PaymentsJournal

The world continues to move further away from COVID-19 pandemic-induced restrictions. It is moving back into a state of somewhat normalcy. The 2022 holiday season will take on interesting new trends in gifting and how those holiday gifts are paid for. In fact, 58% of consumers are planning to change their shopping behavior. They are seeking to use more discounts and promotions, according to research from Blackhawk.

The holiday seasons of 2020 and 2021 were largely marked by limited in-person gatherings and remote connections. 2022 will be a unique blend of pre- and post-pandemic trends. The massive adoption of alternative payments during the last two years is still in effect. But many consumers are desiring in-person, in-store experiences more than in the past two holiday seasons.

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 for Blackhawk Network, Sarah Kositzke, Senior Global Insights Manager for Blackhawk Network, and Jordan Hirschfield, Director of Prepaid Advisory Service for Mercator for a two-part discussion about 2022 holiday insights. In Part 1, they focus on what to expect this holiday season, as well as the importance of gift cards.

Holiday get-togethers will be more prevalent this year. Blackhawk data shows there will be a 23% increase in in-person holiday gatherings in 2022. “This is not only the case for Gen Z and Millennials, but Gen X and Baby Boomers as well,” said Kositzke. “And more get-togethers lead to the potential for more gifting opportunities,” she added.

Many are planning to purchase holiday gifts earlier this year than in years past. This is due to fear of missing out on potentially out-of-stock items due to global supply chain shortages. It is also due to trying to stay on budget in the current inflationary times, Kositzke explained. Thirty-seven percent of consumers plan to spend on holiday gifting before November, while another 43% plan to begin in November.

“People have concerns on out-of-stock items, and they’re also trying to stick to their holiday budgets,” Kositzke said. “They are also really looking for deals. They want to take advantage of any kind of deal or savings discount.”

This is backed up by Blackhawk research. It 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%.

Despite the state of the economy and the many unknowns, consumers are planning to spend 8% more this year on holiday gifts, said Jaffin.

“This really speaks to the idea of the resilient consumer,” he added.

For the 16th year in a row, gift cards are the preferred gift to give others, according to research from NRF and Prosper Insights & Analytics. On average, a consumer will purchase 36 gift cards — both physical and digital — this holiday season, Jaffin said.

“That number might sound big, but think about the things we do over the holidays,” Jaffin continued. “You might buy your kid’s teachers each a $20 gift card. There are all the people we interact with on a day-to-day basis that we want to show a small token of appreciation to.”

Overall, gift card spending represents about half of the total holiday gifting spend, according to Blackhawk data. Gen Z in particular are planning to increase their holiday gift card spend by 57% in 2022, from $185 to $290. Younger consumers (Gen Z and Millennials) are also significantly more likely to shop before November for gift cards (41% vs. 29% of Gen X and Baby Boomers).

Many will physically hand a gift to the recipient, or send it via digital means. But we are seeing a new trend of hybrid physical/digital gifting as in-person get-togethers come back.

Gift cards are especially popular this year amid an uncertain economy. This is because of the potential rewards purchasers can receive, Hirschfield noted. For example, he cited getting fuel points back on gift card purchases. This is very appealing with the current high gas prices.

“As a purchaser, if I’m buying five $10 gift cards for my kid’s teachers and I can save on gas at the same time, that’s very appealing,” he said.

Consumers also like the promotional incentives that can come with buying gift cards, such as receiving a bonus $10 gift card with the purchase of a $100 gift card, said Hirschfield, which is especially appealing in the current economic climate.

Furthermore, eGift cards allow consumers to send “last minute gifts” up and through the holidays. About 20% of consumers are expected to send digital gift cards directly to a recipient.

Kozitzke added that recipients like gift cards because they won’t need to return an unwanted item. Essentially gift cards give consumers flexibility, not only on what they can buy, but also how they buy it — online or in-store. They can also use the gift cards to make more practical, everyday purchases, or be able to treat themselves.

“Instead of a dreaded return day, you can have a day that’s more retail therapy,” she said.

The last two years have seen the rapid rise of not only digital payments, but digital wallets as well. In particular, the rise of retail-branded payments apps, such as digital wallets for a particular store or restaurant.

“There’s hundreds, if not thousands, of different digital wallets now,” said Jaffin.

These merchant apps “blur the line between physical and digital,” Jaffin added. As an example, he cited being in a mall and purchasing food on a restaurant’s app in a completely digital manner, but then going to that restaurant to physically pick up the food.

“So, it is super easy to pay for things on these different retailer apps, then go from store to store and pick up my stuff,” Jaffin said.

Mercator data from 2021 showed that more than 30% of younger consumers have used a retail-specific app to make a payment, Hirschfield said, adding that when the 2022 data come out, “I expect that number to increase even more.”

Consumers are also leveraging alternative forms of payments such as buy now, pay later (BNPL) to pay for holiday gifts. This is especially true for younger consumers; 27% say they will use BNPL to pay for holiday gifts (versus 10% of older consumers), while 17% of younger consumers will use cryptocurrency to do so (versus 4% of older consumers).

In general, “consumers are much more nimble now in how they not only fund their shopping expenses but also how they pay for their shopping as well,” Jaffin said.

Part 2 of this podcast episode is now streaming HERE.

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

Frauds that use credit-push are on the rise. Every participant in the payments ecosystem needs to be aware of how to identify and help stop this crime.

Credit-push fraud differs from traditional debit fraud, wherein a bank account makes unauthorized payments. In credit-push fraud, the criminal uses social engineering or phishing attacks. They use these to try and convince someone to send a payment to an account that the criminal controls. One example of this type of attack is business email compromise (BEC). This is where a fraudster poses as a CEO or other executive of a company. They send an email to employees in finance, asking to transfer money to a new or different account. A fraudster could also send emails to accounts payable departments with fake contractor invoices or changes to the destination account.

Another method to promulgate credit-push fraud is payroll impersonation. This is where a fraudster sends emails to the payroll department. They claim to be an employee and say they want to switch the bank account their direct deposit goes to. They have the ultimate goal of rerouting that employee’s direct deposit to the fraudster account.

Credit-push fraud is on the rise, and to learn more, PaymentsJournal sat with Michael Herd, Senior Vice President of ACH Administration at Nacha and Sarah Grotta, Director of Debit Advisory Service at Mercator Advisory Group.

 Nacha last month published a risk management framework for dealing with this issue. This fraud is broader than just ACH payments — encompassing wire payments, push-to-card payments, and payment apps. Nacha wanted to start an industry-wide conversation on the issue, said Herd.

“We thought there needed to be a comprehensive plan at the industry level to address this,” he added. “We wanted to call attention to this so industry professionals can identify and stop this fraud.”

Herd described the framework as merely a first step. It outlines the general problem and offers broad guidelines. It calls for more information sharing between financial institutions. And it calls for the receiving institution to take more of an active role in identifying potential fraud.

“Improved information sharing can counter fraud by improving awareness and understanding of fraud scenarios, enabling communication and recovery between parties regarding specific instances of fraud, and providing qualitative and quantitative data for organizations to use in benchmarking, pattern identification, and anomaly detection,” a portion of the framework reads.

Grotta noted that the release of the framework is timely. There are more digital transactions happening than ever, and thus, more fraud as well.

“This is an industry call to action, and I like the idea that the industry can come together and coalesce around best practices and create a thoughtful approach to stopping this fraud,” she said.

This type of fraud can be difficult to detect. Often the payment is authorized by someone who has legitimate access to the sending account after they have been duped.

“The nature of this fraud, you have to remember, means they were authorized by a legitimate user,” said Grotta. “They were duped by criminals.”

Herd noted that the receiving institution, which is normally passive in these types of account-based transactions, can take on a much more active role in spotting fraud.

“The receiving institution may be in the best position to identify something irregular or suspicious,” Herd said.

Indeed, new risk management guidance for receiving institutions can address inbound transaction monitoring standards, and sound business practices for controls on funds availability for potentially fraudulent transactions and accounts, including early access to funds, Herd said.

Another issue is the often-siloed nature of financial institutions. Since many different units within an institution often act separately and don’t interact with one another, a person can overlook a potentially suspicious sign, or not share a key piece of information.

“Different payment types are also handled by different departments,” Herd continued. “There needs to be a cultural change around sharing information.”

Herd urged financial institutions to take proactive measures in upgrading how they identify and stop fraud rather than waiting until after they’ve become the victims of an attack. A key aspect of this for financial institutions is educating customers on how to spot these phishing attacks that target their employees.

“Make sure for your corporate customers you have a thorough and proactive customer fraud education program,” Herd said. “The AFP [Association for Financial Professionals] has come out and identified BEC as the single greatest threat to businesses in the payments space.”

Financial institutions, third parties, and other stakeholders can implement new and innovative customer education programs and provide fraud controls and prevention tools and services on an opt-out basis.

“Take action to avail yourselves of the fraud prevention tools that are out there,” Herd said of corporate payment system users. “Don’t wait until you are a victim; you can take action today.”

Doing so also means financial institutions can avoid having uncomfortable conversations with business clients after the fact. They have to inform the customer that a fraudster tricked them into making a fraudulent payment.

“That’s not the kind of conversation you want to have with a customer,” Grotta said.

Download the NACHA report – A New Risk Management Framework for the Era of Credit-Push Fraud

Enabling real-time payments is vital for any bank or credit union to remain competitive. Consumers have grown accustomed to sending and receiving real-time payments through a variety of fintechs, such as peer-to-peer (P2P) payment apps.

Demand for real-time payments has become even greater lately, as inflation makes the need to receive cash quickly more vital, and more and more people are working freelance or in the gig economy and need to get paid quickly.

However, it is complex and labor-intensive for many financial institutions to connect to the existing real-time payment networks, and many lack the proper tech infrastructure. That’s where partnerships come in; by partnering with a respected vendor, FIs of any size can future-proof their business and easily connect to all the major real-time payment (RTP) networks.

To learn more, PaymentsJournal sat with Parag Rohan Jain, GM of Fiserv’s NOW Network, and Sarah Grotta, Director of the Debit and Alternative Products Advisory Service at Mercator Advisory Group. Also joining the discussion were Michael Curran, AVP of Digital Enterprise Solutions at the $11 billion-asset Bethpage Federal Credit Union, and Jeffrey Staw, Chief Innovation Officer at Open Technology Solutions, a consortium that provides technology support to several credit unions, including Bethpage.

The biggest reason small to mid-size financial institutions should look to partner when it comes to real-time payments is the sheer complexity of connecting to RTP networks, said Jain.

That’s why Fiserv created the NOW Network, which acts as a gateway and routing engine connecting banks and credit unions seamlessly to real-time payment networks and routing transactions to a large spectrum of end points.

“As expectations for real-time capabilities increase, financial institutions need to enable their customers to reach as many of these end points as possible, or risk losing customers,” Jain explained. “It’s laborious for them, however, to connect to all these networks. But through one integration with NOW, we can enable financial institutions to easily connect to all the real-time payment networks.”

Grotta added that due to the complexity of real-time payments, financial institutions don’t need to jump in all at once. For example, they can start by enabling their clients to receive real-time payments, and then work toward originating them.

“You can walk before you run, and understand the rules of the road before jumping in fully,” she said.

Curran noted that Bethpage, a Fiserv customer, benefits from integrating with the NOW Network by gaining access to well-known RTP networks such as Zelle and others.

“These are brand names that advertise on television and that consumers are familiar with,” he said. “They’re leaders in real-time money movement and we want to partner with them.”

Jain said that it is imperative for all financial institutions to give their customers access to real-time payments in order to remain competitive. Those that don’t will be left behind.

“Financial institutions need to act fast to give their customers what they want, before they decide to work with another institution that offers the connectivity they are looking for,” Jain said. “More users than ever before are gaining access to real-time payments, and this includes both consumers as well as businesses.”

Grotta added that financial institutions that don’t currently have a road map in place need to start planning as soon as possible.

“You can’t find yourself playing catch-up when dealing with something that has the complexity of real-time payments,” she noted. “You need to have this in place for customers sooner rather than later. Consumers are increasingly expecting real-time payments.”

In fact, remaining competitive was the number one driver for Bethpage to partner with the NOW Network and offer real-time payments to its members, said Curran. Currently, the institution enables receiving real-time payments only but hopes to originate them as well shortly.

“We’re in competition not only with banks that have big pockets, but consumer expectations from other industries as well,” Curran explained. “Amazon can deliver most products by the next day, or even same day in some cases. But when customers move money digitally, it takes two to three days. Financial services are really lagging behind retail and other industries and looking to play catch-up. As a credit union, we are constantly looking for opportunities to jump ahead and move forward.”

Since adopting real-time payments, Bethpage has seen it used in a variety of payment types beyond just person-to-person payments. These include merchant funding, online gambling, and receiving wages. The last example is critical, as many workers increasingly do not have typical 9-to-5 jobs where they get paid every two weeks, and instead, work in freelance roles or in the gig economy where they get paid at irregular intervals.

“Real-time payments in the wages category, especially, could be a game changer for us, and we don’t want to be caught behind,” Curran added.

Jain also noted that “in this high-interest-rate environment we are currently in, the cost of capital is high and that’s boosting the desire for on-demand money.”

In general, beyond even just payments, consumers have grown to have a “right now” mentality, and banks and credit unions need to be able to meet those expectations, said Open Technology Solutions’ Staw.

“People want things to happen, and they want it quickly,” he said. “That’s why so many fintechs have been able to be successful; they bring a new service to market fast, and they focus on one specific area that they are really good at.”

Through technology partnerships, “financial institutions can better compete in this area, and consumers can now get these services from your institution rather than a fintech,” he added.

As technology rapidly changes, so do the expectations of consumers when it comes to payments, and Fiserv is constantly evolving its capabilities, said Jain.

“We are constantly thinking about how to provide real-time capability for new use cases and new end points,” he said.

Curran added that this spirit of constant innovation is why Bethpage thinks of Fiserv as more than just a technology vendor but as an R&D partner.

“Working with Fiserv has made it possible to offer these services that are in demand today, and also be ready to offer whatever new services emerge in the future.”

The U.S. — and much of the world — is facing an inflationary environment not seen in more than 40 years. Persistent, high inflation is proving to be stubborn and shows no sign of slowing down. This greatly affects businesses buying goods and services because it increases their prices and makes running their business more costly. On the supplier side, any delay in receiving payment for a product from a business means that money is worth less when they receive it than when they submitted an invoice. The typical method of paper check in business-to-business (B2B) payments is less effective for all parties involved during times of inflation. These reasons are why commercial credit card payments are rising in popularity.

In September, PaymentsJournal sat with John Weinrich, Head of U.S. Sales at Boost Payment Solutions, and Steve Murphy, Director of Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.

Weinrich noted that not only is inflation very high, but it has risen very quickly, leaving many unprepared to deal with its consequences.

“Twelve to fourteen months ago, inflation was virtually nonexistent,” he observed. “Now we are dealing with the fastest-rising inflation in 50 years.”

This means that waiting for invoices to be paid by check can have devastating consequences for businesses — especially small businesses with limited working capital.

“When you have a DSO [Days Sales Outstanding, which is the number of days a company waits to get paid for a sale] of 90 days or so, that dollar is worth far less when you receive the payment than when you made the sale,” said Weinrich.

With borrowing costs high due to increasing interest rates, many companies cannot afford to take out a loan to covers costs while waiting to get paid. This makes getting paid on time vital to staying in business during tough economic times.

These factors are making businesses rethink their stance on accepting commercial credit cards for payments. By and large, businesses have resisted accepting credit cards for B2B payments due to the perceived expense of doing so and the technical cost associated with upgrading infrastructure to accept them. Historically, credit cards have typically been seen as a consumer payments mechanism, and large-scale B2B payments were not usually contemplated.

However, this is beginning to change.

“I keep hearing over the past couple of years since the pandemic that card acceptance has accelerated among businesses,” Murphy noted.

While acknowledging that widespread commercial credit card acceptance “still has a way to go,” Weinrich agreed that it is increasing in the B2B space. Typically, the cost of card acceptance was thought to outweigh the benefits, added Weinrich, but companies such as Boost that provide a technology platform that seamlessly enables commercial credit card payments are creating an environment where accepting credit card payments is more viable in the B2B environment.

One major benefit is straight-through processing (STP), which enables suppliers to get paid quickly and eliminates manual input and human involvement on both ends. The Boost STP platform, for example, automates the entire onboarding, credit card transaction, and reconciliation process for buyers and suppliers, thereby eliminating what is typically a cumbersome and manual process, Weinrich said.

“This guarantees timely, accurate payments and helps both the supplier and buyer manage their cash flows in this high inflationary environment we are in,” he added.

Boost also helps businesses manage regulatory costs and burden by eliminating the need for PCI reporting as this automated solution eliminates exposure to PCI data for the supplier.

Murphy also noted the decreased risk of attempted fraud associated with commercial credit card payments as opposed to check payments.

“I believe it is less than three percent,” he added.

Weinrich agreed, and noted that figure is low compared with other forms of payments. He cited data from the Association for Financial Professionals showing that attempted fraud activity for checks is at 66%, and 37% for ACH debits.

Probably the biggest hurdle in commercial credit card acceptance in the B2B space is changing the long-held mentality around commercial credit cards.

“We’re asking businesses to try something new,” Weinrich said. “So, we in the payments space really need to put on our educator hat and tell them about the benefits. All businesses are looking to innovate and grow and reach their potential.”

Murphy noted that one trend that could help with the increase of acceptance of commercial credit cards is an increasing desire for both suppliers and buyers to use new payment methods. For buyers, this gives them flexibility in how to pay. And for suppliers, it helps reduce risk as well as attract new partners since they are offering multiple, flexible payment options.

“Right now is the perfect time for businesses to rethink their stance on card acceptance,” said Weinrich.

Although card payments have been around for 80 years, little has changed within the industry to keep up with ever-changing customer demands for digital payments and the explosive growth of innovation within the fintech industry.

Many financial institutions that rely heavily on their legacy systems to offer their financial services are finding it more difficult to remain competitive amid the rapid changes within the card payments industry. Here to offer insights into these challenges is Vishal Pasari, Vice President and Global Head of Products & Partnerships for Euronet, and Mercator Advisory Group’s Sarah Grotta, Director of Debit and Alternative Products Advisory Service.

With the advent of credit cards in the early 1930s — beginning with the air travel card, to the Diners Club, and then the Bank of America card in the 1950s — innovations within the credit card industry have remained stagnant.

Banking institutions as well as providers have also been lax in their evolution, leaving their legacy systems ill-equipped for any type of rapid innovation. Although their platforms were solid, they were no match for the agile financial solutions developed by fintech companies. This was especially true during the fintech boom in 2010.

Pasari expounded on this issue with the following analogy:

“It’s kind of tricky. I mean, you can’t just take an armored truck, slap on some spoilers and some race tires, and put on a track. On top of this, the card space is one of the most heavily regulated industries in the world, and this further challenges the ability of institutions to extend beyond the status quo, right? Whatever little bandwidth comes available is sucked up by the need to stay compliant. So this combination of legacy and regulatory headwinds is, in my opinion, the largest challenge in the cards world today.”

Another issue Pasari touched upon is that almost two billion people remain unbanked or underbanked. This population is not limited to those living in the emerging economies but extends to those living in the United States.

Although Pasari pointed out that this poses a significant challenge, he maintained that it also poses a significant opportunity for the potential adoption of card payments.

Grotta also commented on another challenge besetting financial institutions that are still using legacy solutions: the lack of data on their customers. Data that reveal an understanding of customer needs as well as how the institution is managing fraud are nonexistent.

Pasari mentioned three significant emerging trends within the card payments industry: the ability to issue and accept tokenized wallet-based cards on mobile phones, embedded payment capabilities, and the expansion of the card user base worldwide.

Pasari mentioned the significant shift in customer expectations in just the last 20 years. Where in the 1990s it was the norm for consumers to receive a letter indicating they will be receiving their credit card within 10 business days upon approval, this situation is now unthinkable. With all products and services being delivered instantly with a single swipe on the phone, the device has become a sort of “magic wand” for the customer. The expectation is that the phone has become a “digital card” for the customer. Therefore, having the ability to issue and accept tokenized wallet-based cards by phone is a must-have in today’s digital age.

Grotta believes the instant-issuing capabilities serve both customers and financial institutions positively:

“I’ve always been a big fan of this capability because I think it serves customers so well, you know, both from a new issuance perspective, but sometimes I think even more importantly, from a service perspective, so that the consumer as well as the financial institution isn’t seeing any sort of interruption in that transaction activity. I think another thing I would point out is moving those activities toward digital also has [provided] not only a better experience for customers, but also achieves a lot of efficiencies for the financial institution as well. And I think you know, as for financial institutions who are looking at that, you really can’t forget to include the efficiencies   that are going to be driven by that … type of an upgrade to your card issuance solutions.”

Pasari shed light on another trend to watch for: embedded payments. He explained this as having the payment process “interwoven” within the user journey, which eliminates a separate step that customers will need to navigate during the payment process. Embedded payments remove all friction within the checkout process. The strengths of this capability are that it not only drives higher card transactions but it also lowers the ever-growing problem of cart abandonment.

When it comes to underbanked and unbanked consumers, several countries are encouraging them to use prepaid cards or debit cards instead of using a bank. This, Pasari said, will boost the adoption of cards over the next few years.

Mastercard, in collaboration with The Partnership for Central America, has launched a financial inclusion program in Guatemala, El Salvador, and Honduras. According to Pasari, 60% of adults in these countries do not have a bank account. Of those who do, only one in four has a debit or credit card. To remedy this problem, Mastercard plans to invest $100 million in this initiative. It will be partnering with banks to help them offer financial services to the unbanked and underbanked.

Pasari explained that REN Solutions’ key differentiation comes from the fact that it is a modern solution that has been built from the ground up. In other words, there was no preexisting legacy heritage or infrastructure. This type of solution facilitates the urgent need to address the many challenges previously mentioned. It is well-equipped to help institutions to not only innovate, but to also expedite the launch of card payment solutions.

Not only is REN Solutions the perfect choice for new banks and fintechs, but it is also a great fit for institutions that face the formidable challenge of migrating off their current legacy platform. REN Solutions is built in a way that allows customers to evolve their legacy systems at their own pace. This eliminates the need for a “rip and replace approach,” which exposes the institution to a lot of risk. Customers have the option of choosing specific parts of their payment stack to modernize, and the solution offers maximum flexibility with minimum risk as institutions navigate their way toward modernization.

REN is one of the few modern payment ecosystems that covers the complete end-to-end card payments solutions life cycle. The builders of this system have firsthand knowledge and experience in helping their clients overcome their challenges and take advantage of key trends to help ramp up their business.

REN is just one of many card payments solutions that the fintech industry continues to develop to move away from the processes of most traditional banking institutions and adopt more modern platforms, further driving innovation.

Today’s technical decision-makers face pressure to increase the company’s revenue while keeping risk low in the consumer checkout process. If a customer’s legitimate payment transaction gets declined because a merchant’s tech isn’t advanced enough, this has the potential to result in a lost customer.  One of the most important parts of streamlining your payment process and increasing your chances of conversion is improving your payment authorization rate.

That’s why enterprise merchants must focus on optimizing both the front-end and the back-end in the payment ecosystem. The end goal is to improve their bottom line by increasing customer loyalty.   

Typically, there’s not much sellers can do if their customers’ transactions are declined on the card-issuing side. But it’s possible to help reduce these false declines by working with a good payment partner.

To learn more about the importance of efficient payment authorization, PaymentsJournal sat with Sandipan Chatterjee, Head of Enterprise Payments Optimization & Growth at PayPal, and Brian Riley, Director of the Credit Advisory Service at Mercator Advisory Group.

Shoppers expect a simple and seamless checkout experience at their fingertips and it’s something they’ve come to expect to happen without much thought or effort.  But many businesses overlook this critical piece of the customer journey and focus largely on the front-end experience and not enough on the back end.  

Riley noted that the payment authorization process is where the rubber meets the road. “Is the card good? Is the buyer the person who they say they are? And will it survive the authorization network? That’s an area that PayPal has always been strong in.”

Payment authorization rates must always stay top of mind for a merchant. The higher the authorization rate, the greater likelihood of repeat customer transactions, which results in higher business revenue.  

Typically, if a merchant wanted higher payment authorization rates, they would accept more risky transactions. If they wanted lower risk losses, they would be more restrictive on their approval rates.  

However, as Chatterjee noted, the ideal is to be able to give merchants the best of both worlds. High approval rates with low-risk loss rates — all without compromising a good customer experience.  

Anything that adds friction to the customer experience, such as a failed charge, can negatively impact share of wallet and customer loyalty. This friction can create a very frustrating experience for the customer. The customer will either select another form of payment and go through the same authorization and approval process again, or the business will lose the sale, resulting in an unsatisfied customer.  

Chatterjee said that failed charges can have a significant impact on consumer behavior. “One study found that 44% of shoppers with a charge declined stopped or reduced shopping entirely with that retailer. That’s a huge hit to businesses that are not able to provide a frictionless experience to their customers.”

A declined charge can impact the entire customer journey, making the transaction less profitable in the short run and more costly in the long run.  Riley said, “It certainly makes you think twice about going back to that merchant or even using that card again.”

Because the merchant is not actually handling the payment loss, selecting the right payment partner is key. For a decent-sized business, the 2% increase in approvals could translate into millions of dollars of unrealized revenue.

Payment companies are using new tools and data to help businesses reduce the number of failed legitimate payments and boost their authorization rates. These include transaction retry logic, stand-in functionality, and algorithms to help better manage life cycle events whenever there are issues within the payment ecosystems.  

For example, Chatterjee explained PayPal’s strategy for this. “PayPal’s extensive network of partnerships provides the company with insights into card behavior and adoption rates across the broader ecosystem. PayPal can then use these insights to identify opportunities to help improve authorization rates and drive increased revenue for its partners.” 

An example is PayPal’s partnership with BetterMe, a leading behavioral healthcare app publisher, that recently partnered with PayPal for a payment solution to create a secure, seamless multi-platform online experience across devices. Chatterjee said, “With PayPal’s partnership, BetterMe increased their overall approval rate by 6.4%. As a result, they were able to attract a significant number of new clients — BetterMe’s product conversion rate almost doubled.”

New solutions combine machine learning, artificial intelligence, and real-time decisioning to more accurately help determine whether a transaction is legitimate or not.  Accurately making such a determination requires access to an immense amount of data.

There is also economic uncertainty right now in turn, optimization will continue to grow in importance.  Focusing on improving payment authorization rates for your customers is one easy way to build an economic buffer for the next few years.  

Network tokenization is a key enabler of payment authorization rates. With this, merchants can achieve the right balance between security and fraud management and a seamless customer experience.  

Network tokenization works by creating a unique credential for a card that is separate from the number imprinted on a physical card, which can be used for conducting transactions. The benefits of this include improving the behind-the-scenes processing of each transaction, known as credit card storage. Network tokenization enhances security by making credentials more fraud resistant, and it offers greater brand recognition and trust.  

For example, instead of using the 16-digit number that’s inscribed on the card, PayPal will generate a unique credential to use when conducting the transaction. This way, if a card is lost or stolen, the consumer’s identity is not tied solely to that physical card but can be easily reissued or identified from their assigned token.

Authorization rates must always stay top of mind for a business. By selecting the right payment provider, merchants can achieve higher authorization rates and reap the reward of increased revenue.

Blackhawk Network, a California-based company in the prepaid, gift card, and payments industry, joined forces with NAPCO Research, the “research arm” of NAPCO Media, a B2B digital media company, for the fifth year. Their aim? To assess the in-store, online, and mobile gift card program experiences across more than 225 merchants. This time, their annual research has extended beyond the U.S. and includes the UK and Australia for the first time.

The findings of the “2022 NAPCO Research Merchant Gift Card Omnicommerce Evaluation” report were discussed by Amy Dunckelmann, VP of Research Operations at Mercator Advisory Group, Andrew Solomon, Vice President of Sales at Blackhawk Network, and Hilary Spidaliere, Director of Product Marketing at Blackhawk Network.

The pandemic accelerated digital transformation within businesses and Dunckelmann believes that this study could not be timelier:

“One of the reasons I really liked this study, especially that you’ve got research that goes back for five years, the trend in the report really shows much more of an emphasis on digital, especially with what’s happened in the pandemic, and more businesses looking for digital options. I think it’s really smart to help vendors understand their digital experience and what they can do to improve it. So, I think, although this is the fifth year, it’s certainly very timely in terms of results.”

Solomon spoke favorably about this study as well, adding:

“It really creates a framework not only for a customer that has an existing program to expand on their program and take it to the next level. But someone who’s entering the business, it shows you the roadmap of what some of the most successful companies are doing. And they can implement those ideas without having to do trial and error. So it just creates a great, great roadmap for our customers and our potential customers.”

To conduct the study, the NAPCO Research team visited each merchant store, visited the websites, accessed the mobile apps, and purchased the gift cards. All these experiences were assessed using more than 150 criteria, which have been developed and amassed during the last five years of conducting this annual study.

Some of the criteria explored include:

Based on the research findings, the multinational average Total Omnicommerce Score is 66% across the 225+ merchants assessed. This indicates there is considerable opportunity to enhance gift card programs across the various industries, verticals, and regions.

Retailers are also keen on investing in providing a variety of payment methods based on what customers prefer to use. Also, a rise in purchasing gift cards for personal use has also increased the need for more expedited purchases to benefit self-use purchasers.

Despite the rise of mobile use, the overall mobile experience still is underdeveloped.

As more customers become “mobile first,” it would be critical to invest in the mobile space to refine both the purchaser and recipient experience.

In all the regions featured, it is important that merchants provide a seamless, in-store experience for customers. This can include having gift cards in stock, a knowledgeable staff, and new payment options available for customers.

When it comes to the online experience, the key is to make the card program easy to locate. Having the most well-developed gift card program will not translate into sales if gift cards cannot be found by customers.

Spidaliere expounded further on this:

“… one of the key takeaways across all three regions was making sure that your program is easy to find. You could have the best gift card program in the world, but if a customer can’t find it, you won’t be able to sell any gift cards. So, this is making sure it’s easy to find the gift card program on your homepage as well as making sure you’re promoting it out through email [and] social media, [and] making sure your customers as well as new prospective customers know about your program and how to purchase a card.”

Customization is also a key driver. Customers want to make the gift card experience more personal. They want to have access to design options as well as custom message spaces, and they also want to select the denominations and the timing.

When it comes to in-store gift card program performance, the U.S. comes out on top. The findings show that in-store, U.S. merchants excel at having both well-stocked and tidy fixtures and check stands.

The UK and Australia excel in mobile and e-commerce. With Australia scoring the highest Omnicommerce score, at 69%, its strength lies in both digital and mobile capacity. This includes its site search, payment options, and personalization options. Australia also provides the most robust desktop gift card purchasing experience.

The UK continues to outshine in its mobile experience. This is especially true in its mobile gift card programs. It is recommended that the UK should really lean into this space as more consumers than ever are opting to shop via their mobile phones.

As the holiday season approaches, retailers would do well to take advantage of all the key findings in this report. Some recommended action items to improve the gift card program experience include the following:

To learn more about the latest industry trends, best practices, and where your gift card program stands, get your copy of the fifth annual 2022 NAPCO Research Merchant Gift Card Evaluation – U.S. Edition. You can DOWNLOAD IT HERE.

Many financial institutions are in a time of transition. With the continuous decline in check volume,  it’s important for banks and credit unions to find efficiencies where they can. One area where financial institutions can realize immediate benefits is by outsourcing their item processing function. To learn more, PaymentsJournal sat with Joe Pachunka, CIO of Deposit Solutions at Fiserv, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group, to discuss the many benefits of outsourcing item processing.

Though check volumes are declining, item processing is still a vital function for banks, Pachunka noted.

“Check processing can be thought of as a legacy business, but it’s still a very valid channel for transactions,” he added. “And it has to be up 24/7.”

By outsourcing such a manual and time-intensive function, banks can focus on their core business and focus on other areas.

Indeed, Grotta observed that by outsourcing this part of the business, banks can focus more on pursuing innovation.

“Many of the financial institutions I talk to don’t necessarily want to focus on item processing and are happy to have someone else oversee that part of business,” she said. Outsourcing to a respected vendor also enables banks to improve their cybersecurity stance and reduce system resiliency risk, added Pachunka, while at the same time receiving new application features on a daily basis.

“We are seeing some cases where in-house hosted systems applications are rarely updated even once annually,” he continued. “In some cases, updates were not applied for over three years.”

Fiserv, he noted, updates its application software three or four times per year.

“When you consider that we are living in a rapidly evolving cyber risk environment, rapid application deployment of resolved cyber risk findings is key to addressing the ever-increasing risks that are around us,” Pachunka said.

Perhaps it is no surprise then that recent statistics indicate that outsourced financial services will rise by 7.5% annually.

Outsourcing can also help during times when it is difficult to attract and retain talent, such as that we are living in now.

“Retaining talent and expertise to meet in-house needs is hard,” Pachunka said. “The challenges are real and not just in the financial space; every business out there is dealing with this.”

This is especially true in item processing, where “a lot of the people who really understand item processing are starting to retire,” he added.

By outsourcing item processing, financial institutions don’t have to worry about dealing with finding employees to perform this function, and can take advantage of the “bench strength” outsourcers possess.

Banks can also take advantage of economies of scale. As check volumes decrease, as they are in many cases, an outsourced client will see variable monthly costs go down with the volume decline over time, said Pachunka, adding that an outsourced service provider can also scale up if growth or acquisition activity is happening.

He also stressed that banks do not lose control of anything when they outsource item processing.

“We don’t take over the bank’s back office,” Pachunka said. “When you outsource, you should always have a window into the processing, just without hosting it yourself. Most financial institutions we work with don’t feel like they are losing control, but rather giving up the headache of having to deal with this on a daily basis, and even often on nights and weekends.”

Pachunka said when working with a financial institution embarking on outsourcing item processing, Fiserv “takes you through the process step-by-step and makes it as easy as can be.”

For many financial institutions, pandemic recovery plans were largely theoretical until 2020. But when the COVID-19 pandemic struck the world, many were scrambling to maintain operations.

Outsourcing item processing can help during pandemics or natural disasters by working with vendors that are well prepared for such occasions.

Pachunka noted that when COVID-19 lockdowns happened across the world, Fiserv did not miss any posting deadlines for clients.

“Our deposit solutions operations are geographically dispersed across the U.S. and the world for that matter,” he said. “During the first month of the COVID lockdown, we sent additional monitors and equipment to home locations for everyone working remotely.”

He added that even now, Fiserv requires operations employees to work one day per week at home to continually ensure the effectiveness of a remote environment, should it be needed again.

“Our pandemic preparedness plan was exercised thoroughly and proven to be effective,” he said.

Regarding natural disaster preparedness, Pachunka noted that Fiserv’s production and data recovery sites are hundreds of miles apart in the U.S. and based in strategic locations.

“We are in a strong situation as it related to data center support,” he said.

As check volumes decline but are still being used, Pachunka said Fiserv aims to help financial institutions in this area and manage these often time-consuming and manual functions until there is no longer a need for them.

“At Fiserv, we intend to be the last provider standing to process your checks and other items,” he concluded. “We are also preparing the next generation to support item processing until the last check is written.”

Fraud and cyberattacks that target children are alarmingly on the rise. According to data from an upcoming report to be published by Javelin Strategy & Research, nearly $1 billion was lost to child ID fraud in 2021. Furthermore, 1 in 50 children were affected by child identity fraud during the past year and 1 in 45 minors’ personal information was exposed via data breaches in the past year.

These attacks are increasing because children are online more than ever. It isn’t just social media; children are playing video games online, engaging in discussion on forums such as Reddit and Discord, and much more. In order to protect these young consumers, parents need to be educated about how their children are being targeted by fraudsters online. But financial institutions can play a key role in stopping child identity fraud as well.

To find out more, PaymentsJournal sat with Javelin’s Director of Fraud & Security Tracy Kitten, and Ben Halpert, founder of savvycyberkids.org, an online resource teaching children and their parents about cyber safety.

The easiest way to stop the scourge of child identity fraud is to get ahead of the problem by educating children and their parents on the various ways fraudsters target children. Criminals obtain personally identifiable information (PII) from children in various ways, such as by interacting with them online or by finding information on the dark web from previously exposed data breaches. After cybercriminals have enough PII, they can use that child’s identity or create a synthetic identity with PII gleaned from multiple victims, and open new accounts, take out loans, or commit many other types of fraud.

Children need to know what types of information they should not give out online and learn to identify the tactics used by those trying to scam them, Kitten said. Financial institutions, though not directly involved in these attacks, can engender consumer trust and loyalty by offering information and education to their customers on how to stop child identity fraud, she added.

“Financial institutions need to let parents know that they are a resource when it comes to preventing child identity fraud,” she said. “Financial institutions have an opportunity to really play the role of a leader in this space and act as an educator to their customers.”

Parents may not even be aware how often their children are online and to what extent their children interact with others. FIs can be a crucial education resource in this area.

“We need to educate parents as to why child identity fraud is such a critical issue and why we have to take action now,” Halpert said.

Social media channels are probably the top environment where fraudsters target children to extract their PII. Though most social media sites have some sort of parental controls, these are “easily bypassed,” noted Kitten.

“Unless as a parent you are looking over their [child’s] shoulder 24/7, it’s really difficult to control what they’re doing and who they are interacting with,” she added. “That’s why they need to learn safe online behaviors early.”

Halpert agreed, noting that children need to be taught what information is okay to share and what isn’t. For example, Savvy Cyber Kids has created a digital guide for parents, grandparents, and guardians about what information children should divulge in an online gaming environment. Many online games usually ask for a user’s birthday, but Halpert asks, “Do they actually need my birthday?”

If that online gaming site later gets hacked, the data are exposed, so parents should explain to their children “when it’s okay to tell a little white lie” and perhaps not input their real birthday. Or when speaking to someone else in a chat during an online game, “parents need to talk to their kids about specific topics that are okay and not okay to share with strangers.”

It’s not just children that need to learn this lesson either, said Kitten.

“Parents oftentimes share too much information about their children online,” Kitten observed. “Where they go to school, where they are on vacation. Some of the information we share online is information we should think twice about before putting out there.”

Vigilant cyber safety should be taught to children early, preferably between the ages of three and five, said Kitten. This may seem early, but information learned during that time will be ingrained and carried into adulthood.

“The earlier we start educating children about safe online behaviors, the dividends will pay throughout their lifetime,” she said. “This should be part of the early childhood curriculum.”

Halpert concurred, adding that it is why children are typically taught to say “please” and “thank you” during this age.

“So when they get older, they don’t have to think about whether they should say ‘thank you’; it’s just intuitive,” he added. “It’s the same with cyber safety; it should be ingrained.”

Halpert said that many parents may not realize how much of their and their children’s personal data are exposed; years of corporate data breaches mean any fraudster can easily find millions of password and email combinations on the dark web. That’s why it’s important for parents and children to not reuse passwords across sites. Instead, they should use password managers that create and store unique passwords for each site they log in to.

“There’s been so many breaches over the decades that virtually all our prior passwords are known,” Halpert said. “At this point, all our previous passwords should be thought about as public information.”

Times of rampant high inflation, such as that we are living in now, affect consumers and businesses in various ways. But one segment that is typically most adversely affected by inflation are workers who are paid an hourly wage. How can earned wage access make an impact?

As inflation forces difficult spending and budgeting decisions in households across the country, this demographic is among the hardest hit. One study conducted in July found that about half of hourly workers did not have any emergency savings at all, and nearly 80% had less than $500 tucked away. Only a small percentage of workers have seen their wages outpace inflation, according to research.

This is why it is critical for employees to have on-demand pay access in order to better manage their cash flow. And it’s also important for employers to offer this service, which plays a large role in employee retention and satisfaction. To learn more about earned wage access, PaymentsJournal sat with Darren Cho, VP of Product at DailyPay, and Steve Murphy, Director of Mercator Advisory Group’s Commercial and Enterprise Payments Advisory Service.

DailyPay partners with employers to enable employees to instantly transfer money between pay periods that they have earned to any bank account for a small fee, with 100% of their net pay earned up to that point available. Most of the employers it partners with pay a large segment of their workers on an hourly basis. The firm also recently created a Digital Wallet called Friday, which comes with GPR Visa card and companion mobile app. Users can download the Friday app to receive the Visa card, and immediately access their earned pay without transfer fees by connecting direct deposit to Friday in a single tap. 

Darren said enabling easy and instant access to earned pay is vital for the financial wellness of hourly and gig economy workers.

“A lot of working Americans are living paycheck to paycheck, especially hourly workers,” said Darren. “Their income is often unstable and unpredictable, so it’s really easy to run into an overdraft fee situation or face late fees. And the inflationary environment makes it  even worse. That’s why we believe workers should gain full control over their pay, and access what they earned without fees..”

Murphy asked about the new Friday product and where it sits in the wider DailyPay ecosystem.

Darren responded that for any employer that partners with DailyPay, its employees can always instantly transfer funds into their existing bank account. The firm is hoping to entice some employees to switch their direct deposit to Friday to take advantage of some of the perks, including the no-fee transfer. Friday also provides digital tools to help its users manage their money. For employees working for a DailyPay partner, Friday shows the real-time balance of their earned pay, together with the latest card balance, and allows instant transfer of the earned pay without fees. . This ultimately reimagines what the typical “payday” is, Darren noted.

“We believe Pay Balance is the employee’s own money. Friday enables them to access it instantly without fees; effectively making every day a payday. There are a lot of hourly workers that really cannot wait until payday to solve their financial problems,” he added.

Helping people with their financial wellness not only benefits the employee themselves, but also the employer. Cho observed that there is a direct link between employers positively engaging their workers — such as by offering financial wellness tools — and employee retention.

“There has been an enormous focus on employee retention during the past few years,” said Cho. “Different employees have different sets of ideas about how and when they want to get paid and how they want to manage their money. Offering them flexibility in this area increases employee engagement and satisfaction.”

Cho added that it is not just younger workers that are taking advantage of DailyPay’s on-demand wage access services, but those across many different age demographics, which may come as surprising to some.

“What we are seeing in studying our user base and conducting surveys about who is using the service is that it goes beyond just one age demographic,” he said. “Older age groups are also represented in both the DailyPay and Friday user base, we have found.”

The user base also extends across all income levels, not just lower-income workers.

“Surprisingly there are some users that are in the six-figure income level,” Cho said. “They are a minority, but they do exist. The ongoing inflationary pressure is great irrespective of income levels.”

A key aspect of DailyPay is an easy integration with its employee partners without disruption to their existing processes and technology infrastructure, noted Cho.

“How does the employer add this service to their list of benefits and how does the employee access it?” Murphy asked.

Cho responded that integrating DailyPay involves no process or configuration changes on the employer’s end.

“We know that HR and payroll process are very complex, so it’s designed that we do all the integration work on our end,” he added. “It does not introduce any changes for the employer’s payroll configuration.”

Cho also said that DailyPay provides its employer partners with marketing materials so they can let their employee base know the service is now an available option to them.

“We are trying to make everything as easy as possible for the employer,” he said.

Murphy agreed that “it’s a real key to make things easier for the business and eliminate friction” in getting adoption of any new employee benefit service.