PaymentsJournal

In 2021, the Government of Canada passed the Retail Payments Activities Act, which required the Bank of Canada, the nation’s central bank, to begin overseeing payment service providers (PSPs). Under the legislation, Canadian PSPs—along with any entities involved in the electronic transfer or storage of funds—must register between November 1 and 15.

In preparation of these new regulations, Ron Morrow, Executive Director of Payments, Supervision and Oversight at the Bank of Canada, spoke with Brian Riley, Co-Head of Payments at Javelin Strategy & Research in a recent PaymentsJournal podcast. They discussed how and why PSPs should ensure they are ready to comply with the upcoming requirements.

After the legislation was passed, the Bank of Canada worked with the Department of Finance to develop regulations for supervising PSPs. The focus is primarily on two key requirements for PSPs. First, they need to establish an operational risk framework to effectively manage business continuity, cyber threats, and other related operational risks. Second, if they hold funds on behalf of end users, they must ensure those funds are adequately safeguarded. In the event that a PSP holding client funds goes out of business, those funds would be considered bankruptcy-remote and could be returned to the end users.

“Many of the PSPs we’ve talked to actually embraced the regime,” Morrow said. “PSPs are largely unregulated in Canada, but coming into the regulatory fold will help their interactions with other regulated financial sector entities like banks and credit unions.”

Once payment service providers come under the supervision of the Bank of Canada, they will be eligible to become members of Payments Canada after the government passes some necessary legal amendments. This will enable PSPs who meet eligibility requirements to directly connect to Canada’s national payments infrastructure. As a result, eligible PSPs will be able to participate directly in Canada’s real-time payment system, which is currently being developed by Payments Canada and other payment infrastructure providers.

“The PSP, one way or another, is going to be dealing with regulated entities,” said Riley. “If they are not compliant with this, they’re going to have some downstream issues. If they are compliant, it sets the stage for being able to move into other markets and going deeper within Canada.”

When it was building out the regime, the Bank of Canada examined the approaches taken by other jurisdictions regarding payment regulation.

“Wherever possible, we align our standards with what is already out there in the world,” said Morrow. “If there was a standard that was becoming common practice or best practice, and it made sense for Canada, we incorporated it into our own rules.”

This should help PSPs in two key ways. First, domestic PSPs will be well positioned to conduct business in other jurisdictions due to the consistency of the rules with those implemented elsewhere. Second, it will alleviate the burden on PSPs that already operate in multiple jurisdictions, as the requirements from the Bank of Canada will align broadly with regulations in other parts of the world.

Every year, PSPs will be required to submit a standardized template of information to the Bank of Canada, including details about the volume and value of payments. They will also need to report any significant risk events that occurred throughout the year. Additionally, each year, the Bank of Canada will select a group of PSPs for a deep dive into their operational risk frameworks.  

“We’ll be digging into the details about how they’re complying with the act, with a view toward whether or not there any gaps with the approach the PSPs are taking,” Morrow said. “If there are no gaps, great. If there are gaps, then we’ll have a conversation with the PSP around whether or not they agree. If there’s disagreement on the gaps or the PSP doesn’t feel they need to take action, we might move the issue to our enforcement division, but our enforcement is really based around ensuring compliance. We want people to comply with the act. We don’t want to be punitive or punish people.”

The Bank of Canada has identified over 3,000 entities that are expected to fall under the scope of the Act. Once the registration window closes, they will follow up with those they believe are PSPs but did not register, informing them that failure to register will result in enforcement actions. 

The Bank of Canda’s website outlines the scope of the regime and the organizations to which it applies. If a PSP is performing one of five payment functions outlined on the site, they are potentially subject to being overseen by the regime.

The website offers guidance on both the safeguarding of end user funds and what PSPs need to take into account as they’re developing their operational risk framework.

“We have a number of scenarios on our website that highlight particular use cases or business models to help them help people get their heads around whether or not the regime applies to them,’” Morrow said. “If you’re in the business of moving people’s money electronically or holding their money electronically, and you’re not already prudentially regulated like a bank, it’s very likely that you’re subject to this regime.”

Artificial intelligence has had a dramatic effect across industries in a short time. Accounting is no exception, but there has been speculation of whether AI would replace those working in the profession.

In a recent PaymentsJournal podcast, Ted Callahan, Accountant Leader at Intuit, and Albert Bodine, Director of Commercial Payments at Javelin Strategy & Research, explored key findings from the 2024 Intuit QuickBooks Accountant Technology Survey and their implications for the accounting sector – including how accountants are interacting with AI. The survey gathered insights from 700 accounting leaders to assess the impact of AI and technology on their firms.

Unsurprisingly, respondents identified the top challenges for accounting firms as maintaining compliance with regulations and tax laws and driving profitability for both their firms and clients in the face of high interest rates and inflation.

“What was surprising was that in contrast to a common narrative, accountants don’t view AI as competition,” Callahan said. “Only 9% of the respondents said they were concerned about AI replacing their job. Instead, they felt that embracing technology would help them boost their efficiency and improve their client service.”

“In addition, 71% of the surveyed firms said accounting technology solutions were the driving factor in the increased profitability of their clients,” he said.

Another key insight from the report revealed that 30% of respondents identified the biggest competitive advantage of technology as its ability to enable customized services and advice through data analysis.

“There can be a bit of fearmongering with AI and, in some cases, it can be justified,” Bodine said. “However, I look at areas like cash flow analysis, which can be one of the most difficult things to forecast. As AI tools become more prevalent and integrated into accounting platforms, they can deliver substantial benefits, especially if an organization doesn’t have the staff to perform that kind of analysis.”

Partly due to staffing challenges, the accounting industry has embraced AI on a large scale—98% of respondents reporting that they actively use the technology to enhance client service. Additionally, nearly as many (95%) said that adopting new technology is just as important as traditional accounting skills to succeed as an accountant today.

AI is also the top priority for new technology investments, according to accounting firm leaders. However, there are three main concerns hindering full-scale AI adoption: security, accuracy, and cost.

“Firms are primarily concerned that effective data and security safeguards are in place,” Callahan said. “However, when implementing new technology, accountants must always do stringent checks to make sure the inputs of the process are valid, and the outputs are accurate. Of course, there will always be concerns about how the service will be priced and rolled out in the cost, especially as more experiences become automated.”

To address these challenges, the broader accounting community can collaborate with clients to drive change through AI. Since the pandemic, there has been a vertical leap in the demand for accounting services among small and mid-market businesses.

“Back in the dark days of COVID, the government offered assistance to ensure businesses didn’t go under due to staffing shortages,” Callahan said. “There was the Employee Retention Credit and other initiatives that were implemented. The sophistication level of the questions went way up because firms had to report to government entities, and client needs dramatically increased. Now, with inflation and rising interest rates, the questions are getting more sophisticated again.”

Accountants have adopted AI to address the growing needs of their clients, from data entry and processing to fraud prevention. AI excels in identifying irregularities in data and providing real-time financial insights.

On the firm side, accounting leaders are increasingly deploying AI in their operations—roughly 65% of firms in the study reported using AI to manage client portfolios and client communications.

One reason accounting firms have deployed technology is to enhance efficiency and accuracy amid staffing shortages. Over the past few years, there has been a significant talent gap in the accounting industry due to a decrease in qualified graduates. While AI can help address some of these challenges, an optimized technology platform can also assist firms in attracting and retaining talent.

“Education and skills development can help a firm win the battle for talent, especially as more digital natives enter the workforce,” Callahan said. “A firm’s culture can be a strategic differentiator for attracting candidates, particularly non-traditional prospects, because there are fewer CPA-credentialed graduates. A robust training program that incorporates AI, coupled with positive culture, helps a firm retain its talent as well.”

Concerns that AI might someday replace accounting firms seems to be unfounded. While accountants will increasingly integrate AI into their operations with growing sophistication, AI will always serve to augment rather than replace human expertise.

However, the growing complexity of accounting platforms might cause apprehension among CEOs and business owners seeking the right partner for their organization. Fortunately, there are platforms that provide non-financial professionals with valuable insights into their company’s financial operations, which can be instrumental to a company’s success.

“Our mission is to see businesses be successful,” Callahan said. “We’re doing everything we can to make the QuickBooks platform a single place where business owners can manage their finances. It’s built to be an integrated, AI-driven end-to-end experience. Our platform is designed to provide both the data insights accountants can leverage to help their clients, and tools their clients can use to help themselves.”

When the topic is prepaid cards, the store-branded or general-purpose gift cards at grocery stores and retailers might come to mind. However, a substantial number of businesses and organizations continually use prepaid cards for a range of cases, including employee incentives and customer rebates.

In a recent PaymentsJournal podcast, Sheryl Shewman, Vice President of Business Development at U.S. Bank, and Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research, discussed the types of incentive programs and how organizations can leverage them to maximize employee engagement.

More companies are offering some form of reward or incentive program. The reasons could be to improve productivity, increase engagement, or retain employees. A company might give a team member a prepaid card to recognize years of service or to show appreciation for hard work. Many organizations also give employees gift cards around the holidays.

Many businesses are increasingly giving employees health-and-wellness-oriented prepaid cards. Healthier employees are happier and more productive, and a prepaid card shows them that the employer cares about their well-being.

Even little incentives go a long way with a team. According to Hirschfield, Javelin’s data shows that roughly 83% of prepaid card recipients say an incentive increases their satisfaction with their employer.

“Over the years, rewards and incentive programs have gone from a nice-to-have to a must-have,” Shewman said. “Prepaid cards are now an integral part of those programs, but organizations are using them for many different functions. They’re being used for payroll cards, for expenses, and even for government disbursements.”

Companies are also increasingly using prepaid cards to drive sales in lieu of monetary rewards. Sales professionals are competitive by nature, and sales performance incentive funds are a great way to fuel their competitive fire.

A business could give a prepaid card as a reward for salespeople who achieve their objectives, such as when they meet their monthly quota or sell a specific product. A reward could also be given to the salesperson who cross-sells more products and services.

“Whether a company offers an incentive for perfect attendance or a sales accomplishment, there is still plenty of room to improve organizational rewards programs,” Hirschfield said. “According to Javelin’s annual prepaid survey, only 17% of all employees say they get any type of employee incentive. That’s a missed opportunity to establish a program that can benefit both employees and the organization.”

Manufacturers and dealers often give prepaid reward cards to build brand awareness and add value to their products and services. These incentives are best given as a reloadable card so the same customer can receive multiple incentives and loyalty can be built.

“At a tire store, there are multiple brands to choose from,” Shewman said. “So a tire manufacturer might give the store’s salespeople an incentive to promote their brand over another. Or it could be that the manufacturer is discontinuing a tire or launching a new product, so they offer a prepaid card to incentivize those purchases.”

Manufacturers and dealers might also offer a prepaid card as a rebate, as reimbursement for a product return, or as a reward for participating in a survey.

Although there are many reasons for companies to give prepaid cards, organizations should also consider the type of card they are giving. In a small local company, the manager might want to personally deliver the reward to employees. Remote organizations, on the other hand, will have to rely on digital prepaid cards.

Rewarding employees with physical prepaid cards that can be digitized gives recipients the best of both worlds. They can use their cards in-store or load them into their Apple or Google wallets, where it can be reloadable.

Recipients also prefer open-loop cards like the Visa or MasterCard prepaid cards that can be used anywhere, as opposed to closed-loop options like branded gift cards.

“They want to use their reward for a special treat,” Hirschfield said. “They don’t want to use their incentive to pay a bill. In addition, organizations shouldn’t force employees into a gift card that doesn’t match their needs. Coffee shop cards are popular, especially when giving in lower denominations. However, only half of adults drink coffee daily, so that coffee gift card won’t exactly delight them, whereas a general-purpose card likely would.”

In many businesses, managers still go to their local grocery store or retailer to buy the prepaid cards they give as incentives. That takes time and can also be more expensive—many gift cards, especially general-purpose gift cards, require a small activation fee.

There are also fraud risks. Gift card fraud is infrequent, but there is a risk that criminals might have tampered with in-store prepaid cards. There is also a chance that card-buying employees defraud their organizations by buying extra cards for themselves. Even if they are trustworthy, there is the possibility that the cards are lost or stolen after the purchase.

Purchasing rewards cards from a bank or a financial institution can mitigate those issues and add significant value for organizations.

“Financial institutions will often conduct a performance assessment to understand the rewards and incentives program at a company,” Shewman said. “That means asking how a company will use the cards and why, and who will be on the receiving end. It’s a great way to ensure that an organization has the most cost-effective and optimized program.”

Buying from a bank is typically less expensive than buying prepaid cards from a retailer. If a card is lost or stolen, it can be deactivated and replaced. Financial institutions can also deliver cards that have a company logo on them, creating a customized solution that keeps the brand top of mind.

“When managers go out to Walmart or a grocery store and buy cards off the rack, there is no way for payroll and auditing departments to report which manager got what cards from where, and who received them,” Shewman said. “When companies order cards from a financial institution, they can track and manage spending in real time. A bank can also provide detailed reporting if an organization needs to run any 1099s.”

Financial institutions can also do instant issues, in which an organization gets physical cards that have no funds on them. The business doesn’t load the prepaid cards until it is about to deliver the cards to the recipients, which adds an extra layer of security.

An optimized reward and incentive program can keep employees engaged and maximize an organization’s productivity. The key to creating an effective incentive system is to keep the recipient in mind when the program is developed.

Companies should give themselves a variety of options to make sure they deliver maximum satisfaction to employees. However, they should also be sure that the incentive doesn’t become an expectation.

“One of my favorite stories is about a uniform company,” Shewman said. “Wire hangers are expensive, and drivers were given an incentive to pick up wire hangers after they dropped off new and cleaned uniforms. Originally, the uniform company added the incentive directly to the driver’s paycheck, but after a while, the drivers stopped picking up hangers.

“It turned out that the incentive had become part of the drivers’ compensation, and they came to expect it. Once the reward was delivered on a reloadable prepaid card, it became a true incentive for their drivers.”

As of March 10, 2025, ISO 20022 will become the messaging standard for financial services in the United States. Yet adoption continues to be slow among large and small banks, with only about a quarter of American banks already using the new protocol. As some have put it, it’s like waiting until the last minute to do your Christmas shopping.

Are financial institutions ready for this conversion? In a recent Payments Journal podcast, Laura Sullivan, Senior Product Manager at Form3, spoke with James Wester, Co-Head of Payments at Javelin Strategy & Research, about the challenges and benefits banks are facing. The upshot: It’s up to the banks to determine how they can best take advantage of the new protocol.

The anecdotal evidence is that many U.S. financial institutions are ready for ISO 20022. The roughly 7,000 banks that already use Fedwire should be prepared. CHIPS (Clearing House Interbank System) migrated to ISO 20022 in April 2023, so the 30 or so banks using that protocol should be ready, That still leaves a significant number of banks that have work to do.

One thing that will move the process forward significantly is some sort of “killer app” that will significantly benefit customers while also making use of ISO 200022. “I was on a call today with some experts who were saying that customers need to drive banks to develop products for them, and I think that’s a tall order,” Sullivan said. ”Maybe the problem is payments aren’t sexy enough. Maybe the young people who are out creating killer apps don’t find payments interesting and don’t want to create these kinds of apps and delve into the minutiae of ISO 20022.”

Many industry people have been waiting for customers to indicate what kind of use cases would get them more excited about ISO 20022. But more realistically, it is incumbent on banks and fintechs to come up with these solutions.

There are two versions of successful integrations to ISO 20022. The first step is, can you continue to send and receive messages? Many of the organizations that can say yes to that may think they have completed adoption, but they may still be a long way from utilizing the format to its fullest capability.

Adopting the new standard can be the first step toward payment modernization. Many of the systems that support wire transfer today are fairly long in the tooth and not capable of running on the most modern platforms. Some organizations have done the minimum and patched their existing systems to make the ISO conversion. By building on that small step, they can devote more resources to modernizing and ultimately break down some of the silos that exist today in payment processing. 

For example, API options work for a wide variety of platforms. “Rather than having discrete operations areas, discrete exception handling, and discrete interfaces to all of your back-office systems, you can leverage a product like the API we offer at Form3 that will work for all of those platforms,” Sullivan said. “It’s agnostic to the particular platform. Then we can help you route the payment to a particular rail based on the characteristics.”

Organizations can further sharpen their efforts by asking if the bank is the receiving institution on FedNow or the RTP network. Then they can utilize more customer-focused metrics to better gauge how they want the payment to flow. 

One area where ISO 20022 can present immediate benefits is for customers receiving data from multiple banks. ISO standardizes that process so the institutions aren’t getting a different format for their data from every bank. They will receive and be able to understand the ISO format without having to develop specific code for it.

“Imagine the efficiency gains there,” Wester said. “The corporation no longer has those resources dedicated to just doing stuff like ingesting data from their financial institutions. Those resources and the cost associated can now run their business instead of having to pay attention to data file formats.” 

Many banks have seen their false positive rates on sanctions scanning increase, because they are including additional address data. But as senders move to truly structured addresses, the data will be in specific places, which should be able to vastly improve the checks on sanctions. 

Example: If a payment was going to Cuba, Kansas, in the United States, under older protocols that would be all in one line of address. And it would be stopped by a sanctions check on the lookout for “Cuba.” But now, people can tell their sanctions system not to halt the payment if Cuba is in the city line. Those are the kinds of areas where ISO 20022 can really help banks improve their sanction scanning on the customer side and avoid such mistakes and slowdowns. 
 
A simpler example is that there are many implementations by which the creditor on a payment is not the final beneficiary. That has always been a problem, because that data got inserted into some sort of “details of payment” field. This could even help the customers improve their relationships with their counterparties by exchanging this data. 

Whatever the impetus for adopting ISO 20022, it’s important to move away from the idea that customers are going to somehow drive product development t. The fact of the matter is that payers and payees don’t really care about such details. They’re never going to come up with a use for a messaging standard to create a new product or demand a new product. ISO 2022 is about making sure that we are all speaking the same language.

For a while, the prevailing idea was that there could be a gradual transition to ISO 20022, which led to a lot of wait-and-see approaches. Many participants were happy to let the first movers go in and see what the reaction was.

By this point, that luxury is gone. The next step will involve actually using the data that will be included with these payments. The true winners in the ISO 20022 revolution will be those that can make the best use of all that data. “Start thinking about how you can leverage this new data to monetize the data and provide it to your customers,” Sullivan said. “ISO is not going to make you money in and of itself, because you have to continue receiving the payments. But never stop asking yourself: What are those killer apps?”

Banks allocate significant resources to fighting fraud, both in prevention and in maintaining reserves for potential losses. No matter how good the performance is, fraud losses remain a burden on their balance sheets.

Instnt, under the leadership of CEO and founder Sunil Madhu, has been at the forefront of developing innovative ways to combat bank fraud. Madhu recently sat down with Tracy Kitten, Director of Fraud and Security at Javelin Strategy & Research, in a recent PaymentsJournal podcast to talk about the kind of fraud he’s seeing now, and what banks can do to stop it.

Banks have traditionally had to address various types of fraud in different areas of their operations. For example, first-party and stolen ID fraud are common in lending, while checking and savings accounts are vulnerable to fake ID fraud. Credit cards face challenges with e-commerce fraud, and the bank itself may encounter ACH and chargeback reversal fraud. 

To fight this, each line of business puts together its own toolbox pattern. To stop the fraud risk while keeping compliant, each line of business assembles half a dozen vendor tools and data providers from the industry, which they then implement in an orchestration waterfall. 

Regardless of how good each of those tools are, the overall toolbox performance is generally very poor. Banks constantly have to retool that toolbox to keep abreast of the different types of fraud. This is how the businesses have been operating for a very long time—in their own operational silos. 

Too many financial institutions have come to see fraud as just part of doing business. 

“But it’s not just about the fraud loss,” Kitten said. “It’s also about are you funding a terrorist organization? Is there something else behind some of these transactions that you as a financial services entity should be doing the due diligence on?  It’s not going to be long, whether it’s in the decision or the Court of public decision or something legislative that comes down before financial institutions are going to be held accountable.”

Fraudsters are increasingly leveraging automation to expand their reach and impact. For instance, a scammer might use a collection of stolen or fake IDs to target numerous businesses, hoping to breach the security of at least one or two. 

The financial industry is particularly susceptible to synthetic ID fraud, where fraudsters use fake IDs to open up new accounts and evade detection. In cases of third-party fraud, perpetrators can easily purchase identities of legitimate taxpayers online for minimal cost, bypassing a financial institution’s verification processes. 

Within the lending industry, first-party fraud or credit defaults are significant concerns. Compliance regulations like Basel III require financial institutions maintain capital reserves to offset losses from first-party fraud. The requirement ties up capital that could otherwise be deployed for productive purposes within the institution. 

“This is very expensive and inefficient use of resources of the institution, and we’re not talking, but small change here,” said Madhu. “We’re talking about hundreds of million or even billions of dollars in terms of first-party fraud loss. If you add the cost of compliance on the back of that, it’s really a terrible cost in terms of not only expenses, but resources allocated in tools they have to acquire and manage.”

The traditional way to stop first-party fraud involves approving the individual for the loan and then monitoring whether they make the initial payment. Typically, a fraudster will fail to make any payments, especially the first one, as they intend to abscond with the money. In contrast, a legitimate borrower would have initiated payment attempts. This type of fraud is commonly referred to as no-pay fraud.

According to the Federal Reserve, no-pay first-party fraud takes 10% to 25% of every dollar receivable for consumer loans, which is a significant amount of money. 

“It’s a type of fraud that cannot be reduced to zero because it’s committed by real people,” said Madhu. “But what we can do is use insurance to reshape the loss curve.”

Fraud loss insurance can not only offset these losses but also prevent businesses from incurring losses in the first place. Rather than having capital set aside for a rainy day, the CFO can convert those reserves into working capital for their businesses. By instilling trust in a customer who has already been onboarded and approved, insurance also increases the top-line revenue for the business. They can say yes to customers who otherwise might have been rejected because their existing risk system couldn’t accommodate a millennial or a thin-file individual.

As Madhu explains, the actual balance sheet risk is held by a separate entity, one of the world’s largest insurance companies. They write the policies and handle the management of the claims payments through instant Insurance agency.

“They’ve managed to create a unique and exclusive partnership with our company because the fraud prevention technology we’ve created allows us to be able to uniquely shift the losses,” Madhu said. “It’s an entirely different type of risk here, given that we’re talking about businesses onboarding new customers, creating new accounts, running transactions through the system, accessing additional products and services through upsells. It is different from liability risk insurance, which businesses hold in terms of handling personal information of customers, privacy, regulation compliance and data breach threats. It’s an entirely new way of dealing with the threat.”

The ATM industry has undergone a dynamic shift that has taken automated teller machines far beyond cash dispensation. As the number of bank branches has declined, both banks and consumers expect ATMs to provide a wide array of services that were once only offered at a teller’s counter.

In response to the increased demand for ATM services, financial services company NCR recently split into two separate entities—NCR Atleos and NCR Voyix—with NCR Atleos overseeing the company’s substantial ATM ecosystem. Shortly thereafter, NCR Atleos reached an agreement with BHMI to resell the Concourse Financial Software Suite® as part of its software portfolio.

In a recent PaymentsJournal podcast, Robert Johnston, Product Marketing Director at NCR Atleos, Casey Scheer, Director of Marketing at BHMI, and Elisa Tavilla, Director of Debit at Javelin Strategy & Research, discussed the NCR Atleos/BHMI partnership and its impact on a shifting ATM landscape.

In addition to the services of a brick-and-mortar bank, consumers increasingly expect ATMs to mirror the functionality of the digital banking environment. Some banks have reached the point where they can replicate their entire mobile banking experience on their ATMs.

“Even as payment and banking behaviors have shifted, ATMs have stayed relevant,” Tavilla said. “About three-quarters of respondents in Javelin’s annual North American Payments Insights Survey said that ease of finding and accessing an ATM significantly affects their satisfaction with their bank.”

Meeting these rising expectations is easier said than done—it requires creating connectivity to systems beyond conventional ATM rails. For example, to give consumers access to all their accounts, the ATM must connect to a bank’s core banking system.

Platforms like Authentic from NCR Atleos can serve as the hub that connects core banking systems, other services within the bank, and even third-party services provided by companies like fintechs.

Authentic is part of NCR Atleos’ ATM Management Platform (AMP) which offers a cloud-based suite of ATM management modules that includes the entire software stack required to operate an ATM. This includes the customer-facing application within the ATM, as well as cash management, device management, and security management software.

A cloud-based solution, Authentic gives banks a high-performance transaction processing and payment settlement solution that’s scalable. It’s also agile, with productivity tools which allow for rapid adoption of new services and products.

“Many of the traditional companies used to embed an ATM terminal handler within their product and now they’re stepping back from that,” Johnston said. “The Authentic platform provides one that’s not just a replacement; it’s a completely new level of technology for that function. We’ve also launched a new card management system based on Authentic that gets us closer to an end-to-end processing environment.”

The functionality of a platform like Authentic is substantially enhanced when paired with a back office processing software solution like BHMI’s Concourse Financial Software Suite. In this model, once a transaction is authorized by a consumer, it flows into Authentic for authorization.

Once authorized, the transaction is immediately loaded into the Concourse transaction repository, along with any corresponding data from card networks like Visa and Mastercard. Concourse operates on a continuous-processing architecture, so it begins processing as soon as this data arrives in the system.

This includes automatic reconciliation of transactions from disparate data sources, the assessment of fees and commissions based on transaction data, and the creation of settlement distributions and funds movement instructions. Additionally, it manages the entire workflow for chargebacks and disputes. 

To give an example, when a customer makes a withdrawal from an ATM, the transaction is authorized by Authentic within seconds. By the time the customer walks away from the ATM, Concourse has already loaded the data from Authentic and determined the settlement impact of the transaction.

Concourse identifies which businesses are to be debited and credited, along with the amounts to be settled for each. It then determines which settlement account and distribution should be used and it creates the funds movement instructions.

“The continuous processing in Concourse is a huge advantage for financial services companies because it ensures they meet the strict service-level agreements and reporting requirements they have with their clients,” Scheer said. “It also gives companies a much-needed real-time view of their transaction data, so they can see the effects on their financial position within seconds of a transaction being authorized.”

In addition, the platform has a configurable rules engine, which gives organizations the ability to make alterations within the system without ever modifying code. That could include altering equivalency checks for reconciliation, changing a settlement distribution, adding a new fee, or modifying the workflow for managing disputes.

Increasingly sophisticated technology solutions in the field have had a dramatic impact on the ATM industry. NCR Atleos has evolved to address three main segments: self-service ATMs, ATM-as-a-service, and retail ATM networks.

The self-service segment includes the  ATM hardware and the range of software services that support it. While ATM hardware might mostly look the same, it is changing, with an increasing uptake of cash recycling technology. Meanwhile, the  software side has not only become more sophisticated, but it has also shifted to a subscription and SaaS (Software as a Service) model.

ATM-as-a-service is a relatively new concept, but as the demands on financial institutions have increased, more banks are adopting it. It allows them to focus on their core activities while leaving their ATM estate to be run by a trusted partner.

“Many banks have partners that run their entire ATM fleet for them, and the stability and predictability of the reoccurring revenue model suits them,” Johnston said. “They like the pace at which new updates and products can be deployed, which wasn’t possible under the traditional capital purchase and perpetual license models.”

The NCR Atleos retail ATM networks are a powerful differentiator, especially for smaller banks and credit unions. After signing up with a network, a bank that previously had a regional chain of ATMs can now have national reach.

As the ATM industry moves forward, there will be an increasing need for solutions that can deliver the experience that financial institutions and customers demand. One of the biggest issues with current technology is that many front-end authorization systems hit a processing bottleneck in the back office, because most back office systems are batch-oriented and require code revisions when changes are needed.

“That’s not the case with Authentic and Concourse. Concourse’s continuous-processing and rules-based architecture can even keep up with a high-throughput platform like Authentic,” Scheer said. “In a nutshell, combining Concourse with Authentic means that financial institutions can get an integrated, end-to-end payment processing solution.”  

With no relief from inflation in sight, consumers are bracing for an expensive holiday shopping season, especially with only 27 days between Thanksgiving and Christmas this year.

To stretch their budgets, consumers will leverage every available method, and merchants’ loyalty programs can save customers money while strengthening brand relationships. However, another key pillar of a merchant’s successful holiday strategy is its gift card program.

In a recent PaymentsJournal podcast, Tom Niedbalski, Vice President, Global Sales and Partnerships at Fiserv, and Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research, discussed the convergence of gift cards, loyalty programs, and technology—and the opportunities this creates for merchants in the upcoming holiday season.

Tighter budgets have driven consumers to shop earlier and spread out their purchases, a trend that retailers have encouraged with events like Prime Day. Consumers are also expected to take advantage of upcoming events like Black Friday and Cyber Monday.

Loyalty programs greatly influence where consumers shop during the holidays, as savvy customers use them to bolster their holiday spending. That’s why major retailers like Target, Walmart, and Amazon continuously drive engagement with their loyalty programs; it directly encourages consumers to participate in sales and promotions.

Gift cards should also be integrated into a merchant’s loyalty program. For example, a customer might receive a gift card for spending a certain amount or redeeming a specific number of reward points. However, a merchant’s gift card program takes on added importance during the holiday season.

“Gift cards have become the most popular gift,” Hirschfield said. “Roughly 63% of consumers say they will buy a gift card this holiday season, and 16% expect to spend more than last year. A loyalty program that is tied in with gift cards not only helps buyers purchase the items they need, but it’s also an inducement to purchase gift cards for others during the holiday season and beyond.”

Brands need to meet customers where they shop and pay, so merchants must invest significant time ensuring their mobile experience includes payments, loyalty, and gift cards in an omnichannel wallet.

“The digital experience not only allows the brand to interact with its consumers, but consumers can see the value of interacting with the brand,” Niedbalski said. “For years, I’ve been saying that stored value is the vehicle that drives transactions out of interactions and interactions out of transactions. It’s a two-way street.”

A digital wallet can also serve as the platform for merchants to offer innovative loyalty programs, such as product-specific promotions. For instance, if a customer buys a particular product, they might receive a gift card from the manufacturer to buy related accessories.

Another growing trend is self-use, and consumers who use gift cards for themselves are heavily influenced by loyalty programs.

“It creates a cycle of promotions, and it all links back to the phone,” Hirschfield said. “The mobile phone holds a customer’s stored value account and their payment methods. The physical gift card is still the top seller, but nearly a third of consumers will redeem a gift card in a mobile app. That number is only going to grow.”

Gift card personalization is a powerful way to connect with different demographics. With many faiths celebrating during the holidays, it’s important for merchants to cater to the diversity of their customer base.

Some brands have started offering print-on-demand gift cards. In the past decade, there has been a shift from traditional Christmas cards to postcards featuring personal images. This same concept is now applied to gift cards, allowing consumers to upload a family photo and include it with their gift.

“It connects with consumers, and these designs jump off the shelves, or the pegs, if you will,” Niedbalski said. “With e-commerce, there are a substantial amount of personalization options that give the gift a life of its own. Senders can include a written personal message, or they can send a voice message for friends and family in different areas.”

While personalization is a powerful tool, merchants should be cautious not to ask for too much personal data. Over half of consumers have distanced themselves from brands that request excessive information or send too many notifications.

“By nature, gift cards are incredibly private for the recipient—they can choose to utilize the card’s value without disclosing any personal information,” Hirschfield said. “That’s where merchants must strike a balance. They need to capture some customer data, but they don’t want to push too hard.”

With a wide range of products and services available in-store, many merchants can often struggle to boost gift card visibility. However, as the holiday season nears, in-store gift card displays can be highly effective. Equally important is catering to online shoppers—gift cards should be prominently featured in website banners, included in customer email campaigns, and promoted across social media channels.

Merchants should also ensure proper in-store placement and signage for gift cards, and maintain sufficient inventory to compensate for stockouts on other merchandise. Gift card displays don’t have to be limited to the point of purchase; there’s a growing trend of retailers offering themed gift cards in each department.

“Imagine a sporting goods store, and in the golf section you have golf-themed gift cards, and in the athletic shoe section you have shoe-themed gift cards,” Niedbalski said. “You’re giving the consumer multiple points of purchase. Maybe they can’t find the item they want, but instead of leaving the store, they purchase a gift card.”

Improving gift card visibility can also mitigate fraud and theft. Criminals often take gift cards off the rack, steal their data, and return them. If cards are in an unmonitored location, it creates risk for both consumers and merchants.

“This is a perfect time of year for merchants to retrain their staffs, especially if they are hiring temporary help,” Niedbalski said. “Employees should know how to spot suspicious behavior and check gift card packaging for tampering, even at the point of sale. Fraud is a threat in the gift card marketplace, but oftentimes it can be avoided if a merchant’s staff knows what to look for.”

Persistent inflation and the shortened holiday season make it critical for merchants to develop a holiday strategy now. That means establishing early holiday promotions and marketing them through appropriate channels.

“The key for all merchants is to create a plan early and execute it flawlessly,” Niedbalski said. “By running deeper promotions with longer promotional windows, it will not only encourage consumers to purchase gift cards for the financial benefits, but it’s also going to drive consumer loyalty. That will help merchants both retain existing customers and acquire new customers for their brand.”

Access to emergency funds provides peace of mind, especially when many people find themselves scrambling to cover expenses. Given the needs of younger consumers, liquidity and cash flow issues are becoming increasingly important for financial institutions to address.  

Changing regulations offer financial institutions an opportunity to rethink how they are meeting these customer needs through offerings like overdraft protection and small-dollar lending. In a recent PaymentsJournal podcast, Jeff Burton, Vice President and General Manager at Fiserv, spoke with Brian Riley, Co-Head of Payments at Javelin Strategy & Research, about liquidity products that can keep these customers in the fold.

In the past two years, just over half of consumers have needed access to short-term emergency funds to pay their bills. While lower-income consumers are more likely to need funds, nearly half those earning between $100,000 and $149,000 have also needed short-term emergency funds. It’s not a question of wealth, but of available cash flow.

For customers who maintain deposit relationships with financial institutions, liquidity is a key driver of success. Half of all deposit customers will need liquidity assistance at some point.

 “Loyalty can be earned by how organizations bring these liquidity products to market,” Burton said. “Alternatives are good, options are good, but the key is addressing the client need.” 

Consumers can’t necessarily predict if or when they’ll have a liquidity crunch. When a crisis arises, they want certainty in resolving the issue, to address the problem immediately, and assurance it won’t hurt them long-term. Having a suite of easily accessible solutions can provide peace of mind to customers choosing among institutions with otherwise similar product offerings.  

Remember, cash flow is not necessarily linked directly to a customer’s net worth. While products addressing short-term cash flow needs can particularly appeal to younger or less wealthy customers, they offer real value across all generations and customer segments. 

“Being able to get them through that without a long-term commitment on a credit card debt or a personal loan forms a good bridge with the customer that will have a lasting relationship,” said Riley. 

More than a third of account holders had an overdraft in their primary checking account in the past year. Among Gen Z, that number rises to more than half. These customers are precisely the ones institutions need to engage to grow deposits over the long term. To capitalize on this segment, many banks are offering smart alternatives to overdraft protection, providing value beyond replacing revenue from overdraft fees. 

“There’s a lot on the table right now relative to pending overdraft regulation, specifically for the large institutions,” said Burton. “They’ve cut back on the amount of items that they can charge for on a daily basis. Programs like fee forgiveness give clients a specific period of time where they can effectively cover the overdraft. Those types of changes were all positive for the industry, but what the additional regulation will do is unclear. If they move forward with the benchmark fees being proposed, organizations would likely constrict the amount of credit they make available through the overdraft program.”

With about 30% of customers leveraging overdraft service, demand is not going away. It’s important for alternatives to exist within the bank’s framework, not just outside it.

Some clients needing overdraft protection don’t repay by choice, while others don’t repay out of necessity. By offering alternatives, banks can address both segments. Clients trying to protect their income can manage fees accordingly. For those struggling with their budget, an extended repayment period provides additional time. This transparency allows consumers to opt in and choose when to use the product. 

Small-dollar lending programs began in the ‘90s with the belief that clients who didn’t qualify for traditional lines of credit could benefit from smaller lines. Most clients needing liquidity typically require under $1,000. Small-dollar lending programs serve these clients by offering flexible repayment options, a critical concern for consumers who frequently feel strapped for cash.  

The lack of exposure to these products represents an opportunity for financial institutions to provide an effective solution that many customers are unaware exists. Those who have used these programs tend to use them frequently and enthusiastically. Nearly half of those who have used a small-dollar lending program say it was better than any other similar option they’ve tried.  

Four in 10 consumers say they would use a small-dollar lending program at least yearly, including 30% of Gen Z consumers. These programs could also be an attractive tool for deposit growth, as 44% say a small-dollar lending program would lead them to consider switching financial institutions. 

For lending thresholds of $500 to $1,000, most organizations will not want to spend much time underwriting these loans. So the process has to be highly automated.

“There’s an axiom in banking that says it cost as much to make a $5,000 loan as it does to make a $500 loan,” said Riley. “Engineering that efficiency is essential.”

The flip side is small dollar collections. Integrating a program like this into a traditional credit collection process can be overkill, so many organizations have chosen to simplify that process as well. If the client is delinquent or missing payments, they’ll issue a notification advising their intent to perfect their right to offset. This way, they can manage all of these small data losses through the traditional deposit collection process.

A well-constructed suite of liquidity products can help customers of all types, improving the banking experience, driving engagement and loyalty, and supporting deposit growth. However, these products must be tailored to a specific institution’s customer needs. Third-party vendors with extensive knowledge of proven solutions can help ensure financial institutions implement the right set of products to build a better future alongside their customers.  

In combination, small-dollar lending programs and solutions reduce the conditions that cause overdrafts and give financial institutions tools to fill a potential void in a new overdraft environment. They also give institutions a way to offer depositors more flexibility than the competition, keeping customers better engaged over the long term as they build their wealth.  

The upcoming conversion to ISO 20022 presents both challenges and opportunities for banks. It allows them to drive potential efficiencies by redesigning operational processes around Swift messaging. However, there is also the challenge of data ingestion; banks will need to ensure every tech platform in their stack, particularly reconciliation and reporting tools, can effectively handle ISO 20022 messaging.

In a recent PaymentsJournal podcast, Nick Botha, Payments Sector Lead at AutoRek, and Brian Riley, Co-Head of Payments at Javelin Strategy & Research, explored where things stand with ISO 20022 conversion, and how workarounds may cause banks more problems than they solve.

ISO 20022 introduces a single standard approach to facilitate communication interoperability between financial institutions, their market infrastructures, and their end users. The deadline for both corporate bodies and financial institutions to prepare their systems is November 2025. 

As the adoption date approaches, banks are relying on Swift’s expertise and resources to ensure the transparency and validity of their transactions. Swift is preparing to introduce a messaging system with comprehensive data insights for many of the 11,000 participating firms. The goal is to create standardization across the market as the transition to a more centralized payments economy unfolds globally. 

ISO 20022 messaging is designed to provide  detailed information on recipients and participants in any payment. It aims to manage data processes and analysis more effectively, potentially reducing some of the cost associated with payments, allowing firms to achieve economies of scale. However, these economies of scale can sometimes be illusory. 

Organizations are currently in a transitional period where many have adopted the ISO 20022 standards, but others are lagging behind. Migrating systems can be costly, and not all organizations have the resources and funds available to make the switch immediately. During this period, conflicts may arise in messaging when advanced firms transact with those that are still catching up, leading to some friction. 

Significant resources will need to be allocated to this project to ensure interoperability not only with counterparts in the wider economy but also in within the organizations’ tech stack and IT communication systems. The move to ISO 20022 is already somewhat overdue, but for companies that have yet to make the switch, it’s not too late. 

 “A lot of workshopping has been happening across different geographies globally within the Swift network,” said Botha. “If you haven’t done it yet, understand how it will apply to the strategic direction of cross-border payments for your business, especially if you are in the Swift network. If you’re not in that network, it’s still worth adopting the principles behind how this can work, because those 11,000 institutions are working with another 50,000 or 100,000 institutions that aren’t a part of that network too.”

As banks and other financial institutions strive to keep operational costs down, they encounter a paradox. In the payments space, increasing transactional volume is typically seen as a path to profitability. But, producing additional volume comes with its own costs, such as expanding infrastructure, providing internal support, and implementing fraud reconciliation software.

The cost of adding transactional volume increases alongside the revenues generated by those transactions. Typically, the margins per transaction don’t increase over time. 

“We’ve had some clients speak to us about how there’s actually a diseconomy of scale at some point,” said Botha. “We’ve seen some firms stop acquiring new clients because they’ve hit that point.” 

The best way to counteract this effect is by creating operational efficiencies and reducing the operational cost per transaction on a daily basis. As margins per transaction  increase, the company can gain more revenue from processing additional volume. This leads to benefiting from economies of scale.

 “Do you really want to be the one who tells your boss you have to slow down volumes because you lose more each transaction?” said Riley. “That doesn’t seem to be something that would work well towards your bonus. This is real-time stuff that needs to get done in very short order.”

If a company is handling a CSV file with a single line of data containing 10 to 15 fields, this task could probably be managed manually by one person. However, large companies deal with millions of transactional records and significant amounts of data that require automation. In such cases, a partner can be exceedingly valuable. They can manage not just payments data but automate the entire process. 

“We save our clients a lot of time in their daily process of just handling the data,” said Botha. “When it comes to ISO 20O22, the major benefit is the reconciliation piece. The reporting aspect has been validated and reconciled.

 “That’s where AutoRek fits—not just in the banking space but in the payment space, insurance space, and even the asset management space,” said Botha. “We are joining them on the journey of transitioning into ISO 20022 messaging. This is the global one-world economy of payments that we’re looking to move toward.” 

Open banking has come to encompass so much that it can be hard to define. At its heart, open banking is about opening consumer financial data—once the sole domain of banks—to third-party service providers that manage the data using APIs.

In a recent PaymentsJournal podcast, Vladimir Jovanovic, VP of Innovation at Velera, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed open banking’s evolving regulatory framework, its benefits for banks and credit unions, and its accelerating adoption in the United States.

Most consumers don’t understand the infrastructure or the technological innovations driving open banking, but they are fully aware of its benefits.

“They understand it in terms of access to third-party services, streamlined onboarding processes, and embedded finance and payments,” Wester said. “They may not know the umbrella term, but they have adopted open banking, and they’ve come to expect it. Whether they know it or not, open banking has affected the way consumers view banking and financial services.”

The days of screen scraping, a method third-party providers used to access financial data, are over. Now platforms like Plaid and MX are, in many instances, required to use structured APIs to pull consumer financial data back. Banks and other payment ecosystem participants  are joining with other providers of financial services to participate in consortiums like the Financial Data Exchange (FDX).

The members of the FDX consortium work together to standardize the APIs that enable data exchange between participants. Concerted efforts like the FDX will be a principal driver for U.S. open banking adoption in the years ahead.

In other countries, governments have mandated the creation of open banking standards. Though there are many regulatory bodies in the U.S. banking space, such as the FDIC, there isn’t likely to be a government mandate any time soon for U.S. open banking adoption.

However, the Consumer Financial Protection Bureau is emerging as the regulatory agency that could help shape open banking requirements in the financial services market.

“The CFPB is going to be heavily involved because banks and credit unions are opening up protected consumer financial data to third parties,” Jovanovic said. “The CFPB is going to scrutinize that process and make sure any approach is aligned, centralized, and regulated properly, and centered around consumer rights and protections related to financial data sharing.”

To expand that reach, the CFPB proposed Rule 1033, which addresses personal financial data rights from a consumer standpoint. Though Rule 1033 has yet to be approved, banks and credit unions might have to make significant adjustments to their data management practices, privacy policies and security practices to comply with the new regulation.

In data management, organizations will have to determine the appropriate IT infrastructure to support consumer permissioned data sharing. When consumers give a third party access to their financial data, institutions must have the infrastructure to accept and standardize data sharing across different participants.

Banks and credit unions will also have to determine which privacy policies and security practices should be in place to prevent breaches and unauthorized access.

“Open banking might give financial institutions the chance to broaden their products and services, but it presents an opportunity for fraudsters as well,” Jovanovic said. “Banks and credit unions need to understand how they can deploy the right tools and processes to ensure the consumer has consented and any emerging fraud schemes are managed effectively.”

Many banks and credit unions might be tempted to trust the technological aspects of open banking to a third-party partner. However, they must still fully understand the process because the institution is ultimately accountable for compliance.

“Oftentimes, institutions look at compliance as a box to be checked and a cost to be borne,” Wester said. “But the open banking shift is an opportunity for banks and credit unions to rethink their overarching strategy and identify new revenue drivers. It shouldn’t be an onerous task. It’s a way to become more embedded in your customers’ financial lives.”

Though the switch to open banking might be daunting, the model has been implemented successfully elsewhere. In the European Union, open banking was regulated under the Payment Services Directive (PSD), which was subsequently replaced by PSD2.

However, when PSD2 was released, key financial innovations like crypto and blockchain weren’t part of the picture. That is why PSD3 will be implemented, and it will include additional data sharing, standardized APIs, and expanded financial services.

As in the EU, any regulations instituted in the U.S. are likely to evolve to accommodate new innovations, different business models, and niches that haven’t been considered yet. However, just because the regulatory framework might shift is no reason to delay implementation.

“Other open banking ecosystems have evolved in iterations, and they will continue to evolve,” Jovanovic said. “Many banks and credit unions are concerned about open banking, the new regulations, the unfamiliar ways to share data, and about selecting the right technology solutions. But the objective should be to develop a long-term strategy and work it incrementally. It’s a marathon, not a sprint.”

Consumers want personalized experiences and services, and open banking offers ways to customize their services and get a consolidated view of their financial information across multiple institutions and providers.

More service providers are involved in the banking system than ever before, which will increase competition and create better products and services for consumers.

“The opportunity for collaboration with new financial players gives banks and credit unions a chance to reinvent the way they serve their customers,” Jovanovic said. “Consumers won’t have to open another account elsewhere, because they can obtain the products and services they need from their primary financial institution. Open banking levels the playing field and creates opportunities for community banks and credit unions to compete with their larger counterparts.”

Though the new model offers a substantial opportunity, the potential for the misuse of consumer data means any new open banking initiatives will face regulatory scrutiny.

“I would emphasize that regulation is coming,” Wester said. “Regulators care about this and they are very serious when it comes to handling consumer data. There may be polarized politics in the U.S., but all sides band together when consumers are victimized and their personal data is exposed.”

Most financial institutions enter customer relationships with the best intentions, but a few wrong moves can taint an organization’s reputation and draw regulatory attention. Third-party partners can help institutions mitigate those risks while giving banks and credit unions full visibility into the process.

Regardless of an organization’s strategy, open banking is gaining momentum. Banks and credit unions should plan accordingly to meet their cardholders’ rising expectations.

“There is still a long way to go, and we’re just scratching the surface,” Jovanovic said. “In the end, it might not matter if consumers understand open banking as a concept. Consumers are after an experience, and as long as they have the freedom to structure that experience, they are going to continue to demand open banking in the future.”