Payments digitization continues to accelerate as COVID restrictions lift with financial institutions and their customers working to redefine their relationship in the aftermath. In this month’s issue, we continue to examine the impact of the pandemic and how financial institutions — and the industry — are evolving to define the “new normal.”
This month, The U.S. Faster Payments Council (FPC), in partnership with Glenbrook Partners, released a new research report, “Why Interoperability is Important to Faster Payments.” Zelle and Venmo are also making headlines, while The Clearing House's Real-Time Payments (RTP)® network continues to expand. The FedNowSM Service Pilot Program is also making strides in its development of an industry readiness resource guide, and Federal Reserve Vice Chair for Supervision Randal Quarles expressed doubts about a Central Bank Digital Currency in his remarks to the Utah Bankers Association.
Read on to learn more.
According to McKinsey, “10 years of e-commerce adoption was compressed into three months,” Forbes reported at the end of last year. “And not only did the shift to an e-commerce-first mindset happen in countries where online shopping was already widely accepted, but it also happened in cultures where in-person, local, cash-reliant and daily shopping is the norm.”
When it comes to digitization, it appears the future is now.
The implications for financial institutions and their customers are far-reaching and points to another wave of technological advances and partnerships between financial institutions and FinTechs to meet surging demand for digital solutions.
And that’s not all.
New data from PYMNTS’ latest study, “The Strategic Role of the CEO: How AP and AR Digitization are Transforming Customer Relationships,” reveals that 93 percent of U.S. CFOs say they are currently digitizing their accounting operations. Also, 96 percent of CFOs report digitizing AP and AR processes for their customers' and vendors' benefit. In addition, more than half of CFOs (57 percent) say that their primary goal in modernizing AP/AR operations is to achieve transformation that enhances customer and vendor satisfaction.
And consumer payments digitization follows suit. According to new data from ACI Worldwide, “the use of mobile wallets has increased nearly 50 percent (49%) from 2020 to 2021 among those using digital payments more frequently to pay bills than they did before the pandemic (21.4%),” says the company’s recent news release. “This is a sharp rise compared to increases in other digital payment methods, including a biller’s website (11%) and a biller’s mobile app (6%). The ACI Speedpay Pulse study, which surveyed 3,000 U.S. adults, also showed that 51 percent of consumers who would not use a mobile wallet to pay a bill cited security as their top concern.”
As we ease into a post-COVID world and financial institutions adapt to meet shifting cultural and consumer preferences, opportunities to introduce new products and processes and increase market share are plentiful.
Faster and Real-Time Payments
U.S. Faster Payments Council
In other news, faster and real-time payments continue to ramp up.
The U.S. Faster Payments Council (FPC), in partnership with Glenbrook Partners, released its new research report, “Why Interoperability is Important to Faster Payments.” The report is the latest part of a three-year, multifaceted industry study consisting of quantitative and qualitative research, launched by the FPC and Glenbrook in 2019, FPC said in its June 23 release.
“Interoperability has been a recurring theme across the FPC’s work efforts and a hot topic within the industry at large in recent years," said FPC Executive Director Reed Luhtanen in the release. "Both the 2019 and 2020 Faster Payments Barometer studies showed more than 70 percent of stakeholders agree that faster payments system interoperability is important. As a result, we decided to focus our latest qualitative research with Glenbrook on 'why' interoperability is important to end-users and providers alike, in order to identify the best path forward to ubiquitous faster payments."
The research addresses three foundational questions posed to interviewees:
- How does the industry define interoperability?
- What are some of the attributes associated with interoperability?
- What benefits might be realized if interoperability is achieved?
The report is available in FPC’s Faster Payments Knowledge Center.
Venmo is also on the move, having announced that it is increasing its fee for instant transactions: “Effective August 2, 2021, the fee for instant transfers will be 1.5 percent per instant transfer ($0.25 minimum fee, $15 maximum fee.” The fee change is an increase from its current fee, which charges only one percent and a maximum of $10 to move money from your Venmo account to a linked bank account.
The increased fee is a surprising play by Venmo given the long-held notion that consumers are unwilling to pay for instant or real-time payments. It’s unclear how the fee increase will play out and its impact on consumers and competitors alike.
Zelle, too, is upping the ante. Albert Ko, CEO of parent company Early Warning, told The Financial Brand, he believes Zelle has evolved into “digital cash”:
Ko notes that the bank-owned company now processes transactions for small businesses and handles disbursements for companies, government entities and nonprofits, which is far beyond handling payments to babysitters and facilitating the splitting of dinner tabs. To Ko, that growing ubiquity of the Zelle platform implies an increasing resemblance to the acceptability of actual cash.
“Zelle was born out of the notion that P2P payments were rising across various media and that financial institutions should get in on it, because P2P drives a high degree of customer engagement and retention,” Ko told The Financial Brand. “I think of ‘digital cash’ as the destination in this business and P2P as a chapter in the journey leading to that destination.”
RTP & FedNow
Speaking of real-time payments, on June 22 Comerica Bank announced a major enhancement to its online payments service, Comerica Treasury Payments®, with the addition of real-time payments. Comerica is among the first banks to offer commercial and business banking customers the ability to send real-time payments over the RTP® network, which reaches approximately 60 percent of U.S. demand deposit accounts and joins a number of banks making the service accessible through an online banking portal, according to the release.
This announcement follows on the heels of a June 16 announcement made by Westside State Bank, a community bank in Iowa, stating that it is bringing real-time payments capabilities to its customers through the RTP network. According to the release, Westside State Bank (WSB) now has access to the RTP network through SHAZAM, Inc., a national provider of core, EFT, and other financial services to community financial institutions, while Bankers' Bank provides funding agent capabilities.
Also in the news, the Federal Reserve recently provided a progress update on its FedNow Pilot Program, announcing an advance copy of the FedNow Service Readiness Guide was available to FedNow Community members for review. Program participants have been working on the guide for several months now.
According to the Federal Reserve, the 11 topics included in the initial release of the guide "provide insights on how the FedNow Service will work, questions to consider, and ideas for gaining value from the service for you and your customers. Additional content will be added over time based on feedback, emerging information, and product enhancements.”
The guide will be released to the public later this year.
Central Bank Digital Currency (CBDC)
As Federal Reserve Chairman Jerome Powell noted in May, the Federal Reserve is exploring the concept of a CBDC. Powell announced that a discussion paper is forthcoming on this topic, complementing the research being done by the Federal Reserve Banks.
Most recently, at a meeting of the Utah Bankers Association, Federal Reserve Vice Chair for Supervision Randal Quarles expressed doubts about a CBDC. "The potential benefits of a Federal Reserve CBDC are unclear," Quarles said in his remarks. "Conversely, a Federal Reserve CBDC could pose significant and concrete risks."
He cited several potential downsides, including the potential for cyberattacks on a system that could be difficult to secure and the public bypassing traditional banks and going straight to the Fed for digital money.
Proponents of a CBDC cite benefits for the unbanked and underbanked, many of whom currently lack access to existing digital payments systems. A Fed-issued digital currency could also speed up payments systems, particularly internationally.
How this will play out remains to be seen.
NEACH — Your Strategic Partner
As things continue to heat up this summer in the world of digitization, real-time payments, and payments modernization and innovation, NEACH is ready to help. Be sure to check out our educational tools and resources, the latest news and developments in Innovating Payments, and much, much more.
Consider NEACH your strategic partner. Email us at firstname.lastname@example.org or call us at 782-321-1011 and let us know how we can help.
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.