With the new year upon us, pundits and prognosticators are making predictions for the year ahead. In an article written for Forbes magazine, Forrester Senior Analyst Lily Varon predicts that payments will once again be top of mind for FinTechs, merchants, and consumers. Also, in this month's issue, federal regulatory agencies released a joint statement highlighting the risks for financial institutions associated with crypto-assets.
In addition, the Clearing House (TCH) announced on Jan. 3 that President and CEO Jim Aramanda will retire in early 2023, after 15 years leading the company, and be replaced by David Watson, who most recently served as Chief Product Officer of Swift. In others news, financial institutions may be rethinking their partnership with Zelle if new regulations hold them responsible for money lost to scammers.
For more on these and other stories, read on:
Payments Trends in 2023
“In 2023, payments will once again be top of mind for FinTechs, merchants, and consumers," a Forrester contributor writes for Forbes. Long considered one of the most influential research and advisory firms in the world, Forrester offers this sneak peek into their top predictions for 2023:
The economy's downturn will lead to a shift in consumer payment habits.
As consumers feel the economy's effects, we will see a shift in payment habits, including a comeback to cash and credit cards. As reported by Forbes, “Customers will stampede to ‘buy now, pay later’ options.” Financial institutions must avoid being disintermediated by this shift if payments habits while continuing to invest in low-cost digital solutions.
Bank-based payment methods will have their first “big” debut.
According to Forrester, "A big beneficiary of the increase in customers using cash-like payments methods will be open-finance-based, account-to-account payments." 2023 is also when we will see one major global retailer begin accepting ACH-based payments on their site, along with some challenger banks. Expect more of this in the months ahead as ACH allows retailers to avoid hefty interchange fees.
Innovation will take a back seat to baseline payments.
Forrester predicts that payments budgets will be tight in 2023, so envelope-pushing payment experiences will likely take a back seat to baseline payments infrastructure and modernization projects. This research-based organization also anticipates that one in four payment FinTechs will fold.
Some areas of payments fraud prevention will improve, while others will worsen.
“Higher consumer adoption of mobile payments,” says Forrester Senior Analyst Lily Varon, “will also keep many fraudsters at bay, as mobile devices can support one of the smoothest and strongest customer authentication processes.” However, expect fraud in consumer-initiated, push-based payments to double over the next year, says Varon. The reason? According to Varon, many banks and service providers need advanced authentication approaches and have yet to educate customers on self-protection.
If you want to learn more about Forrester's predictions for 2023, click here.
Joint Agency Statement on Crypto
Federal bank regulatory agencies issued a statement on Jan. 3 highlighting key risks for banking organizations associated with crypto-assets and the crypto-asset sector and describing the agencies' approaches to supervision in this area.
The news release states:
In particular, the statement describes several critical risks associated with crypto-assets and the crypto-asset sector, as demonstrated by the significant volatility and vulnerabilities over the past year. Given these risks, the agencies continue to take a careful and cautious approach to current and proposed crypto-asset-related activities and exposures at banking organizations. The agencies continue to assess whether or how current and proposed crypto-asset-related activities by banking organizations can be conducted in a manner that is safe and sound, legally permissible, and in compliance with applicable laws and regulations, including those designed to protect consumers.
The agencies will continue to closely monitor crypto-asset-related exposures of banking organizations and, as warranted, will issue additional statements related to engagement by banking organizations in crypto-asset-related activities.
To read the statement in its entirety, click here.
Cryptocurrency
Regulating Crypto in 2023
As reported by Payments Journal, “promoters of cryptocurrency have exploited the ambiguous nature [of cryptocurrency] to avoid federal regulation. The publication cites a Wall Street Journal article that states:
Crypto proponents have sought to exploit the situation by arguing that a large portion of digital assets should not be treated as securities but instead as commodities where the spot market has no federal regulator. Doubling down, they have characterized their choices not to voluntarily comply with existing regulations as the result of "regulatory uncertainty," when the real motivation is avoiding compliance and its costs.
The Payments Journal adds, “In the article, Jay Clayton and Timothy Massad, former chairmen of the SEC and CFTC, weigh in on what they think will work best for regulating crypto. Their first proposal would require crypto intermediaries (including exchanges and decentralized finance platforms) to implement basic consumer protections that are standard for other assets.” It goes on to say:
We believe the SEC and the CFTC should publish a core set of standards, including (1) segregation of customer assets, (2) limits on lending, (3) restrictions on operating conflicting businesses such as trading, (4) prohibitions against fraud and manipulation including wash trading (where someone trades with themselves or an affiliate to inflate the market price or volume of a security), and (5) governance requirements.
The formal chairman also proposed the SEC and CFTC require crypto intermediaries use only stablecoins that comply with certain regulations, and enforcement of existing financial laws.
The Clearing House
David Watson Named CEO of The Clearing House
According to a news release, the Clearing House (TCH) announced on January 2023 that President & CEO Jim Aramanda will retire in early 2023 after 15 years leading the company. David Watson, who most recently served as Chief Product Officer of Swift, will succeed Aramanda. In this role, Watson maintained responsibility for Swift's product engineering, development, and innovation, focusing on the company's services to banking, securities, market infrastructure, and corporate customers. His appointment is effective Feb. 1, 2023.
"We are very pleased to welcome David Watson to lead The Clearing House. David brings extensive payments experience, in-depth expertise in the field, and a strong track record of innovation,” said Brian Moynihan, Bank of America Chair and Chief Executive Officer and Chair of the TCH Supervisory Board, in the release. “David will continue TCH's important work of driving adoption of real-time payments capabilities and focusing on the safety, security, reliability, and efficiency of bank-owned payment systems, which are critical to the financial system."
The Clearing House Real-Time Payments (RTP®)
PYMNTS recently released “Looking Back on Five Years of Real-Time Payments" from its Real-Time Payments Tracker Series, highlighting five-year milestones and accomplishments for The Clearing House's RTP Network.
According to the Tracker, TCH's RTP network turned five years old late last year and has reached several significant milestones since its launch:
The network currently reaches 62 percent of demand deposit accounts in the U.S., and 289 banks and credit unions (CUs) currently leverage the network (as of Dec. 13, 2022) to provide instant payments to their customers. Q3 2022 alone saw 45 million transactions totaling $19.7 billion. TCH reported that more than 80 percent of the financial institutions (FIs) leveraging the network are community banks and CUs with less than $10 billion in assets.
The Tracker also features an overview of RTP's benefits, RTP integrations to aid SMBs, and new RTP functionality.
To download the Tracker, click here.
Zelle
In other news, scams on Zelle are rising, and smaller banks and credit unions are rethinking partnerships, says Payments Journal.
By law, financial institutions must reimburse for fraud if a fraudster takes over the account. However, this doesn't apply to consumers duped into making payments to scammers. Based on legal precedent, community banks and credit unions presumed they wouldn't be liable for reimbursing customers for scams, says Payments Journal. But if that changes, financial institutions may see Zelle as a risk and remove it from their offerings.
The Wall Street Journal notes that if new regulations were put in place that made financial institutions liable for repaying scammed customers, it wouldn’t impact all banks the same way.
According to the WSJ:
"While bankers and consumers are excited about P2P and faster payments, it is essential to note that sometimes regulations do not keep pace with innovation, said Brian Riley, Director of Credit and Co-Head of Payments at Mercator Advisory Group. Top banks are working out strategies to cover final settlement, and smaller institutions flocking to Zelle need to consider the same."
We will continue to follow this story and provide updates when they are available.
NEACH — Your Strategic Partner
Happy New Year from all of us at NEACH. We remain committed to providing you with the most up-to-date news, information, and education you need to succeed in the year ahead.
To help make the most of the new year, we invite you to sign up for our 2023 Industry Update webinar. This interactive session will examine changes to Rules and Regulations that affect your organization, identify which internal policies or procedures may need to be updated based on industry changes, discuss the progress made with FedNow®, and more.
We hope to see you there!
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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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