Change Is Here and It Is Real
It looks like we are now beginning to see that all the noise and predictions around payment disruption, new payment types, innovation and collaboration between banks and fintechs, have become a reality. These are no longer predictions–these trends are real and are beginning to pick up serious momentum.
There is no question that technology alone did not get us here…it took a global pandemic to push payment experts to be more nimble in developing efficient methods of accepting and making payments that are fast, easy-to-implement and meet consumer and business demands. Technology, together with the current global pandemic, has made the concept of “consumerization” a reality.
What’s real now!
APIs – This technology is reshaping how customers transact;it’s restructuring the payment landscape from all points of view. On the consumer side, it allows for greater integration between native banking apps and payment providers. On the business side, it allows for customers to systematically integrate their business needs, portals, vendors and back office systems. As API technology is currently being adopted by banks of all sizes, that is also leveling the playing field for banks.
Cashless Payments – Almost everycredit card issued today has near-field technology. The concept of swiping a credit card and signinga receipt is almost out-of-date. All you need to do is go back and analyze the last five to 10 transactions you processed to realize how quickly things have changed. In my case, I paid for my coffee this morning using a mobile wallet, paid my phone bill using a smart speaker on my way out of the house, ordered lunch using a mobile wallet, filled up my gas tank by waving my credit card over the pump reader, and sent my 15-year-old son $25.00 via Zelle.
We are also seeing technology that has been well adopted overseas--like QR codes--coming to the U.S. All of this means that for merchants to be successful, they must be able to offer a variety of payment options. Cash and/or plastic alone won’t do it.
Fast, Faster or Ludicrous Speed --I can’t wrap up this article without talking about faster or real-time payments. Faster payments is no longer a prediction. As more banks become TCH RTP ready, 2021 will begin to see a spike in RTP payments that will be further fueled by the FedNow program. Banks will need to educate customers in this space as each new type addresses a unique need around urgency, cost and connectivity. Payment rails in this space include Same Day ACH, Zelle, RTP and FedNow.
Back to Basics
With all these new payment ideas and options, it’s more critical than ever not to overreact to each new idea, but to keep a finger on the pulse and evaluate customers’ needs and existing back office systems to ensure that they are flexible and can easily adapt to new technologies.
All this sounds exciting and promising. But at the end of the day, the reality is that all the innovation above relies on the same antiquated technology that drives our U.S. payment rails. These legacy systems are reliable, but don’t always make it easy to support new payment ideas or services. Now more than ever, it is critical that banks of all sizes take a closer look at their core legacy systems to ensure that they can support their customers’ near-future needs. Without this, they will not be competitive in this new digitized space.
We may see banks, driven by this new reality, replacing and/or upgrading their payment legacy systems in the next two to five years.