that there are going to be different use cases that may gravitate towards one payment rail or another, so there’s an opportunity for FIs to think about that and think about how they're going to service and maybe even charge for some of these transactions depending on the use case or client. There should be some thought devoted to asking what the go-to-market, rollout, communications, FedNow education, business model, and guardrail strategies are.
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?
Sachdev: I think we’re at an interesting point in the evolution of cryptocurrency and the underlying blockchain technology. We have several financial institutions looking to offer basic buy-sell-hold capability. They want to provide for their customers who are crypto-curious and who prefer to engage with financial institutions rather than a centralized exchange. They want to provide those customers the ability to transact and purchase Bitcoin or Ether through the same digital banking experience they’re used to and comfortable with today. So, we’ve partnered with companies like NYDIG and Bakkt to enable those capabilities for financial institutions, fully recognizing that the regulatory environment today only allows them to be a conduit to a crypto exchange as opposed to holding cryptocurrency on their balance sheet.
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?
Sachdev: The first point of order is to define the primary CBDC use case and determine which regulatory bodies are going to monitor and oversee the development and rollout of CBDCs. I think everybody’s concerned about the volatility of the crypto arena, and they’re drawing correlations between what’s happened with the crash of value of Terra’s Luna cryptocurrency in Asia, as well as what’s happened recently with withdrawals being frozen for different types of crypto exchanges. However, the situation is different with a CBDC. Once the government backs a stablecoin with regulations, then they’ll do their part to ensure it’s a very robust platform and remains a currency that people can leverage for different use cases. On the other side of the regulatory question are a number of use cases such as enabling cheaper cross border transactions and increasing financial inclusion through greater democratization of financial services. I think there are a lot of areas that CBDC can address.
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?
Sachdev: We’ve now opened up to and are focusing on a third community: developers. We recognize now more than ever that whether you're a financial institution, merchant, or FinTech, a lot of the work you’re going to be doing to integrate and create beautiful digital journeys for your customers is going to require development of and access to APIs along with integration into different types of card, payment, and core banking systems. Historically, we were a company that felt the best way to go to market was to provide as many of those solutions as we could to our financial institutions and merchant partners. Over the past few years as the API economy has gained steam along with the increased utilization of the digital channel, we’ve recognized that the developer community is critical to enabling these universal experiences.
We’ve also launched something recently called the App Market, which allows FinTechs to access the broad distribution network Fiserv has with financial institutions and merchants and put their app in a location that’s easily discoverable and easily integrated into the overall experience that that client provides their customer today.
NEACH: What recent or forthcoming product rollouts do you have that FIs should be exploring?
Sachdev: We have a number of them. We have recently launched an agent card program called Credit Choice, which gives community institutions the ability to compete with the Squares of the world by providing small business credit cards and expense management software to small business customers.
We also have a number of FinTechs that we recognize community institutions will appreciate. One called Goalsetter is all about helping community institutions reach the kids of their existing customers. Many of the banks we talk to want to know how to extend their brands to the next generation. If you can resonate with them after already being accepted by the parent, then you can remain relevant to the next generation.
NEACH: What else would you like to add?
Sachdev: The last trend that we’re seeing is something called programmable payments, which is the ability to have an app that takes money from a rewards program or other bucket when paying a merchant rather than just paying from the deposit account. We’re starting to see more and more FinTechs come up with use cases in which your debit card or some other payment vehicle actually turns into a key that can unlock multiple payment buckets. We’re obviously on top of that and trying to see how it evolves. But we’re excited about it because we think it can help community institutions given the large penetration of debit cards within their customer base. If successful, it would help banks keep their payment vehicle top of wallet.
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.