By Sophie Bottazzi, Senior Research Executive, CeFPro
As with many aspects of financial services, the payments industry is rapidly advancing in the US as institutions continue to advance their offerings and develop innovative programs for increased product offerings. With many other jurisdictions ahead of the curve, US institutions are leveraging international innovation to drive the program and implement change. As expectations from customers continues to evolve, institutions must keep up to ensure satisfaction of the new consumer demands. With innovation, comes security vulnerabilities, institutions must remain vigilant in understanding vulnerabilities and mitigating the risk where possible.
With such change across the industry, CeFPro have undertaken an extensive research study in order to create a thought leadership agenda created by the industry. Ahead of the event, we wanted to share some of the results of the research and some of the key areas for consideration across the industry throughout 2019.
One of the areas building most momentum and debate across the industry is the move to instant and real time payments (RTP). With The Clearing House (TCH) making the first move developing their piloting system, the industry waits for the regulatory response. With real time payments currently not mandated by the regulators, gaining buy in to take initial steps remains difficult. With TCH currently dominating advances in RTP, other industry players are not as happy by the advances and the competitive advantage it provides for larger institutions who are able to adopt. RTP requires compatible systems across the industry and with big players following TCH’s piloting system and the rest waiting for a regulatory system, the future of implementation remains uncertain with potential fragmentation on the horizon. As mentioned in the introduction of this piece, security is a key consideration in the build out of RTP systems, ensuring robust identification and verification processes will be vital to the success. The future remains uncertain on RTP uptake across US markets, gaining critical mass and incentivizing banks to migrate to new systems will be a substantial task, but even more difficult should regulatory involvement provide alternative options that are misaligned with the current system.
An area driving the increased innovation across payments is the continued involvement of FinTechs offering competitive products to either compete with financial institutions or collaborate on offerings. FinTechs offer agility that many financial institutions do not have, they are able to adapt to their surroundings and update products to reflect the market, payments is no different. The FinTech industry as a whole remains predominantly un-regulated, further increasing the ability to remain agile, however the OCC FinTech charter allows banking licenses for non-regulated entities, opening the door to regulatory scrutiny and involvement. Across Europe, open banking regulations have increased the involvement of FinTech companies in banking by allowing open sharing of data to allow FinTechs to tap into open APIs for their product offerings. FinTech companies provide opportunities that would be closed to traditional institutions, tied down by legacy systems and unable to access valuable data in a tangle of non-integrated entities. Institutions are increasingly seeing the opportunities that FinTech companies provide however, no longer are they seen as the threat that will change the face of banking forever, but more the catalyst that will change the face of banking through innovation and collaboration.
Finally, a large area within the research for the 2019 Payments Forum was that of contactless payments and the move across the industry to chip and pin and contactless payment capabilities. Archaic mag strips have been the norm across the US, with card fraud remaining high, questions remain as to whether chip and pin will create increased card to present fraud. The introduction of contactless payments is a resource intensive exercise with considerable investment required from issuers and merchants to update cards and systems. The use of digital wallets increase along with contactless developments continuing the changing expectations of consumers and their payment experience. Many highlighted payment systems in retail operations such as Starbucks allowing for a seamless payment through the app and system. Many are looking in to how they can develop systems to leverage apps and retail cards in banking. Continuing evolution in the seamlessness of payments and ease of use for consumers further levels the playing field between banks and non banks with technology providing the service consumers are coming to expect.
Overall technology, innovation and security remain top of the agenda – ensuring that institutions are keeping up with change and staying ahead of competition, whilst protection reputation by maintaining security. Institutions must stay vigilant and prioritise customer protection over innovation and product offerings.
The industry is rapidly growing; payments remains an integral part of the market and banking ecosystem, however potential disruption means pressure is mounting to keep up with regulatory changes and increased pressure for instant payment settlement and technology enhanced security, the pressure is high for the industry.
Payments Forum looks to address the above challenges and much more, providing a platform for best practice and idea sharing to enhance collaboration and communication.
The findings of this research will be illustrated on June 5-6, 2019 at CeFPro’s Payments Forum in New York City. We invite you to join your peers for two days to discuss upcoming payment trends, technologies and regulatory requirements.
For further information, please get in touch with a member of the team on +1 888 677 7007