PaymentsJournal

The regulatory compliance world can be very complex, and with the rapid expansion of digital payments, it’s increasingly difficult to identify and stop fraudulent transactions from occurring.

Technological solutions continue to evolve at an equally breakneck speed. But they have failed to keep up with the rapid-fire payments made by bad actors. This forces compliance analysts to manage the barrage with outdated and inefficient tools.

Euronet’s Skylight is a financial transaction monitoring solution that identifies fraudulent and suspicious activity behavior and aims to facilitate financial services compliance investigations by automating the entire process — mitigating both regulatory and reputational risk for businesses.

“Businesses have a lake of data they need to analyze,” said Bryan Zingg, President of epay North America at Euronet. “The system uses powerful algorithms to apply rules to that data and then it creates automated alerts. So, when a compliance agent logs onto Skylight, they’re able to see different alerts. The alerts have been created based on the rules businesses set.”

In a recent PaymentsJournal podcast, Zingg and Brian Riley, Director of Credit at Mercator Advisory Group, discussed how solutions like Skylight can greatly benefit businesses and help them streamline an otherwise difficult process.

Efficiency is key for an effective regulatory compliance solution. And it helps liberate time for AML/Compliance analysts to focus their efforts on spotting illicit consumer behaviors. Skylight creates a case management workflow for compliance analysts. How this plays out is that companies can modify their specific workflows. These can be based on the stringency of their compliance obligations. Workflows can be straightforward or more complex depending on the needs of the business.

“Once the analyst has gone through the case and determined that it generated a meaningful alert that needs to be flagged as a compliance risk, the system can automate and populate the SAR [suspicious activity report] and CTR [currency transaction report], which are two different types of forms that a business will have to file with their regulator,” said Zingg. “Through an integration that we have with FinCEN — Financial Crimes Enforcement Network — an automated process sends these to the regulator.”

On another note, the managerial team can use a dashboard on the platform. The organization’s managerial team can peer into key performance metrics, trends, alerts, and case aging.

“As a Compliance Officer, if I have cases that are more than 90 days old, I can take action and assign them to the agent or dig into why an agent might not be working through those aged cases,” said Zingg. “There’s a dashboard tool that shows all these key metrics that can be used to gain visibility in to the business’ compliance program.”

When it comes to standard regulatory compliance software tools, the Compliance Officer typically needs technical support. They need either internal resources or contractors to create rules. If there is a fraud risk that hits their radar, the setting up of a rule to address that requires coding. With Skylight, there’s no code rule creation. This option exists for the Compliance Officer so that they’re free to create their own rules. Compliance officers run the rules against actual production data in test mode. They do this before they run them in production.

If there is a problem, businesses adjust the rules. They do not have to restart the process and engage technical resources.

“The benefit of no code rule creation is that if you don’t get a rule exactly correct, maybe you intend to flag 100 different transactions that might be fraudulent or risky – and you end up flagging 100,000 risky transactions and create 100,000 alerts, it’ll be overwhelming,” said Zingg. “Typically this results in the compliance analyst needing to work through all those alerts, and that would cause a massive backlog in the compliance management process.”

“With a global crisis in hand, financial institutions are focused on capital adequacy, the blood and guts of running their business,” added Riley. “Suppliers and the supply chains are disrupted. Focusing on the compliance aspect is more important than ever, as is bringing in tools that automate it.”

In conversations with clients, Zingg noted that businesses place a lot of emphasis on building a successful user interface. They do this without giving much thought to regulatory compliance. This typically happens when businesses start out with a small customer base. When the numbers reach the thousands or millions, that’s when businesses start thinking about implementing a regulatory compliance solution.

“This is providing a powerful tool in the compliance world for companies that didn’t have it,” said Zingg. “And then in other instances, some companies have had a compliance solution that covers their case management, one covers their transaction monitoring, another compliance tool handles their fraud management, and yet another one that they might use for analytics. Skylight bundles all that into one cohesive, homogeneous platform that covers all their compliance needs.”

Regardless of the type of fintech, banking or payments market a company makes its foray into, the reality is that there will be an obligation for businesses for compliance. The automation solutions Skylight offers takes the manual steps out of the process of regulatory transaction monitoring investigations.

The Middle East, specifically, has specific regulatory compliance requirements that Skylight can address. This can also be transferable to any market worldwide as more countries begin implementing their own compliance regulations.

“There’s a lot of obligations that need to be fulfilled,” said Riley. “You start thinking about inflation, even the thresholds that trigger that will start to compress.”

Most regulatory compliance businesses follow a predetermined set of rules. There are also rule templates available in which businesses can create their own rules. And there are attributes that can be designated to those rules.

“You can set a rule that says, ‘I want to know if customer A is in Mexico and customer B is in the United States,’” said Zingg. “You can even get down to a city in a country or to a zip code. It allows you to have a vast array of parameters that you can build into a rule, then you can click it and run it in trial mode so that you can run it against your own data to see what happens when that rule is applied.”

“If you’re successful, you’ll get a meaningful and reasonable amount of responses from that rule, and the alerts will show you the nefarious behavior you can detect, seek to eliminate, and potentially block through fraud mitigation,” he said.

As digital payments continue to grow, more compliance regulations will be implemented. This is to protect both consumers and businesses from data breaches and other fraud risks. Businesses must do all they can to protect themselves and their customers from bad actors.

Within the banking industry, it’s important to secure hardware as soon as you need it. This will ensure your operations continue to run at peak performance and to meet compliance requirements. Unfortunately, the procurement process has become slow and cumbersome for many financial institutions. This is due to supply chain snags, disparate systems and lack of resources to manage this necessary function.

Automating the procurement process can help banks save time and resources. Ordering all hardware through a single vendor can further simplify the acquiring process.

In a recent podcast, PaymentsJournal sat with Alex Kennedy, Director of Hardware Advantage at Fiserv, to better understand the importance of automating the procurement process.

Financial institutions require a lot of business hardware and supplies — PCs, check scanners, printers and ink cartridges — to ensure their business is functioning. Increased maintenance costs, decreased security, non-compliance and compatibility issues are just a few reasons to regularly update or upgrade hardware.

“Today the rising demand for hardware is due to changes in regulations, cybersecurity, as well as mergers and acquisitions,” said Kennedy. “In addition, the impact of the pandemic has given rise to supply chain delays from equipment manufacturers.”

Despite automation availability, many banks still procure their equipment through manual systems. According to a recent survey by Oxford Economics, 47% of banking executives reported that most, if not all, of their procurement processes are manual. Kennedy explained that this can be a problem for banks. Not all equipment is compatible. Working with different vendors can result in varied delivery schedules, especially when supply chains are already strained.

Working with a single vendor such as Hardware Advantage from Fiserv streamlines and simplifies the procurement process dramatically. This will require fewer workers at the banks. Dealing with just one vendor also means that the equipment procurement process goes quickly. And new institutions can be up and running quickly as well.

“Banks can increase efficiency and agility and reduce expense and risk to their institution while improving transparency,” Kennedy said. “It can also free up employees involved in procurement for other tasks, allowing a bank to do more with less.”

During the pandemic, sourcing hardware became more difficult for businesses, and financial institutions were no exception. But, for companies that partnered with a single large vendor like Fiserv, simplifying hardware procurement lessened the challenges.

“During the pandemic, a large client of ours needed 700 laptops to accommodate its large workforce that was forced to go remote. Normally, an initiative like this takes months of planning, but we did it in under a week,” said Kennedy. “The alternative to using Hardware Advantage was buying out all the inventory of smaller regional resellers and trying to piece together a solution — which even if it was able to be done would have caused an administrative nightmare with multiple vendors shipping multiple products. In the end, we were able to work with the client and minimize the challenge of getting the equipment they needed in a timely fashion.”

Supply chains have improved somewhat, though they’re not back to pre-pandemic levels. One commodity that is still lagging in supply is computer chips. “The ongoing computer chip shortage is making equipment that is critical to day-to-day operations difficult to get in a timely manner,” said Kennedy. “Having a partner you can trust to help you maneuver through these delays and backlogs, and help you plan ahead to ensure your deadlines are met, can help alleviate potential impacts to your business.”

Supply chain disruptions, inflation and the pandemic have increased pressures to reduce costs and to overcome obstacles in procuring hardware. Letting a single vendor take care of all of this is a good solution. It frees up bank staff for other purposes and also removes a lot of distress for senior management. Financial institutions should consider going that route for peace of mind and cost savings as well.

For most financial institutions, modernization and digital transformation are top priorities, yet many still struggle in these efforts. Many are unsure where to start and also wary of the potential risks with modernizing legacy systems. Therefore, a large number of banks and credit unions are still in the beginning or exploratory phase of digital transformation.

Yet these projects are more important than ever. Financial institutions face more competition than ever. This is not only from other financial institutions. But they face competition from fintechs and digital-only neobanks, too. This also includes consumer expectations derived from nonfinancial firms such as Amazon and Uber.

Digital transformation and modernization may seem a monumental task, but by using open architecture and taking advantage of partnerships, financial institutions can make great strides. To learn more, PaymentsJournal sat with Lance Homer, Global Head of Digital Payments and Banking Ecosystems for digital infrastructure company Equinix, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service for Mercator Advisory Group.

Ultimately, modernization projects are embarked upon to create a better bank. There are several aspects of what constitutes a “better bank,” noted Homer.

“It’s about being greener, connected, smarter, modular, distributed, and automated,” he said. “These are the things driving digital transformation across the landscape.”

All of the above are byproducts of moving out of legacy data centers and into the cloud. That includes using open application programming interfaces (APIs), breaking up the legacy tech stack, and moving toward a platform model. As one example, Homer noted that moving to the cloud and operating fewer data centers mean banks can reduce their carbon footprint and reach ESG goals quicker.

Furthermore, by adopting a platform model using open APIs to connect with best-of-breed partners, banks can offer more innovative products and services to their customers and bring them to market quickly.

“It’s difficult for banks to differentiate on the thing they used to, like interest rates,” said Homer. “It’s about operating smarter and creating a better end-user experience.”

Grotta added that modernization is a “hot topic” in banking at the moment and that “I get at least two calls per week from financial institutions thinking about embarking on some level of modernization.”

She observed that in the past few years — especially spurred on by the pace of digital adoption during the COVID-19 pandemic — many bank and credit union executives are more sensitive to how their institution is lagging when it comes to digital capabilities.

“A lot of them are not happy in the way their institution has reacted when new digital products are launched into the marketplace, and they have a tough time delivering the digital customer experience they want to be known for,” Grotta said. “They need to keep up not only with the competitor down the street, but deliver on experiences that consumers and business are finding in other places as well.”

Homer said it is hard for many institutions to know where to start when it comes to modernization projects, but the ideal place to begin is replacing the “plumbing.”

“For banks, this means positioning to move to the cloud,” he said. “Figure out which applications can move to the cloud and which can’t. Determine where your cloud on-ramps sit and where your partners connect. Then it’s easy to move workloads one at a time.”

Financial institutions should also work to separate their technology stack into its component parts; this can be difficult due to having to work through years of “spaghetti code,” but being modular will enable institutions to be more agile, Homer said.

These modernization efforts ultimately help institutions work toward a “banking-as-a-service” (BaaS) model and embrace embedded finance, Homer added.

“We are seeing this as-a-service model being adopted everywhere, across industries,” he said. BaaS “is about rethinking the digital supply chain and rethinking how a bank builds its infrastructure.”

BaaS enables a quicker time to market and the ability to identify new revenue opportunities and to distribute services at the edge. The latter point is critical especially in helping banks move into new geographies by enabling them to manage and store data in the different geographies they operate in.

A platform model is also helpful in facilitating real-time payments, which consumers and businesses are increasingly asking for.

“In the old-batch processing model, you just need to get the file sent by the cutoff time,” said Homer. “But with real-time payments, you need always-on connectivity.”

When it comes to modernization, financial institutions can’t do everything at once so finding a partner to help guide the process is critical. For example, Equinix does not operate its own public cloud, so it can be an effective neutral party in helping banks and credit unions evaluate the different cloud providers, said Homer, as well as to advise how banks and credit unions should build their new tech infrastructure.

“You need to consider the relative strengths of the various cloud providers,” he added. “Also, where do you put non-cloud apps? Not everything can go on the cloud. Some banks can have up to 3,000 apps that are not cloud-ready. They still need to talk to each other. So how do you build an infrastructure so those cloud and non-cloud apps still talk to each other as they did when they were sitting side by side on computers in your data center?”

Grotta noted that banks that are not thinking about these issues need to start doing so now or risk falling behind the curve.

“Open banking is here whether we have mandates about it or not,” she said. “If you don’t have a plan for it now, you are putting your business at risk.”

Data is the driving force behind key strategic decisions for any business. But, businesses have a tough time turning the wealth of data and insights into something actionable and tangible. How can cloud data help?

Through their partnership, Mastercard and Amazon Web Services (AWS) are equipping organizations with the most up-to-date location and spending insights. This enables those organizations to make informed and strategic business decisions.

“Mastercard has a wide reach across geographies that can provide powerful insights for businesses across industries and regions,” said Paul Chang, Principal of Payments at Amazon Web Services (AWS). “Through the Mastercard and AWS Data Exchange partnership, we can collaboratively provide meaningful insights and solutions to businesses across markets and industries to help them tackle their own unique challenges.”

“When we think about our Data & Services business at Mastercard, we focus on helping our customers make smarter decisions that result in better outcomes for everyone,” added Stuart Finkelstein, Executive Vice President at Mastercard Data & Services. “Our collaboration allows us to improve our reach with the simplicity of access and helps us drive scale by getting these powerful tools into the hands of more customers.”

Both companies delved into their partnership and why it’s so important in a recent PaymentsJournal podcast. Finkelstein, Chang, and Marco Salazar, Director of Technology and Infrastructure at Mercator Advisory Group, spoke about two offerings. These are Mastercard SpendingPulse™ and Mastercard Places. They discussed how these are critical solutions for organizations looking to stay ahead of competitors.

Through AWS Data Exchange, customers can locate, subscribe, and use third-party data to supplement their own internal data. This enhances their decision-making.

According to Chang, data subscribers expressed the need to locate and use data within the cloud. “They wanted it to be as easy as it is to shop online today so that their team can focus on producing differentiated products and spend time on value-added activities rather than discovering data, maintaining infrastructure, or managing revisions,” he said.

“As a subscriber, you can reduce time to find and source data from months to hours with minimal changes to existing operations,” Chang added. “AWS Data Exchange makes managing data subscriptions easier by consolidating contracts, billing, and payments in one place.”

Meanwhile, data providers are also seeing the benefits, particularly in reaching a broader set of customers. “A data provider can publish data simultaneously to all its customers and spend more time growing their business rather than managing the logistics,” said Chang.

Both Mastercard and AWS saw the challenges organizations face in regard to data. Many weren’t sure what to do with the trove of information they have or if it’s accurate.

“Mastercard SpendingPulse is a macroeconomic indicator of retail sales, which measures in-store and online retail sales and includes all forms of payment,” said Finkelstein. “It utilizes anonymized aggregated sales activity taken directly from the Mastercard Payments Network and is combined with survey-based estimates for other types of payments such as cash and check in order to answer key business questions for our customers.”

“For instance, customers may use this to gain a competitive perspective that allows them to understand their market share and their competitive positioning,” Finkelstein continued. “It gives them timely information that allows them to adapt and react quickly to changing sales trends. This understanding of trends opens up data-driven opportunities as they examine consumer purchasing habits and perform forecasts that help them identify and capitalize on untapped potential.”

Mastercard Places offers a comprehensive view of all merchant locations that accept Mastercard as payment both online and in-store. “Places is captured from aggregated anonymized transaction data that matches to third-party location data listings,” said Finkelstein. “Using Places, our customers can understand changes to merchants over time and what payment activities each location supports — and how the merchant landscape continues to evolve.”

With Mastercard’s immense reach worldwide — amassing a staggering amount of data — it’s sitting on a gold mine of information. This is prompting the need for ethical policies for its use.

“Payments networks have multiple touch points from both a consumer and merchant standpoint,” said Salazar. “This provides access to a rich set of data that powers and streamlines a plethora of products and experiences.”

“This has to be done with a fine balance,” he continued. “It has to be focused on ethical access and use of the data that accounts for privacy from both sides.”

“The network itself and the data that we have is tremendously important,” added Finkelstein. “Last year, Mastercard processed $7.7 trillion in gross dollar volume and processed 112 billion transactions from about 3 billion cards across 200 countries and territories. The use of all that data and the power that it brings has to be combined with our ethical practices.”

When it comes to ethical practices, the focus is on security and privacy, transparency, and control. With accountability, the solutions ensure that the individual’s interest is front and center. The result is for the data analytics to promote inclusive, comprehensive, and equitable behaviors.

“We always have integrity as we look to innovate consistently to ensure the individual benefits from the use of their data through better experiences,” said Finkelstein. “The combination of our powerful data and ethical use practices, we believe, is what makes our data so powerful in our solutions.”

Leading organizations use Mastercard SpendingPulse and Places to enhance their day-to-day decision-making. For example, a drugstore chain wanted to measure performance in markets by taking account of the effects of macroeconomic trends.  “Using SpendingPulse insights, they were able to benchmark how they performed in those particular markets compared to the industry as a whole,” said Finkelstein. “They also understood the channel spending trends.”

“They found that they underperformed in higher density areas, where the shift to online was more pronounced and in-store shopping was declining,” he added. “Taking all of this into account, they developed a deep understanding of how they performed, and completely changed their future investment strategy as a result.”

In another example, a grocer wanted to expand and open new locations. It needed to know where its competitors were located, as well as the shopping behaviors of consumers in that area. Using the Mastercard Places solution, the grocer gained an understanding of potential competitor merchants as well as their locations. They also received an indicator of their popularity among consumers.

“The grocer was able to leverage this information to pinpoint the ideal location for a new store,” said Finkelstein. “And they were able to create a road map for future growth without cannibalizing their own footprint or entering over-saturated markets.”

According to Mastercard SpendingPulse, there are three key trends to expect this holiday season. The first is that many consumers will begin their holiday shopping earlier this year. Consumers will be seeking out bargains as the cost of everyday essentials continues to grow.

Key promotional days, including Black Friday, will make a strong return this year. Also, Christmas Eve falls on a Saturday and is slated to be one of the biggest days for retailers.

Finally, in-store experiences will be in full force. More brick-and-mortar stores are offering in-store experiences to get shoppers in the door.

For more information on the Mastercard SpendingPulse and Places solutions, follow this link.

In traditional government disbursements and emergency payments, prepaid cards played a significant role in accelerating federal economic impact payments (EIP). This was particularly seen during the COVID-19 relief aid.

Prepaid cards are faster, more secure, and more cost-effective than paper checks. And they offer benefits to the recipient as well as the agency. They’re also especially useful for the unbanked and underbanked, which represent roughly 19% of U.S. households. According to the Report on the Economic Well-Being of U.S. Households, 40% of unbanked adults used an alternative financial service such as a check cashing service, a money order, or a payday loan in 2018. This is an important factor to consider when distributing funds.

In a recent podcast, Helen Brune, Senior Business Development Manager at Blackhawk Network, Tyler Gentry, Director of Payments for Good and Public Sector Partnership Development Director at Blackhawk Network, and Jordan Hirschfield, Director of Prepaid Advisory Service at Mercator Advisory Group, discussed how prepaid cards facilitate the disbursement of funds for agencies and give recipients the flexibility and security to receive these funds quickly.

The role of Payments for Good is to assist state and local government agencies and nonprofit organizations. It will assist them in updating their disbursement capabilities by replacing paper checks with prepaid cards. Prepaid cards are cost-efficient, faster, and safer than traditional paper checks.

“The pandemic really accelerated the adoption of cards by government agencies because they had an unprecedented number of COVID-related payments to send out,” said Brune. “They lacked the administrative staff and technology to do it in an efficient manner with checks.”

The advantage of using prepaid cards over checks is the ability to pay bills and purchase essentials. Consumers can also pay online or in person, giving them more flexibility.  Prepaid cards also offer cardholder protections in a way that checks don’t.

“One of the biggest takeaways we got from getting though the pandemic was the ability of businesses, government, and consumers to quickly adapt and accept cards as a secure and desired payment mechanism because they have wide acceptance,” said Hirschfield. “They are instantly available and there is back-end security.”

Agencies can cut administrative spending when using prepaid cards, as they typically cost 10% to 20% less than issuing checks. Prepaid cards are also faster than checks. If an organization chooses to distribute virtual cards, they can be delivered instantly, Cards can also be programmed to only be used in certain businesses and industries.

Prepaid cards are a more cost-efficient way to deliver funds and savings. This maximizes program funds and the financial benefit being awarded to recipients.  

Prepaid cards offer security benefits for both recipients and government agencies. Recipients don’t have to worry about receiving their prepaid cards via mail in order to support multiple or recurring payments. Funds are delivered digitally, ensuring that funds get delivered quickly and securely. Cardholders also benefit from protection against lost or stolen cards. With Cardholder Support, recipients can receive assistance when issues arise. The Federal Deposit Insurance Corporation (FDIC) also provides coverage.

Government agencies can analyze the program’s influence using spend information. It also offers transparency as well as accountability.

“Security continues to be an issue with consumers,” said Hirschfield, “Mercator has research that highlights that fraud and theft is a large concern across all payment mechanisms, especially within prepaid mechanisms. 55% of consumers were satisfied with a resolution with prepaid fraud or theft incident. People in a compromised position need to know they have the protections as well as a greater opportunity for a positive resolution.”

Payments for Good assisted in the disbursement of $3 billion in state government and local nonprofit payments to individuals. One of its partnerships was in March of 2021 when it joined forces with CORE (Children of Restaurant Employees). CORE is a nonprofit organization that supports families in the restaurant industry who face financial hardship due to injury or death. They also provided prepaid cards during job loss in the middle of the pandemic. There was also Blackhawk’s partnership with the government of California in June of 2021 to provide prepaid cards as incentives to receive the COVID-19 shot before the state reopened.

“Our largest and most prominent clients were government agencies and departments of social and health services,” said Gentry. “Those funds have benefitted vulnerable populations, from foster youth and family welfare, assisted care facilities to immigrant workers excluded from federal emergency aid. During the pandemic, the state of California asked us to fill vaccine incentives to encourage health and human safety. It was in the form of $50 digitally delivered Mastercard to those residents who received the shot.”

Payments for Good takes on the operational challenges that many organizations face.

“What we do is take on all the administrative burden and all the servicing of disbursing the payments on behalf of the organization,” said Brune.

To learn more about Payments for Good, please visit Blackhawk’s website, contact us directly on LinkedIn, or reach out to us at [email protected] or [email protected]

Fintech applications are taking the lead in digitization of the bill pay space. They now offer improvements in digital bill viewing and bill payment over what banks have traditionally offered. For these reasons, many customers are paying billers directly through fintech applications.

In a recent PaymentsJournal podcast, Marcell King, Chief Innovation Officer at Paymentus, and Brian Riley, Director of Credit at Mercator Advisory Group, discuss how electronic bill payment and presentment (EBPP) technology is filling market gaps and creating new opportunities for banks, credit unions, and fintechs. To retain their customers, banks need to compete with fintechs directly on EBPP technology. Or they need to partner with them to stay competitive.

EBPP systems are used by companies and service providers to move their paper billing systems online. Presentment is the action of presenting bills electronically to customers instead of a paper copy. And once customers are presented with their bills online, they can pay them electronically.

Using EBPP systems helps increase efficiency and convenience in customer service. The systems allow for sending digital notifications to customers and enables customers to pay through a variety of means, including credit cards, debit cards, or wires. Some systems also enable payment plans, and micro-loans via buy now, pay later options. Many industries have integrated EBPP systems, including healthcare and governmental agencies.

Traditionally, payment presentation and processing involved separate platforms. “Paymentus is the first and only integrated real-time digital bill pay presentment and money movement platform on the market,” said King. “When we bring those two technologies together, it’s a complete solution that allows institutions to take advantage of not only bill pay and presentment, but also peer-to-peer capabilities, external transfers, loan payments, and new account funding.”

“When you think about it from a consumer perspective, consumers are looking for simplicity, convenience, speed, and transparency in a traditional digital bill pay market within the banking space,” said King. “[If you’re] paying via a bank checking account, a bill is sent in the mail, and it’s going to take two to ten days to get received by the biller. With an EBPP, payments are almost instantaneous.”

Another key advantage is the flexibility it provides. “You get the convenience and control of getting to choose your preferred payment method,” said King. “If a credit card offers three points for every dollar spent, you’re going to pay your bills with that card.” 

EBPP also helps consumers stay organized. Consumers have many bills and many cards to keep track of, all with different due dates. “An EBPP allows consumers to aggregate all of their financial obligations and also pay them in real time with their favorite credit card or debit card, which obviously drives more engagement for the consumer,” said King.

Teaming up with fintechs that offer EBPP solutions can be helpful to many financial institutions.

An EBPP service can help drive more consumer engagement at banks and credit unions. “If your consumers are engaging with your services, there is a stickiness to that. By bringing this convenience factor, by bringing them choice, by giving them the ability to make those payments in real time, it’s going to help drive engagement,” said King.

“[What’s more], by giving consumers the ability for bill payment with their credit card or their debit card, that helps the financial institution actually drive interchange revenue and provide top-of-wallet control that institutions are looking for,” he added.

Financial institutions can also leverage data from the EBPP to personalize customer service and generate more profits. For instance, Bill Center(SM) from Paymentus centralizes customers’ financial obligations in a single bill management hub. It delivers through the financial institution’s app, creating a unique window into their financial lives.

“Bill Center allows the consumer to aggregate not just their traditional bills, but also what we call their offline bills — like certain subscriptions,” said King. “With that comes a plethora of data that the financial institution can leverage for cross-selling. They can use customers’ payment history to understand the overall consumer financial health. That gives them the opportunity to potentially underwrite credit for short-term loans.”

According to Riley, stickiness and engagement is really important for financial institutions to focus on. “As a financial institution, you’ve got to be more than a one-trick pony just focused on taking deposits and giving out credit cards,” he said. “It’s about being involved in the whole life cycle of a customer. The most important thing for the consumer and the financial institution is being able to integrate the EBPP process. Also, they make sure it’s not a cluttery mess.”

To learn more about Paymentus Banking & Fintech Solutions, please visit Paymentus.com/banking-fintech.

For the fifth year in a row, PSCU sought to better understand payment method preferences among consumers, and what factors — whether it’s different life stages or economic events — are driving adoption. For its 2022 Eye on Payments study, PSCU surveyed 1,750 credit union members and nonmembers within the U.S. and found that choice and variety are driving consumer payment preferences. Additionally, income levels influence payment methods , particularly when it comes to credit and debit.  

“Income level matters,” said Norm Patrick, Vice President of Advisors Plus Consulting at PSCU. “In the survey, 76% of respondents expressed concern about their personal finances within the economy, and that is really driven by the lower-income segments.”  

“When you take that information and stratify it by income, 52% of respondents with income under $75,000 said debit was their top choice,” he added. “We expect that to be the case given the need for control and spending within their means. On the other hand, credit card was preferred by 46% of those with an average income being in the higher status.”  

Patrick, along with Tom Pierce, Chief Marketing Officer at PSCU, and Brian Riley, Director of Credit at Mercator Advisory Group, dove deeper into the PSCU 2022 Eye on Payments report during a recent PaymentsJournal podcast, where they gave us a glimpse into the key findings that are shaping the current payments landscape.  

In its study, PSCU found that consumers are turning to digital payment solutions, with 59% of respondents having used a digital payment method occasionally. But with this increased adoption, more than half of respondents are still worried about fraud. “This is a key finding for credit unions, and the need for them to focus on fraud prevention,” said Pierce. “You really need to have a very holistic fraud prevention strategy and leverage data to authenticate members while you’re trying not to negatively impact the experience for those members.” 

Frictionless experiences are also a top priority. According to Patrick, from 2019 to 2022, there was a 35% increase in respondents who have been using a mobile wallet solution in the past 60 days to pay for goods and services in a physical store. “Contactless payments [are becoming] very widespread, with those reporting use of a contactless card at least a few times a week,” he said. “It’s increased by 53% since 2020.”  

On the topic of frictionless experiences, there’s also a lot of opportunity around digital card issuance. “About one in four respondents indicated that they’ve received a digital version of their card while waiting for the [physical card] to arrive,” said Patrick. “When you’re looking at takeaways from there, card issuance seems to be a very big opportunity for consumers. And as we continue to proliferate with those types of solutions in the market, there needs to be education not only to encourage adoption, but the actual usage is absolutely key.”  

Crypto adoption worldwide continues to grow, but there’s still a lot of opportunity before it becomes widespread. Roughly 25% of respondents in the PSCU study expressed interest in using this particular form of payment once it’s accepted at the point of sale.  

“I’m a banker by trade so I’m very cautious about crypto,” said Riley. “What makes me know that it’s going to come sooner or later is when you start seeing central banks involved in the currency. That adds stability to the whole process. It’s just not the Wild West of Bitcoin. Now you have substance behind this process, and you can see that building into the long-term play of financial services.” 

“We think it’s critical to continue to have credit unions educate their members,” added Pierce. “We focus on providing educational materials to credit unions to educate their members. So when they’re ready to get into the space, they know how to safely interact with it.” 

Emerging payments have touched every demographic segment. Younger consumers have been more open to exploring various payment methods. Meanwhile, their older cohorts have also been curious, and accepting, of new ways to pay for goods.  

“With Boomers, what we are starting to find is that they’re becoming much more open to emerging payment types ,” said Patrick. “When it comes to their concerns about the economy, it’s even-keeled. They’re a little less sensitive to it than other segments have been. And equally as even-keeled is their approach to debit and credit. We had an equal preference level toward credit and debit, being about 40% for both.” 

Gen X consumers are also becoming more accepting of emerging payment methods. Roughly two-thirds of respondents are using a wider range of payment methods compared with just a couple of years ago.  

Meanwhile, older Millennials — the most active users of emerging payment methods — have invested in, or hold, crypto. In fact, 37% of respondents in that age group said that they have. Younger Millennials, on the other hand, are focusing on building credit to grow their financial security. “Some 80% agree that they prefer to use a credit card to build their credit, but we’re still actually seeing them use debit more prolifically,” said Pierce. “They’re also the most significant users of mobile wallet technology. Not surprising on that front.” 

“They’re also the most likely to use a buy now, pay later [BNPL] program, so it’s really important for credit unions that offer those types of installment payments to provide education to younger Millennials, so they don’t build up additional debt,” he said.  

Despite what older generations may perceive, the younger generations tend to steer clear of credit card usage. “The importance of debit cards is core to the credit union,” said Riley. “Trends show that. Your data illustrates how the take-up of Millennials has been strong on debit. And that area is key to credit union growth.” 

When it comes to Gen Z consumers, they’re most concerned about their finances. They prefer to pay with a debit card. And they’re also the highest users of mobile apps for shopping and online food ordering.  

“When you want to look at innovation, take a look at what your kids are doing,” said Riley. “[For credit unions] it’s really important to capture this age sector, because that is the foundation for your growth. And when you get in early with them, you can have them for a long time. They could really see that there’s opportunities for their own value that come from using credit unions rather than a large money center bank.” 

Since 2018, cash use has been experiencing a steady decline, paving the way for emerging digital payments. Even with all these shifts toward digital payments, the elephant in the room continues to be security. Credit unions must continue to strive to provide the most secure fraud management solutions. It will ensure the safety of consumer payments.  

“We’ve talked about the shift that’s taking place over the past several years. But with security, there has been no shift,” said Patrick. “In fact, it’s still a really big deal. This has been a consistent stat over the past four or five years of this survey. We’ve seen 7 out of 10 consumers saying that security really drives how they conduct their business. If they’re not feeling comfortable with the solution from a security perspective, it’s really going be challenging.”  

Fintech companies are seeing the value in payments collaboration, making payment capabilities more accessible through the latest technological innovations.

This type of collaboration has worked well for Amazon Web Services (AWS) and Plaid. In a recent conversation, Mark Smith, Head of Payments Business and Market Development at AWS, John Anderson, Head of Payments at Plaid, and Tim Sloane, Vice President of Payments Innovation at Mercator Advisory Group, discuss how AWS and Plaid are working to democratize payments for all.

For nearly a decade, Plaid has been delivering account connectivity to its customers by securely connecting a preferred app with their bank account. That ultimately translates to as many as 12,000 bank connections.

“[Many] Americans and people in Europe are using Plaid to get access to products — from financial services including Robinhood to moving money like they would with Venmo,” said Anderson. “Oftentimes, our customers will use Plaid to connect [their] bank account and then use that connection to allow people to fund an account balance. That aspect has really taken off and started to grow.”

“There’s this interesting commonality between [Plaid and AWS],” said Anderson. “Both of us are democratizing super powerful capabilities and then opening that up to a vast ecosystem — from startups to Fortune 1000 companies.”

AWS’ Smith also agrees that there’s a big focus on democratizing payments, as well as a focus on developers and engineers. “We really try to help customers all over the world democratize things like artificial intelligence [AI] and machine learning [ML],” he said. “[You want to] make it easy and not have to have a team of data scientists to build, deploy, and improve their use of machine learning for various things around payments.”

“We see a lot around fraud prevention and credit extensions, but there’s just a ton of use cases and a ton of customers who have been able to benefit from it,” he added.

On the topic of collaboration, Smith noted it’s important for teams to figure out how to best collaborate when there are shared customers and shared partners. “How can we come together as an ecosystem and change the face of the industry together? And that’s just a couple of ways that we’ve been working together with Plaid,” he said.

There’s been a lot of acceleration in the payments space, especially since the onset of the pandemic in 2020. As a result, companies and their partners are redirecting their focus on the end customer experience.

“We’ve been helping customers, from enabling new forms of payment to lowering cost payments,” said Smith. “Customers like Plaid are using all the data that comes along with the accounts and payment transactions to reduce fraud and false positives to create a good customer experience. And more companies are turning to AI/ML to manage the high volumes of data and provide valuable real-time insights and constantly improve these models to stay ahead of fraudsters.”

Payments are also becoming more contextual — this includes embedded finance, opening up new payment methods, or opening up credit at the point of purchase. “We’re seeing some savvy customers use modern data analytics to ensure that they’re targeting the right customers, at the right time, in the right channel, with the right product,” said Smith.

Anderson has personally seen a broad evolution of more internet-native capabilities and services working together to help people through a recent experience he had. “I’m trying to buy a car and prices have gotten really expensive,” he said. “I love to buy used cars and if I was going to Craigslist, or find[ing] someone to buy a car [from], I’m not going to show up with $10,000 or $20,000 in my pocket.”

“It gets really tricky, and I don’t even know if people still have money orders today,” he said. “You have these amazing products, like Carvana, who makes that shopping experience easier in terms of browsing online. But a huge piece of it is how they’ve been able to aid the actual transaction and the payment layer.”

According to Anderson, Carvana also use KYC (Know Your Customer) information for verification and to ensure a safe marketplace. This enables customers to move their money safely and efficiently in order to purchase a vehicle.

Anderson also detailed Plaid’s newest products: Signal and Transfer. Signal sees the patterns within the customer’s transactions, offering an opportunity to predict returns. This can be due to insufficient funds or customer-generated concerns. “We can then establish a very confident transaction connection through Signal, and then the last piece is actually moving in the money.” said Anderson.

And for companies and developers that have never initiated an automated clearing house (ACH) payment, there is a product called Transfer.  Transfer facilitates the onboarding onto Plaid — the connection, security, and authorization in order to move and settle funds.

Another shared philosophy both AWS and Plaid share is giving the customer a choice. Neither company dictates to its customers what partners they must work with. “What’s best for the customer is our focus,” said Smith. “Whenever possible, if they have a choice, you give them that choice.”

Indeed, many customers show up with certain needs as to how they choose to move their money and which specialized processing partners they prefer to work with. Plaid believes in having a deep integration with all partners to enable these connections to be safe and secure. What’s more, every vertical has its own needs. By catering to these needs, fintechs will be able to serve more customers.

“By delivering APIs [application programming interfaces] to make this all possible, it allows you to find the fintechs that are vertically oriented, that can modify the payment structure in order to be able to meet the specific needs of that particular vertical market or customer base,” said Sloane. “Each vertical has its own particular needs.”

Instantaneous movement is technically impossible, but real-time payments get pretty close.

Real-time payments (RTP) are financial transactions that are settled almost instantaneously. They use separate digital network “rails” to process payments 24/7 every day of the year. Real-time payments are fast, which is helpful to companies and individuals that either want to pay or receive funds on a moment’s notice.

In a recent podcast, PaymentsJournal discussed the current state of RTP in the U.S. with Miriam Sheril, Senior Product Manager at Form3, and Steve Murphy, Director of Commercial and Enterprise Payments at Mercator Advisory Group. They spoke about how The Clearing House Payments Company pioneered the first RTP network in the U.S. and provided insights into why faster payments are different in the UK compared with the U.S. Sheril also teased an upcoming webinar she’ll be hosting next month and what audiences can expect.

When looking at the real-time payments landscape, the U.S. has lagged other regions. By 2010 several countries already had real-time payment rails, including India, China, Japan, and the UK. In the U.S., however, the first — and only extant — real-time payments network was deployed in 2017 by The Clearing House Payments Company.

And since then, adoption of real-time payments has gradually increased. “The Clearing House has around 260 banks on the network right now,” said Sheril. “That doesn’t seem like a lot considering the U.S. has 10,000-plus financial institutions.”

Some of the reluctance to jump on board with The Clearing House RTP network is likely due to the alternative payments network the Federal Reserve is developing, called FedNow. That network has been in the works since 2019 and is slated to launch next year.

Banking institutions prefer to use Federal Reserve infrastructure because of its perceived stability and influence on the economy. That’s true in other payment network schemes as well. “The Federal Reserve service has 9,000-plus institutions on its ACH [automated clearing house] network, while the Clearing House EPN [electronic payments network] service, a competitor, has closer to 200,” said Sheril. “Many banks are going to wait until FedNow is out to really adopt real-time payments and launch it.”

According to Murphy, a minority of banks have started offering real-time payments, and those banks include some of the biggest players in the industry. “The 260 banks that are connected to RTP represent somewhere between 80% and 85% of account access,” said Murphy. “The large institutions have a direct connection into RTP. It’s the smaller banks that haven’t jumped in yet.”

Murphy added that most banks are partnering with a payments service provider (PSP) to connect into the real-time payments rail. For banks, it’s simpler and more cost-effective to contract out this out to a third party.

“When it comes to connecting to schemes, there’s a large cost for a bank to do it in-house,” said Sheril. “It all costs money — the connection itself, the messaging, meeting formatting standards, and using a collecting party service provider.”

Form3 takes care of the interface with the RTP network so banks can focus on banking, not information technology. “Even some of the larger banks who really have never looked at this model before are thinking, ‘Wait, this makes more sense for us to have someone else who does this. We’ll focus on banking instead.’”

When FedNow becomes available, it’s unclear whether banks will use both The Clearing House’s RTP and FedNow. Sheril believes banks will likely use both. While Murphy predicts that the two networks are not going to be 100% interoperable. PSPs such as Form3 will be helpful to banks in navigating the two networks.

As the U.S. advances in its real-time payments journey, there’s debate about how much it can learn from other countries such as the UK.

The network in the UK was built with objectives in mind that don’t match the U.S. market. “As far as I know, it was more of a consumer-to-business and person-to-person transfer system and not as much business-to-business [B2B], which is one of the reasons why RTP was built the way it was built to create more B2B traffic,” said Murphy.

Sheril agreed. “Some of the use cases that work in the UK — and work really well — won’t hit here [in the U.S.].” For example, the UK has a standardized account numbering system for banks that makes it easy to do peer-to-peer (P2P) transactions. In the U.S., Sheril noted, “we may need some extra infrastructure or work-around that space.”

Sheril, along with Connie Blacklock, EMEA Head of Real-Time Payments at JPMorgan, will be further going into the similarities and differences between faster payments in the UK and the U.S. They’ll talk about how the move to real-time payments brings with it a need to adopt new technologies. And they discuss what banks need to consider from a fraud perspective.

This article is part 2 on the topic of Holiday Spending Insights 2022. Click HERE for part 1.

The holiday shopping season is already upon us, and it is poised to be the biggest one yet. Consumers are planning to spend 8% more this year on holiday gifts than last year. This is despite factors such as rising inflation and a potential looming recession.

Consumers are also shifting their spending this holiday season, a trend merchants and retailers should be aware of. Many consumers are buying earlier than ever. This is due to concerns about supply chain disruptions as well as concerns about staying on budget.

Another trend to watch for is the massive adoption of alternative payments. Look for how younger consumers, in particular, will leverage them. Many consumers are planning a mix of in-store and digital shopping. A variety of different payment methods will be used.

Once again, gift cards are expected to be the most popular gift given. This is a distinction gift cards have held for 16 years in a row1. Gen Z are big spenders on gift cards. They are planning to increase their holiday gift card spend by 57% (from $185 last year to $290). 

In this podcast, we learn more about the unique trends that will shape the 2022 holiday gift shopping season. PaymentsJournal sat with Jay Jaffin, Global Chief Marketing Officer at Blackhawk Network, Sarah Kositzke, Senior Global Insights Manager at Blackhawk Network, and Jordan Hirschfield, Director of Prepaid Advisory Service at Mercator. This is a two-part discussion about 2022 holiday insights. In part 1, they focused on why gift cards remain the most popular gift to give, the return of in-person gatherings and gifting, and the increasing popularity of alternative payment methods.

In part 2 below, we’ll cover the rise of the “hybrid consumer” and Gen Z holiday spending trends, using data and insights collected from Blackhawk Network’s 2022 Branded Pay Study.

The pandemic and related in-person restrictions helped create a growing breed of consumer who blends both in-person and digital shopping. Named “the hybrid consumer,” this type of shopper may purchase an item via a retailer’s app. Then they will pick it up curbside or in-store. Or they will browse and purchase items in a physical location before having them shipped to their home.

Hybrid shopping is a mix of digital and physical shopping,” explained Kostizke.

Kositzke said that while hybrid shopping spans all industries, home furnishings and groceries are among the most popular.

“We’re also seeing that the younger consumer is really embracing hybrid shopping,” she added.

Roughly 27% of all consumers consider themselves hybrid shoppers; however, that figure is higher among Gen Z, at 37%.

Kositzke added that 55% of consumers report that they shop both online and in-store. While 45% of consumers still prefer to shop in-store.

According to Mercator research, 63% of younger consumers and about half of older consumers are motivated to make an in-app purchase. This is also especially appealing for those who don’t want to deal with in-store holiday crowds. They just pick up an item curbside, or send the item directly to its intended recipient.

The beauty of in-app payments boils down to convenience. For example, the Starbucks app has seen incredible success. Consumers are able to pre-load a gift card within the app, enter a location and pay via their mobile device. During this process, they also garner loyalty points for every purchase they make. They are able to redeem them for a free beverage, food or merchandise item. What has made the app successful is that consumers don’t need to wait in long lines to get their purchase. They order ahead and pick-up their purchase at their convenience. This is an especially critical piece that retailers should keep in mind during the holiday season. “Personally, I don’t want to go anywhere near the inside of a store during the holidays,” Hirschfield added.

He also noted that in-app purchases are roughly equally made in-store as well as out of the store. For example, a consumer may want to browse items inside a store to judge the quality and then purchase digitally to be sent to someone else or to their home, especially if it is a large item such as a sofa or home appliance.

This holiday season will also see the rise of purchasing power among Gen Z.Gen Z—comprised of consumers born between 1996 and 2012—is currently the third-largest generational segment in the U.S., at 67 million people, and the most ethnically and culturally diverse. They are planning to spend much more this holiday season than in years past, and similar to their older cohorts, Gen Z appreciates the flexibility that hybrid shopping offers. Jaffin stated that they are also much more likely to be “conscious consumers.” That is, those who look for brands and products that are supportive of social causes.

“Studies show that brands that have a perceived positive sustainability impact have grown in brand value faster than those with a low perceived impact,” Jaffin added.

Gen Z especially “are looking for information about how their purchases will contribute to social and environmental responsibility.”

Jaffin noted that the desire for these consumers to put their money toward brands, products and gifts that make a difference in their community helped inspire Giving Good cards, Blackhawk Network’s line of charitable gift cards. A portion of the load-value on each card directly benefits charitable causes such as Habitat for Humanity, Wounded Warrior Project, and St. Jude Children’s Research Hospital. Nearly two-thirds (63%) of younger consumers (as well as 51% of older consumers) say they plan to give back to causes they care about this holiday season.

As noted above, Gen Z are the biggest user segment of gift cards in general, with this cohort planning to increase their gift card spend by 57% this holiday season. Interestingly, these younger consumers are buying gift cards both as gifts, and for themselves.  

For younger members of Gen Z who may not yet have a credit or debit card, gift cards are increasingly used as a form of payment. 18% of Gen Z said they use their cash to buy gift cards so they can make purchases online. 11% said they use gift cards for purchases because they do not yet have a credit or debit card. Gen Z are also more likely to spend above the gift card amount, which makes gift cards “the gift that keeps on giving” for merchants, Jaffin said. He added, “More than other generations, they love shopping for fun, they love retail therapy.”

Younger consumers are also the most likely to begin shopping in November, with 46% of Gen Z and 40% of millennials saying they will shop early.

Kositzke, in part 1 of the podcast, noted that people in general are shopping earlier due to concern of out-of-stock items and to stay on budget.

This is backed up by Blackhawk research, which shows that the top reason for early holiday shopping is budgeting, coming in at 42%, followed by out-of-stock concerns at 38%, and seeking deals at 37%.

Overall, consumers this year are expected to be much more strategic with their holiday shopping, hunting judiciously for the best deals and promotions and trying to buy as early as possible to avoid items being out of stock, said Kositzke.

“Everybody is starting early, and they are keeping their eyes on the prize, looking for the best deals,” she added.

About Blackhawk Network:
Blackhawk Network delivers branded payment solutions through the prepaid products, technologies and network that connect brands and people. We collaborate with our partners to innovate, translating market trends in branded payments to increase reach, loyalty and revenue. We reliably execute security-minded solutions worldwide. Join us as we shape the future of global branded payments. Learn more at blackhawknetwork.com.

All BHN data noted in this article can be sourced to:
Source: Blackhawk Network 2022 Holiday Branded Pay Study n=2,001, US, 18+, purchased gifts in the past 12 months, and plan to shop during holiday 2022, Aug 2022