The PaymentsJournal Podcast

After years of discussion about the new messaging protocol, ISO 20022 is now an inevitability. Though there are substantial benefits to adopting the protocol, many financial institutions—especially in the mid-market tier—are still unprepared to meet compliance by the July 14 deadline (delayed from March 10).

In a recent Payments Journal podcast, Mihail Duta, Director of Solution Consulting and Transaction Banking at Finastra, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the obstacles to ISO 20022 adoption, the advantages the protocol provides, and the opportunities it uncovers for mid-market financial institutions.

The shift to ISO 20022 will be like learning a new language for many banks and credit unions. Some institutions may attempt to bridge the transition from the FAIM format by building translators, but there are challenges with that solution moving forward. Many translators have limitations that could lead to data truncation, and incomplete or inaccurate data could potentially cause payment processing failures. 

Another issue for these banks will be ensuring that all their interfaces and solutions beyond payments processing are ISO 20022 compliant. Across-the-board standardization will be especially critical when sending cross-border payments.

U.S. instant payment rails FedNow and RTP were built on the standard, and SWIFT cross-border payments will move to ISO 20022 in November 2025. This means the institutions that aren’t fully leveraging the protocol will be at a competitive disadvantage.

“ISO 20022 is no longer a nice-to-have,” Duta said. “It’s the only way you’re going to be able to process Fedwire transactions come July 14, so you must be compliant.”

As Duta pointed out, standardization facilitates seamless communication and interoperability between banks and across borders, with valid message instances to ensure compliance with the standard.

Though the looming deadline may be top of mind for many institutions, supporting the standard goes beyond mere compliance. The new protocol offers substantial benefits that mid-tier financial institutions can leverage to enhance their services and identify new revenue streams.

“Given the richness of data that comes with the ISO 20022 format, more fields are available to transactions, compared to what we have today” Duta said. “We’re moving from three lines of address to 24 lines of address, to give just one example.

“Structured data can be fed into AI capabilities or machine learning, improving the detection of complex anti-money laundering scenarios, but also improving operational efficiency with higher STP rates,” he said.

The data from ISO 20022 transactions can also drive significant improvements in fraud management. Enhanced data quality and consistency allow for more sophisticated fraud detection algorithms, potentially reducing fraud losses.

The ISO 20022 standard also improves payments processing by minimizing manual interventions and associated costs. Taken together, the protocol’s benefits create a faster, more efficient, robust payments engine, offering a powerful competitive differentiator.

“We’re still talking about how we meet compliance but lost in that discussion is the idea that this impacts everybody,” Wester said. “That’s one of the things about the payment space—we are all interconnected. Mid-market institutions are going to need to maintain or gain integration with the global banks and payment networks. For mid-market financial institutions, this is about new products and services being offered to customers and it’s about being competitive and remaining competitive.”

The adoption of ISO 20022 can mean much more than efficiency gains. Supporting the protocol can be the first step toward creating a fully modernized payments ecosystem. An institution that supports the standard will be prepared to meet customer demands for instant and cross-border payments using a single system.

“Especially when you’re talking about commercial or corporate clients for financial institutions, it’s amazing how quickly they can go from a nice-to-have to a must-have,” Wester said. “Now they will expect this product or service from their financial institution, to help with reconciliation, to help with operational efficiency, or to help with fraud detection. All those things are why this discussion is so imperative right now.”

Customer expectations will continue to shift as the use cases for ISO 20022 are developed, and the full capabilities of the messaging standard begin to come into focus.

“The reality is that the expectation and the ask from your customers is going to evolve now that ISO 20022 is available to them and it’s becoming popular,” Duta said. “You’re going to see your customers asking a mid-market bank if they can send an ISO-formatted file with the expectation that the bank will take the file and process it through ACH. This is another element to think about that may not come to mind right away, but there are other implications to the ISO format beyond what’s directly in front of us.”

These implications will impact the entirety of an institution’s ecosystem because platforms like RTP and FedNow interact with systems outside of a bank’s payments solution. It means ISO 20022 adoption will affect everything from a bank’s fraud solution to its core solution.

For example, when a bank posts a transaction to their core system, they will receive additional data that provides clearer insights into the purpose of the payment—something that wasn’t always evident in the previous format. Beyond improving operational efficiencies, this data offers valuable details, such as purpose codes, and can pay dividends in the long run.

“This is a part of a larger evolution of payments that we’ve seen over the last decade or so of digital transformation leading to payment modernization,” Wester said. “As I’m fond of saying, it doesn’t stop here. We know that payments is going to move. We know that it can continue to evolve. How are we going to use AI for next-generation solutions for fraud mitigation? What new payment rails are going to be coming in?”

The first and foremost concern for many mid-market financial institutions may be compliance, but ISO 20022 support is a must-have for banks and credit unions who are looking to stay competitive. It means the July compliance date is just the beginning of the road.

“Financial institutions should remain engaged with the way that these use cases and applications are developing and evolving,” Wester said. “It may sound strange to say, ‘Stay engaged with a data standard,’ but we are just beginning to see the ways in which ISO 20022 is going to be used, the ways it’s going to be implemented, and the ways it’s going to be integrated into other products and services. Stay engaged with the way this is evolving, because I think this is going to be a part of a bigger evolution.”

Because of the complexities of ISO 20022 compliance, many mid-market financial institutions will be searching for solutions to help them both reach compliance and take advantage of the protocol’s opportunities. Solutions like Finastra’s Payments To Go can offer access to multiple rails by proxy—in a platform that is ISO 20022-native. Payments To Go is built on Microsoft Azure technology, allowing it to fully leverage the benefits of these advanced technologies. The key advantage of Payments To Go lies in its support for ISO 20022, which enhances interoperability. Combined with open APIs, this has simplified pre-integration with the fintech ecosystem, enabling the delivery of comprehensive solutions that include compliance, AML, and fraud services.

“It’s a lot easier to adopt ISO when you have an application that’s ISO native, as opposed to an application that basically has to make significant changes to be ISO compliant,” Duta said. “There is a difference between an ISO 20022 native application and an ISO 20022 compliant application. Behind the scenes, to take advantage of the richness of this data, you need an ISO-native application.”

The post ISO 20022 Is the Beginning of the Road for Mid-Market Financial Institutions appeared first on PaymentsJournal.

In the fast-changing world of financial services, modernizing payments technology has become essential for businesses looking to reduce costs, enhance customer experiences, and stay competitive. Santander Consumer, a full-spectrum auto lender, stands as a prime example of how bold leadership and strategic decision-making can transform payments infrastructure to deliver long-term value.

On a PaymentsJournal podcast, Santander Consumer Chief Technology Officer, Don Smith, spoke with PayNearMe Chief Revenue Officer Mike Kaplan and James Wester, Co-Head of Payments at Javelin Strategy & Research, about Santander Consumer’s approach to modernization and the benefits the company gained from it.

Financial institutions operate with a fairly straightforward business model: they lend money and borrowers repay it. “Payments is a really important part of our business,” said Smith. “We lend people money to procure vehicles and then we really, really like it when they pay us back!”  Smith noted that modernizing their payments platform was critical to addressing service-level challenges and supporting scalability that existed with their incumbent provider.

PayNearMe’s Kaplan highlighted the broader implications of modernizing payment systems. “When payments go right, they are frankly really easy,” said Kaplan. “It’s when they go wrong that you need a modern platform and modern systems to address those things and drive the extra costs out of it.”

The motivation behind Santander Consumer’s decision to overhaul their payments technology was clear: outdated systems were creating inefficiencies, service disruptions, and unnecessary costs. As Smith explained, “When outages occur with a payment provider, it’s a big problem because customers can’t pay us. Reliability and stability in a payments platform are absolutely critical.”

Service-level challenges and stability issues prompted the company to evaluate opportunities to make a change with their payments provider. In addition, as a contract neared its end, Santander Consumer saw an opportunity to reassess its existing provider and consider whether to renegotiate or look at alternatives. Finally, the company asked whether the current platform and strategy could expand, improve efficiency, and better service customers. If not, it was time to consider a change.

“All those things coalesced together as I was introduced to PayNearMe,” said Smith. “We started evaluating their capabilities and looking at the stack and the architecture that they provided.”

Transitioning to a new payments platform is no small feat, particularly for a large organization like Santander Consumer. “These projects are high-risk,” acknowledged Smith. “Success requires a clear vision, the right partner, and active executive sponsorship. It’s not enough to just approve the project; leaders must stay engaged and work closely with teams to address challenges in real time.”

Wester praised Santander Consumer’s approach. “Many financial institutions struggle with modernization because they view technology as an ancillary function rather than a driver of business efficiency. Santander Consumer’s focus on aligning technology with business outcomes is a model for success,” said Wester.

“You need to be able to step up and drive transformation in your organization, and not fear the hurdles that you have to jump over,” added Smith.

For forward-thinking organizations like Santander Consumer, considering the total cost of acceptance—not just transaction fees—can transform their approach to payments. As Kaplan explains, the goal should be to address all costs associated with payment acceptance, including system costs, manual interventions, and exceptions from failed or delayed payments.

“It’s not just reducing the cost of an individual transaction, but really, the whole ecosystem becomes more efficient the more you take manual effort and touch points out of the process,” said Smith. By partnering with PayNearMe, Santander Consumer streamlined workflows, reduced exceptions, and improved overall efficiency, delivering both cost savings and a better customer experience.

One of the standout features of the payments modernization effort was the emphasis on self-service capabilities for both Santander Consumer’s customers and employees. With PayNearMe’s help, Santander Consumer introduced a feature that allows them to send personalized payment links directly to customers’ mobile devices, enabling one-click payments. This eliminated the need for the company to contact a subset of their customers.

“We saw thousands of people adopt that new capability,” said Smith. “Otherwise, we would have had to phone them up, track them down, get them to answer their phone in the first place, and guide them into making a payment.” This capability not only enhanced the customer experience but also freed up internal resources to focus on more strategic priorities.

Santander Consumer measures success across multiple dimensions, including customer adoption of new payment methods and channels, such as Google Pay, Apple Pay, PayPal and Venmo. The team also monitors service levels to ensure stability and scalability, while tracking operational efficiency gains in back-office functions such as reconciliations and reporting. Ultimately, success is defined by enhancing capabilities, reducing costs, and managing risk effectively–ensuring the modernization delivers long-term value.

Smith’s advice for organizations considering a similar journey was clear: “Don’t start a project like this without the right partner and active executive involvement. It’s a long and complex process, but with close collaboration and a clear vision, the results are well worth the effort.”

As payments technology continues to evolve, Santander Consumer’s success demonstrates the benefit of payments modernization—not just as a technical upgrade, but as an enabler for long-term value.

The post Fast, Secure, and Future-Ready: Santander Consumer’s Payments Tech Transformation appeared first on PaymentsJournal.

Virtual cards have been a popular option for consumers for years, but they’re just now gaining traction among businesses. With an increasingly globalized economy, corporate entities are seeking efficient ways to move money across borders, and virtual cards are filling that role—maximizing efficiency while reducing costs.

Mark Anthony Spiteri, Global Head of Card Business at Nium, sat down with Brian Riley, Co-Head of Payments at Javelin Strategy & Research, during a PaymentsJournal podcast to discuss the growing demand for B2B cross-border payments and the emerging use cases driving their adoption in industries like insurance and travel.

B2B payments have been a cornerstone of commerce for decades, but like many other aspects of business, the pandemic brought significant changes. For one, companies had to grapple with the possibility of their suppliers going out of business. This created an urgent need for processes that could move funds quickly between merchants and suppliers, ensuring payments were delivered reliably.

Post-pandemic, many companies diversified their supply chains to reduce risk and work with multiple global suppliers The challenge, however, is that the payment rails in some of these countries may have not been tried and tested. Fundamentally, businesses need assurance that they can pay and get paid quickly, cost-effectively, and reliably across borders.

Since the pandemic, two additional factors have been changing the fundamental nature of B2B payments. The first is the impact of volatility.

”At the moment there’s a lot of volatility across the political landscape,” said Spiteri. “We saw what happened in the U.S. election and how the Asian market reacted, with significant impact to the Chinese Yuan. Suddenly, there was a lot of fluctuation in FX. If that happens, you need to be able to control those payments in a way that you can predict exactly what’s going to happen. It needs to be accurate, reliable, and in real-time.”

The second is the increasingly complex regulatory landscape. Given the heightened scrutiny from regulators, it has become more difficult for businesses to rely on a single payment method for global transactions.

The immediacy of virtual cards has helped alleviate many of these concerns.

“Something I’ve always liked is how quickly you could settle real-time payments across borders,” said Riley. “The Eurozone was a leader in real-time payments, but now it’s moving through many different countries, and it’s finally in the U.S. These payments settle once they hit the books, and they clear very quickly and safely.”

As a self-confessed ‘cards guy’, in Spiteri’s opinion the biggest challenge with real-time cross-border payments is how you connect a fragmented landscape of localized, regional networks around the world. In addition to global real-time payment networks like that offered by Nium, this is where virtual cards come into play. Being able to move money quickly and securely across borders with virtual cards is a powerful way for businesses to improve liquidity and cash flow management.

“Before it was like, pay in 30 days, or pay in 60 days, right?” said Spiteri. “Now, you can pay now. And one of the best ways to do that effectively and guarantee when the payment will arrive is with a virtual card.”

One key difference between virtual cards and other real-time payment methods is the chargeback protection that cards offer. If a supplier or merchant goes bankrupt, buyers are guaranteed to recover their funds.

Virtual cards also offer better controls. When employees use corporate cards, for example, it can be difficult to reconcile transactions and track where payments are going. Overall, they offer more flexibility. They can be configured as single-use or multi-use cards. A virtual card might be restricted to a specific merchant, set for a particular spending limit, or designated for use only at restaurants. This level of customization gives finance and procurement teams more control and granularity—and provides real-time transaction information to the employer.

“From the use cases I’m familiar with, where most cards are single-use, it simplifies reconciliation dramatically,” said Spiteri. “You can match the card to the original transaction, automatically plug the information into your ERP or accounting system, and you have end-to-end matching.”

The travel industry was among the first to adopt this technology, primarily due to the immediate need for liquid cash flow and guaranteed payment protection. For every online booking, travel agencies and other intermediaries  must make payments to their airline and hotel suppliers around the world. Travel companies of all kinds also face sizable expenses, such as fuel purchases, often in cross-border locations. For instance, when planes require maintenance, businesses need the ability to quickly and securely transfer funds to cover repair costs.

Nium is also seeing strong demand in the B2B insurance sector, working with leading insurance firms to deliver innovative virtual card solutions. In one use case, Nium is the global issuer behind the launch of a new healthcare payment card, enabling members to pay for eligible outpatient treatment without using their funds, needing to submit a claim, or contacting their insurer to pre-authorise their treatment before they pay it.

“If I’m travelling and have an accident abroad, I need to find the hospital and get treatment urgently,” said Spiteri. “I pay with my own credit card, then I have to fill out some forms, then claim it back, then send it to my insurer, and so forth. Even then, I may not be reimbursed if my claim doesn’t meet the criteria of my cover plan. It’s a complicated process that is very time consuming, both for the customer and the businesses involved as money can take time to flow between the insurer and the hospital.”

“With the real-time healthcare payment card, now when I’m travelling and something happens, I can generate a virtual card on the insurance app in my Apple Pay or Google Pay wallet. When I pay for the treatment, it’s actually the insurer paying the medical facility immediately. No reimbursement headaches. All I have to do is upload an image of the treatment invoice to the app to be processed.”

Expect to see consolidation in the B2B payments industry in the coming years. The focus will likely shift toward addressing challenges like those in the insurance sector—a need that forward-thinking companies like Nium are already anticipating and solving.

“With consumer payments, you make a solution work,” said Spiteri. “You don’t throw everything at it and hope that it works, or else no one will use it. And that’s what’s going to happen in the B2B space. This will drive consolidation and increase the focus on solving tangible business problems with innovative payment solutions.”

The post What’s Driving the Adoption of Virtual Cards? appeared first on PaymentsJournal.

Cyber fraud presents a unique threat to small and mid-sized financial institutions, which often lack the resources or expertise that major banks possess to fend off account takeovers and other cyberattacks. However, they face the same risks from hackers as any larger institution.

In a PaymentsJournal podcast, Mike Kosak, Senior Principal Intelligence Analyst at LastPass, spoke with Tracy (Kitten) Goldberg, Director of Fraud and Security at Javelin Strategy & Research about the evolving threat landscape confronting smaller financial organizations. Their discussion covered the emergence of nation-states as threats, the rise of deepfakes, and why information-sharing may be the most effective defense.

The biggest threat currently facing FIs is financially motivated cybercriminals. Their attacks typically focus on finding other ways to access legitimate accounts, as well as infiltrating the institutions themselves. Their goal is to either steal money directly or collect data to use as ransomware.

These institutions are also facing threats from so-called hacktivists aiming to cause reputational damage. Such actors seek to acquire data that can embarrass either the institutions or their customers.

While these infiltrators are often assumed to be rogue operators or members of hacker gangs, there’s also the possibility that they’re sponsored by nation-states, such as Russia, Iran, or China.

“One of the things that smaller financial institutions need to keep in mind is that it’s not just the data, it’s not just the money, and it’s not just ransomware gangs,” said Kosak. “It may be their connections to other organizations. A lot of nation-states are increasingly targeting FIs based on their connections to other organizations, to get their foot in the door within that larger sector.”

In the fight against cyberattacks, humans are always the weakest link. The same techniques used to socially engineer consumers into falling for scams can also be waged against bank employees or contact center staff. These employees may then be coerced into divulging sensitive information, such as intellectual property or details about customer accounts.

One tactic that has grown in popularity in recent years involves performing reconnaissance on LinkedIn or other social media platforms to figure out the right individuals to target. Once a criminal successfully impersonates an employee, they call the IT help desk to try and reset a password, which also gives them access to protected information.

“These attacks are getting much more targeted,” Goldberg said. “They could include everything from stealing from consumers to roping them into money mule activity that’s being used to launder funds. This could be used to support some kind of terroristic financing. You might assume it would be larger institutions that would be more concerned about that, but it can trickle down to the smaller institutions as well.”

One of the most dangerous threats to smaller banks comes from infostealers, a type of malware designed to collect information from targeted computer systems. Over the past five to seven years, industry specialists have seen these attacks grow by more than 200%.

Initial access brokers leveraging infostealers are quick, efficient, and they’ve got plenty of buyers for the data they pilfer. From a supply-and-demand perspective, this creates strong incentives for others to move into this space. Even when law enforcement disrupts the work of a significant infostealer, there are still plenty of opportunities for initial access brokers to fill the resulting void.

When institutions share the threats they encounter and their analysis of the situation, everyone gains from the collective insights. However, when banks choose not to share that information, the only ones who benefit are the threat actors themselves.

Smaller, resource-constrained financial institutions may find it challenging and time-consuming to determine not only how they’re being targeted but also who is behind the attacks. Yet, this information is key.

“If you can understand not just how they’re targeting you, but who’s targeting you, you get a much broader picture of the sort of tactics, techniques and procedures you need to defend against,” said Kosak. “If you’re just focusing on activity, you’ve already seen, you can block against those efforts, but you don’t know what’s next.”

The democratization of deepfake technology has advanced rapidly, leaving every financial institution vulnerable to its threats. Technology has progressed to the point where criminals can now create deep fakes on their phones, with just a few seconds of an audio clip.

Increasingly, deep fakes are being used to call into customer service centers and impersonate legitimate customers. This creates a problem for voice recognition technology as an authentication factor, intensifying the arms race between institutions trying to verify customer identifies and criminals attempting to bypass those efforts.

While the number of deep fake calls has gone up substantially over the last two years, the long-term concern is around video deep fakes. Perhaps the scariest part of this threat is that it’s only the beginning of how far it can go.

A related threat comes from synthetic identities. Criminals steal personally identifiable information (PII) to create new personas that can open accounts and infiltrate supposedly secure systems. These identities can be very difficult to detect since they do not involve using the identity of an actual customer.

So, what should smaller FIs be doing to protect themselves from these threats? The enforcement of basic multi-factor authentication, for both customers and employees, remains absolutely critical. Moving toward passkeys as a technology, which are more phishing-resistant, is also important.

Beyond that, a right-sized threat intelligence program can be beneficial for any financial organization. A program that includes external engagement can help facilitate information sharing, allowing even small institutions to make critical connections.

Consumers have come to rely on financial institutions or other entities to let them know if their identities have been breached in some way. That makes educating both customers and employees a key part of any strategy.

People interacting with cybercriminals will always be the weak spot in the defense against them. Identity and Access Management (IAM) programs, which manage user identities and control who can access certain resources, are a way to automate a critical part of the process. Kosak and Goldberg advocate automating as much of the defense as possible.

“The more you can take the human out of the authentication process, the better off you’re going to be,” Goldberg said.

The post The Looming Cyber Threats Targeting Smaller Financial Institutions appeared first on PaymentsJournal.

Amid constant speculation about the future of payments technology, the ACH Network had its best year yet. The ACH Network processed more transactions, moved higher dollar values, and established more use cases for businesses and consumers. With new initiatives on the way designed to increase security and foster innovation, the ACH Network’s impressive growth could just be beginning. 

In a recent PaymentsJournal podcast, Michael Herd, Executive Vice President of ACH Network Administration at Nacha, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, discussed the growth areas for the ACH Network, the continued rise of Same Day ACH, and the future of the platform.

The ACH Network is a firmly established payment network that connects to nearly every U.S. bank account, making last year’s growth even more impressive. In 2024, the ACH Network added more than 2 billion payments to its annual volume, reaching a total of 33.6 billion payments. ACH’s 6.7% growth rate significantly outpaced the previous year’s 4.8% increase.

The scope and scale of the ACH Network are highlighted by its remarkable dollar volume: more than $86 trillion was moved on the ACH Network last year, representing a 7.5% year-over-year increase.

Nacha also reported that consumers are increasingly making bill payments and account transfers online. In fact, online ACH payments grew by 8.4% last year to exceed 10.7 billion payments, making it the single largest category of ACH payments.

The second-largest growth area for ACH was business-to-business payments, which increased by 11.6% in 2024, reaching a total of 7.4 billion payments. Within this segment are healthcare claim payments, where insurers compensate medical providers, including doctors, dentists and hospitals. This category grew by roughly 5%, surpassing 500 million payments.

“The third-highest growth area was Direct Deposit transactions, which have been the bread-and-butter ACH transactions over the years,” Herd said. “That includes payroll, benefit payments, and other types of consumer payments. We continue to see growth in that segment at 8.6 billion payments, which was a 3.7% year-over-year increase. Overall, there was across-the-board growth in anything that begins life electronically and digitally, and a sharp decline in anything that started off based on a paper check.”

The declining usage of checks accelerated during the pandemic, when staffing an office to issue, receive, and deposit high volumes of checks became a challenge. Since then, there hasn’t been a reversion to paper checks, even among small businesses. Security, cost, and convenience concerns have driven the shift to alternative payment methods.

“Several retailers stopped accepting paper checks in their stores last year, including Target and Petco,” Tavilla said. “Primarily, this is because there’s very low consumer demand to pay with checks anymore. More retailers are offering decoupled debit or their private label debit cards, which the consumer can use to pay with funds from their checking account, and they can also take advantage of rewards and loyalty incentives that are offered by that retailer.”

For years, large mobile carriers like Verizon, T-Mobile and AT&T have offered autopay discounts to incentivize their customers to move away from paper payments in favor of ACH. In addition, the ongoing push for eco-friendly, low-cost solutions has spurred interest in one of the original ACH use cases: recurring bill payments.

“We’ve seen interest in recurring ACH for things like donations and subscriptions, where you have a repeat payment scenario between a known payer and payee that looks a lot like a bill payment,” Herd said. “It’s not quite literally paying a bill, but the payment characteristics look almost exactly like it. That’s a sweet spot for recurring ACH debit in those use cases.”

The peer-to-peer space is another area of growth for ACH. Many P2P users fund their accounts using ACH rails, and several platforms use the ACH Network as their infrastructure. As these services have gained adoption, there has been corresponding growth in ACH usage.

For all of last year’s success, the most significant news from 2024 was the rapid adoption of Same Day ACH. For the first time, total Same Day ACH payment volume surpassed a billion payments for the year—a 45% year-over-year increase.

Roughly 20% of all new ACH payment volume is same-day payments, and Same Day ACH is being utilized in many of the same use cases as standard ACH. There has been volume growth in consumer online payments like bill payments, account transfers, wallet loads, and in B2B transactions.

“It’s no surprise to see such significant growth this past year, the most to date,” Tavilla said. “ACH is already ubiquitous, so all the financial institutions who can currently send and receive standard next-day ACH can also easily accept Same Day ACH, making it a relatively lighter lift. The infrastructure is in place operationally and the financial institutions are already enabled to do that, so I anticipate that the growth will continue in both volume and value going forward.”

Though there has been speculation that faster payments will eventually eclipse more conventional payments, a more likely scenario is that both payment methods will continue to flourish. Depending on the use case, not every payment must be same-day or instant. Many of the core ACH use cases like payroll or bill payment are scheduled payments with known due dates and counterparties, and there may not be a good rationale for utilizing same-day settlement capabilities.

“Even within a standard use case area like payroll, you’ll have cases like payroll errors or payments to temporary workers, hourly workers, and gig workers, where it does make sense to take advantage of faster settlement speeds,” Herd said. “In bill payment, you may have bills that are late or overdue and service is scheduled to be cut off. These are one-off use cases where it may make sense to take advantage of a faster settlement speed.”

In addition to driving standard and Same Day ACH adoption, Nacha has three areas of focus for the upcoming year. The first is risk management. The organization’s members adopted a new set of rules that are designed to reduce the growing prevalence of credit push fraud, such as business email compromise.

These rules will require a base level of transaction monitoring on all parties in the ACH Network, except for consumers. While the major provisions won’t go into effect until 2026, Herd recommended that ACH Network participants, including financial institutions, work on implementing their protocols this year to be compliant when the rules go into effect.

A second area of focus is a pay-by-bank project created within Nacha’s Payments Innovation Alliance membership program. Pay-by-bank has become a common industry term over the past several years, but there’s no commonly agreed upon definition among industry stakeholders.

“There is also virtually no consumer recognition of the term, even though consumers are seemingly willing to use and link their bank accounts to make payments and conduct transfers,” Herd said. “The project is intended to forge a participant consensus on what pay-by-bank actually means, to describe use cases, and to identify any novel risks that pay-by-bank transactions might present.”

The last initiative will expand the capabilities for account validation services that Nacha provides through Phixius, their information network. These services can help financial institutions and their customers comply with the Nacha account validation rules for Internet-initiated payments.

“That can help with de-risking ACH payments for a wide variety of use cases, including validating vendor counterparties in the B2B space, and even in payroll in validating accounts for payroll Direct Deposit,” Herd said. “Watch this space this year for news and announcements about the expansion of Phixius account validation services.”

The post ACH Has Best Year on Record, Driven By Accelerating Same Day ACH Adoption appeared first on PaymentsJournal.

Criminals are continually looking for ways to circumvent fraud detection systems, and money mules have become a popular vehicle to move illicit funds between accounts. Mules are favored because they are effective—often, they are everyday people, many of whom are already customers of a financial institution who have passed verification checks.

Glenn Fratangelo, Head of Fraud Product Marketing at NICE Actimize, and Jennifer Pitt, Senior Fraud and Security Analyst at Javelin Strategy & Research, sat down for a PaymentsJournal podcast to discuss the evolving ways money mules are deployed, their impacts on banks, and the ways financial institutions can protect themselves from this emerging threat.

One of the most disheartening aspects of the money mule phenomenon is that it often isn’t difficult for criminals to recruit help. In many cases, mules are ordinary people that are willingly moving funds for criminals in exchange for a portion of the proceeds.

These individuals can be students, retirees, or lower-income individuals who are looking for financial relief. Criminals deliberately target those who seem unexceptional to avoid raising suspicion. In many cases, mules are recruited through social media, where there is often a receptive audience.

“On TikTok, Facebook, and YouTube, there is almost a gamification or a scam-fluence, where individuals are diminishing the level of criminality associated with becoming a mule,” Fratangelo said. “When it’s being presented on social media platforms with fast-paced music and an engaging speaker, magically it becomes not illegal to become a money mule. It’s being driven by the idea of easy money.”

Though some mules are willing participants, there are also many instances where the mule is being coerced, blackmailed, or tricked into moving the funds. In these cases, the mule is just as much a fraud victim as the institution.

“There is a victim/perpetrator paradox here, where these mules are active participants, but many are scam victims themselves,” Fratangelo said. “It makes it even more morally and legally complex, because how do you classify these individuals? Oftentimes, financial institutions find themselves stuck between wanting to stop the criminal activity, but also not wanting to further victimize the mule if they are in the cycle of scam and victim.”

Regardless of how the mule was recruited, many of them are already in the institution and have already passed control checks. Once they become a mule, they have effectively become a trojan horse within the financial institution that is used for short-term, high-value transactions.

The technology available to criminals since the advent of generative AI only adds to the sophistication of money mule operations. Cybercriminals can combine AI agents and automation to create accounts and facilitate mule recruitment on a massive scale.

“The ability of generative AI tools to create synthetic identities that look indistinguishable from real people makes it hard to identify fraud,” Fratangelo said. “They operate in a 24/7 environment where thousands of accounts can be created simultaneously, and they’re incredibly believable.”

In addition to AI, the digital payments revolution has created vulnerabilities that criminals can exploit. Payments are faster, more frictionless, and increasingly global, which allows criminals to move money quickly and in substantial amounts.

The emerging technologies, coupled with the availability of mules, has created a devastating ripple effect that goes beyond fraud. Money mules enable money laundering, terrorist financing, and a multitude of other nefarious activities.

Addressing money mules requires an approach that considers the whole customer lifecycle. From the start, there should be robust identity verification checks, but Know Your Customer (KYC) checks shouldn’t stop there.

“I would suggest that financial organizations invest in what we call perpetual KYC,” Pitt said. “Current KYC processes during onboarding look at identity verification, customer due diligence, account monitoring, and income verification one time. Instead, perpetual KYC would perform these checks on a constant basis with technology in the background.”

Inbound monitoring might be a standard part of the onboarding process, but most institutions’ systems won’t detect the initial mule activity. From a fraud detection perspective, there’s no fraud loss associated with an inbound transfer so there is no need to scrutinize it. It is not until after bad actors move money out that the transaction is flagged, which is often too late.

Because many mules are recruited after they have already completed the onboarding stage, more sophisticated detection methods, such as behavioral analytics, are necessary.

“It’s not only looking at historical data based on the typical customer, but looking at the behaviors of that specific customer,” Pitt said. “What are they doing with their keyboard? What is their keystroke pattern, their mouse pattern? How long does it take them to enter in data? Does it look like they’re copying and pasting things like date of birth, that are generally typed in?”

Though identifying individual mules is important, financial institutions shouldn’t take their eyes off the bigger picture.

“Mules do not operate in isolation,” Fratangelo said. “There’s no such thing as a lone wolf in the mule world. They operate in herds, and they will even use the term ‘mule-herder.’ Criminal syndicates will connect multiple accounts into networks for moving money undetected, so institutions need to uncover these hidden relationships.”

Because these relationships are often indirect, financial institutions will have to deploy their own machine learning models to analyze connections between accounts. This includes shared phone numbers, e-mail addresses, or device transaction patterns. Graph database technology can visually map these networks and identify clusters of accounts that may belong to a mule ring.

AI-powered network analysis can also pick up on unusual relationships between new and existing accounts and flag collusion. The goal is to connect mules to the overarching scam network, where usually mules are only one aspect of the operation.

The final piece of the money mule prevention plan is sharing collective intelligence through industry consortiums. Mule activity might take place—and be documented—at the financial institution where it occurred, but other banks could be affected, and they would never know it. A consortium could be an essential component to facilitate data sharing.

To get ahead of money mule schemes, organizations must take a layered, proactive approach that incorporates cutting-edge technology. Traditional scam prevention is often reactive—and ineffective—in identifying and neutralizing mules.

“To combat mules, banks need to strengthen their technology and data infrastructure, develop scalable AI and machine learning solutions, and create more seamless data integration to break down silos,” Fratangelo said. “This means understanding onboarding, fraud, aftercare, claims, and recovery. The institution needs a 360-degree view of the customer’s activities.”

As fraud evolves, every aspect of a financial institution, including data, analytics, strategy, and operations will need to be infused with intelligence that can proactively work to identify threats.

“Every mule transaction leaves a trail of damage. This is why it’s not just banks, but society as a whole that needs to address mules,” Fratangelo said. “At the end of each mule operation is a scam victim, whether it’s a romance scam or an investment scam. It’s the movement of ill-gotten gains from things like drug trafficking or terrorist financing. Ultimately, it can leave significant reputational and regulatory damages for financial institutions.”

The post Money Mules Up the Ante on Fraud, Creating Significant Impacts on Financial Institutions appeared first on PaymentsJournal.

The buzz is growing louder. Many merchants are tired of navigating intricate payout processes that drain valuable time and resources. They want to be rid of payment headaches and welcome more seamless efficiency. Merchants demand a cutting-edge payout solution that helps them focus on their business while giving them the peace of mind that the complexities of their payout operations have been managed.

Payouts have historically taken a back seat to adding new payment acceptance functionality for consumers and the resulting experience can be fragmented and inefficient. Each market has its own set of payout rails that can be leveraged by domestic merchants but trying to cobble together a unified, global payout experience that allows for personalization has been a substantial challenge for organizations.

In a recent PaymentsJournal podcast, John McNaught, Senior Vice President and General Manager of Payouts at Worldpay, and Don Apgar, Director of Merchant Payments at Javelin Strategy & Research, discussed the importance of payouts, the ways merchants can customize the customer experience and the innovative tools that can optimize payouts.

One of the main reasons there hasn’t been substantial headway in the payouts space is that it hasn’t been a high priority for many organizations. While merchants have fiercely competed over the shopper checkout experience, payouts have often been deprioritized and accomplished using traditional systems.

In the insurance industry, the payout experience was often purposefully neglected in the past. For example, an insurance company may have intentionally caused a poor payout experience by delaying the payment for weeks and sending a paper check in the mail. The company might have hoped that the check would get lost or stolen or the beneficiary would forget to take the check to the bank.

“That type of thinking has changed in the last few years because there has been an increase in competition,” McNaught said. “Particularly amongst marketplaces and similar platforms, the payout experience can drive overall ecosystem participation and directly generate more content and more goods for sale. It has made the payout experience something that can no longer be ignored and it’s a space where many platforms are now competing.”

As these platforms aim for global reach, they have faced significant challenges. Merchants have often relied on local payment rails accessed through traditional banking partners to pay domestic beneficiaries. However, when the beneficiary is located outside the merchant’s country, the payment experience often deteriorates dramatically.

“Oftentimes, the wrong currency arrives for the beneficiary and it might take three to five working days for the funds to arrive,” McNaught said. “The merchant might not know exactly how much to expect because correspondent banks will take off a varying amount from the transaction principal. It’s a horrible experience for beneficiaries and it’s a barrier to adoption for the service they’re being paid.”

In the past, many merchants held onto their cash as long as possible, a practice that —while giving businesses greater control over the timing and management of payouts —often led to inefficient processes. This manual approach lacked transparency and created a frustrating experience for consumers.

“In fairness to merchants, there weren’t many good solutions for payouts up until the last couple of years,” Apgar said. “Now that merchants have new tools available, they are realizing that the benefits of a positive customer experience outweigh what you gain by optimizing payouts to the benefit of the company. It underscores how important the customer experience has become in all facets of interaction.”

When payout beneficiaries become aware of mechanisms and rails that allow them to receive payments reliably, in their preferred currency, in real-time, and often at no cost, it could profoundly transform the payouts industry.

“I call that the Amazon effect,” Apgar said. “You just need one disruptor in the market to get consumers to say, ‘Why can’t it be that easy all the time?’ That effect will start to get traction in the payout space. As consumers continue to have positive payout experiences, they will want that from all their interactions.”

This realization has led to a dramatic shift in the way many companies offer payouts today — touting the speed of their payouts as one of their most important selling points. However, speed isn’t the only consideration. Many companies now process payouts via different payment rails and in the consumer’s preferred currency, all to remain competitive in a crowded market.

This growing demand for efficient payouts is also driving changes across numerous other industries.

“The more business models that involve payouts to users who are not necessarily shoppers of the service —but are ecosystem participants —that is what will drive the gradual realization that a company’s payouts model must function correctly,” McNaught said. “Then the payout will become as important as the shopper checkout experience.”

Personalization is one of the most effective ways to improve the payout experience. One way to tailor this experience is by giving beneficiaries the option to choose their preferred payment method. However, this flexibility should also extend to the speed of the payout.

Many platforms provide scheduled payouts, typically biweekly or monthly. Personalizing this process means offering users the option to expedite a payout for an additional fee.

“It allows the user to take control and customize the experience but it also takes the burden of choice off of companies,” McNaught said. “Do I accelerate payments for all my customers or do I do it for none of them? The sweet spot is when the user selects the time and the circumstances under which they receive their accelerated settlement.”

Users are often willing to pay a fee for earlier access to payouts. Similarly, many consumers would likely accept a higher foreign exchange fee just for the ability to receive their payout in their preferred currency and have clarity on the exact amount they’ll receive.

These tailored experiences contribute to greater user satisfaction, fewer barriers to adoption and increased engagement within the ecosystem.

“Consistency is the number one thing in the user experience,” Apgar said. “The last thing a merchant wants to do is have a footnote that says payouts are only available if you reside in certain country, use a certain payment method, or bank at a certain bank. For this to be a differentiating factor, merchants need a broad network of connections to enable a consistent experience.”

Creating consistency can be difficult when every market has unique properties. This includes various payment rails, including bank rails, card rails and various types of wallet rails. There are also different data gathering requirements and regulatory considerations for each market.

Understanding the most effective payment methods for each market and what payment experiences fit each use case is crucial. Partnering with a trusted payments provider (like Worldpay), with proven expertise in global payouts, can help you navigate local complexities effectively and ensure you send funds to your customers in a way that works best for them. 

“The payout experience has historically not been something that companies have invested heavily in or fought over,” McNaught said. “However, we see the power of personalization becoming a critical battleground between services that use payouts. It’s a competitive advantage for your particular service that could increase user satisfaction and NPS scores and drive additional adoption. The advantages of a painless payouts experience will continue to drive demand for better solutions among merchants. Payouts are too important to today’s business operations and they are often too complex for merchants to accomplish on their own. That is why the buzz around a painless payouts experience will continue to amplify.”

The post Why Painless Payouts Matter appeared first on PaymentsJournal.

Payment integration is a powerful way to improve the user experience on any software platform by offering benefits that extend far beyond simple transaction processing. However, many business owners may hesitate to hand over such a critical function to an outside party.

During a PaymentsJournal podcast, Jessica Tate, manager of customer success at CSG Forte, Nathan Miller, president and founder of Rentec Direct, and Don Apgar, director of merchant payments at Javelin Strategy & Research, discussed the benefits of integrating payments, the remarkable growth it can drive, and the future of payments integration in the software industry.

One of the central benefits of payment integration is its ability to keep users engaged on the platform. However, users also have high expectations for the payment experience, including access to diverse payment options and secure transactions. Meeting these demands can be a heavy lift, which is why many software companies partner with dedicated payment providers.

“It’s a one-stop shop, which improves the user experience,” Tate said. “Merchants can offer multiple payment options like ACH, credit cards or debit cards, which accommodates diverse customer preferences. There are also increased revenue opportunities. Some payment partners offer revenue-sharing models, while others will bill the merchant directly. Or we can bill a partner and the partner will, in turn, bill their merchants.”

Integrating payments also opens opportunities for upselling and cross selling by leveraging insights from payment data to identify new products or services to offer. As an added benefit, many payment processors can leverage their connections to a larger framework of financial institutions and processors.

Most payment partners offer advanced fraud detection and prevention tools alongside their payment integration solutions. They also offer data encryption and compliance tools to ensure secure handling of sensitive payment data, which helps maintain trust with end users.

“For a software company like us, we want to focus on what we do well,” Miller said. “We write software for property managers and landlords, and our job is to streamline their day and make their life and their processes easier. Payment processing is a whole different beast, and we wouldn’t want to recreate that when it’s already been created by others. It makes a whole lot more sense for us to integrate into an existing solution.”

Better payment processing improves the user experience, and is also a powerful growth driver for organizations. Faster transactions improve cash flow, allowing companies to reinvest in operations more quickly. Reducing payment failures also ensures consistent revenue.

“A lot of software companies are realizing that payments are not only integral to the functionality of the software, but a good revenue driver as well,” Apgar said. “Our research found that less than half of merchants now source their payment acceptance or merchant account from their bank versus their technology provider, which really speaks to the fact that payments align better with the technology workflow than with a bank.”

Turning to a dedicated payment partner can help software platforms implement a recurring payments model for steady and predictable income streams from subscriptions. Organizations will also be able to streamline their operations because all services and functionalities are available on a single platform.

“It reduces the need to switch between different systems or interfaces for the customer, and in tandem with that comes increased time efficiency,” Tate said. “Payments platforms can provide real-time data sharing across departments or teams, which enhances collaboration. Software companies can also leverage integrated data to offer tailored recommendations or services to their customers, which enhances the user experience by customizing it.”

In the case of property managers, the ability to accept online payments is customers’ most requested feature. Adding payment support can not only bring in new customers, it can also help existing customers add more services.

“Payments is probably the number one reason for a software like ours to grow,” Miller said. “In fact, just in the last four years, we doubled the percentage of online payments that we were taking, while simultaneously adding about 1,200 customers a year. That’s a huge growth percentage that’s based around online payments.”

One of the major challenges in the property management space is that renters come from all backgrounds and span a wide range of ages, and some demographics are more familiar with (and comfortable using) payments technology than others. This means the platform must be simple enough for all users to make or schedule a rent payment in just a few clicks.

Simplifying billing related to merchant accounts presents another challenge, because these accounts are often highly complex. The right payments platform can ensure that property managers only see the charges they need to see on their bill.

“There are two layers of the customer experience in the software space,” Apgar said. “There are the merchants, in this case the landlords, who are looking for better reconciliation, automated posting and the business tools to manage payments better. At the same time, the end user is looking for an easier, low-friction way to pay. The software company has a double-pronged challenge to make it easier for both the merchant, [who’s] their direct customer, and for the end user.”

The ease of use for all customers is one of the reasons that payments will continue to be integrated into the software landscape across all verticals. However, new challenges will arise as emerging new payments technologies, especially faster and instant payments, are connected to software offerings.

“Our customers love the idea of instant payments,” Miller said. “They want a tenant to make a payment and for it to land in their bank account three seconds later. On the flip side, when they pay their owner, they want to be able to run the report, email the report to the owner and the owner to be able to check their bank balance and it’s there. The dream of an instant payments world is always there.”

Unfortunately, with faster payments comes higher potential for fraud. When there is a one- or two-day hold, all parties have a chance to evaluate the transaction. That safety net isn’t there with instant payments, so it is important that the software companies and payments providers that are moving toward instant payments acceptance understand the risks.

The risks associated with payments processing are one of the main reasons why many software companies are turning to payments platforms. In addition to fraud concerns, platforms must also be aware of the Payment Card Industry (PCI) standards and any local regulations.

The goal is to find a partner that can mitigate all these risks while facilitating the best user experience. The partner should be equipped to support the platform’s current payments volume, but also able to scale as the company grows.

“My biggest advice would be to understand your business needs and your user needs,” Tate said. “How do payments align with your product? Are you facilitating rent payments, subscriptions, one-time purchases or marketplace transactions? All these things shape your payment integration strategy and help you create a seamless, intuitive payment experience.”

The post How Integrating Payments Enhances User Engagement, Drives Revenue appeared first on PaymentsJournal.

The United States employs multiple real-time payment schemes; however, unlike those in many emerging markets, these methods are not driven by a central government or central bank. In the absence of a centralized entity to organize payment processes, other stakeholders must take the lead in enabling instant, cross-border transactions.

In a recent PaymentsJournal podcast, Alex Johnson, Chief Payments Officer at Nium and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, discussed the latest efforts aimed at integrating the U.S. into the realm of international real-time payments.

In many ways, the U.S. economic landscape lags behind some emerging economies in payments innovation. This is partly because emerging markets have faced more pressing challenges, driving them to harness technological advancements to help solve specific, regionally unique use cases.

“Compared to networks like UPI in India and Pix in Brazil, our level of maturity and sophistication in the United States is not quite there yet,” Bodine said. “As most people know, RTP and FedNow are not even interoperable now.”

But, it’s time for the U.S. to catch up. One of the key drivers of payments innovation in the U.S. is the global supply chain. Even small and medium-sized businesses are starting to source goods and services from regions like India. In India, real-time payments are the most widely used payment method for both citizens and businesses. Extending the supply chain to India therefore requires developing systems that can facilitate real-time payments effectively in that market.

A significant advantage of real-time payments is their efficiency. They always provide complete visibility into the payment’s status, letting buyers optimize their working capital for a longer period. However, sellers may prefer traditional payment methods, as they often receive their funds slightly earlier.

“CFOs don’t want to see money go out of their account in 20 seconds,” said Bodine. “We have to look at the strategic coexistence of all the pay types and not assume that any one is going to be applicable to all situations.”

With the rise of real-time payments, there has been an increase in account-to-account fraud for those sending payments. But, real-time payments are not inherently riskier than traditional methods. Since the money moves instantly, there is never any question about its status at any point in time.

Account verification plays a big role in boosting confidence in the global adoption of real-time payments. For example, if someone is completing a transaction to Nigeria or Thailand, it’s now possible to verify the ownership of the receiving account.

“You can put in an account number and name, ping our API, and within seconds you get a response to say, ‘Yep, that matches’ or ‘No, it doesn’t,’” said Johnson. “In some jurisdictions, we can also pass back the actual name on the account. You can be absolutely certain that the money’s going to exactly who you think it’s going to, separate from and prior to a transaction. That’s a huge prevention of fraud, giving people more comfort in using real time payments. We’ve seen a 58% reduction in return transactions just by the use of this tool.”

The global cross-border payments network is led by Swift, run by a consortium of international banks. What many may not realize is that a Swift transaction is not the payment itself, but rather the messaging service.

Swift acts as a tool that creates interoperability between different payment systems. Most financial institutions have already completed the integration with Swift, allowing them to use its functionality to send wires globally.

“At Nium, we can now accept transactions via Swift messages from financial institutions,” said Johnson. “They can make Nium an intermediary on those transactions, and we can route those payments into mostly real time. About 85% of the transactions we handle are delivered within 15 minutes or less.”

Because the differing global payment systems don’t speak to each other, a third-party like Nium is needed to bridge these connections. With the connections that have been made, these third parties are now beginning to create locally interoperable systems.

“Fortune 1,000 companies absolutely need to partner in these situations,” said Bodine. “They simply don’t have the resources or funding to support and maintain legacy systems while they’re branching out of these areas. Partnering with organizations like Nium is incredibly important.”

Despite the challenges of implementing it as a new messaging standard, ISO 20022 has been a boon to the world of instant payments.

“If we could get every scheme, SWIFT and otherwise, to ISO 20022, then interoperability becomes so easy,” said Johnson. “But a lot of the local schemes aren’t there yet. Once everyone is talking the same language, the translation between a SWIFT message to whatever that local scheme is becomes a lot easier.

“Interoperability will be a theme that we’ll continue to ride on in the next few years as we explore what that looks like,” she said. “There’s so much experimentation happening right now that I really look forward to seeing in the next couple years how this evolves.”

Bodine added: “We can communicate pretty much with every human being on earth. There is absolutely no reason we shouldn’t be able to transact funds between every human being and every business on Earth.”

The post The Power of Real-Time Payments on a Global Scale appeared first on PaymentsJournal.

The most familiar example of surcharging might be the cash-or-credit pricing at gas stations, but more businesses are following that lead. While it’s becoming common for customers to pay for the right to use a credit card at restaurants and retailers, credit card surcharging hasn’t been a common practice in the healthcare industry. 

In a recent PaymentsJournal podcast, Ali Badawy, Director of Enterprise Healthcare Payments Solutions at U.S. Bank, and Don Apgar, Director of Merchant Payments at Javelin Strategy & Research, discussed how healthcare providers can leverage credit card surcharging to cut costs significantly while keeping their customers engaged.

Credit card surcharging has been permitted in most states since 2013, and it allows businesses to offset the credit card processing fees charged by card brands like Visa®, Mastercard®, and Discover®. The fees are instead passed to the customer when they use a credit card at the point of sale.

The surcharge amount is often a percentage of the overall purchase and can range from 1% – 4% and can be applied in any environment where a cardholder makes a payment—in-store, online, and even in text-to-pay. Surcharges are only allowed for credit card transactions, so consumers can avoid them if they pay by debit card, check, ACH, or cash.

“When surcharging was launched, business customers were skeptical, and understandably so,” Badawy said. “However, as it has developed over the years, consumers are more conditioned to it. If a customer’s transaction is in the government space, or with an online retailer or service business, those environments have adopted surcharging to where now consumers expect it.”

The normalization of surcharging has expanded its use cases, which now covers industries across the spectrum. As businesses have shifted online, surcharging has evolved to become a factor in e-commerce.

The driving force behind the proliferation of surcharging is cost savings. Even though credit card fees of 1% to 4% might seem relatively nominal, the aggregate can quickly become a significant amount. Reducing those costs is what makes surcharging attractive to business owners, especially for enterprise-scale businesses.

“For example, a large healthcare franchise in the ambulatory space was exploring options to help their franchisees reduce their overall costs,” Badawy said. “After they researched surcharging, they found out they could save over $1 million each year based on their volume numbers.”

The main concern about surcharging is that it could alienate customers, but that is rarely the case. Once a business starts a surcharge program, they are highly unlikely to terminate it.

“There are often apprehensions when an organization’s average ticket size is large, ranging from $5,000 to $20,000,” Badawy said. “The business owner might be concerned that if they apply a surcharge, they will lose the customer, but that’s usually the farthest thing from the truth.

Healthcare providers might still be reluctant to surcharge because it isn’t a common practice in the industry yet, but those concerns are likely unfounded.

“Most consumers aren’t shopping for a healthcare provider based on cost,” Apgar said. “They go to a doctor or a dentist because they have a connection with that provider and they’re receiving good care. Especially in industries like healthcare, where there can be substantial inelasticity in pricing, a nominal credit card surcharge isn’t enough to alienate a customer. From a business perspective, it’s an increasingly safe strategy to use.”

When researching banks or processors that offer both credit card processing and surcharging, business owners should also look for a processor that specializes in healthcare. In addition, the business owner should understand if the platform allows surcharging at every endpoint where the provider collects payments.

“If the software only allows surcharging in the front office of a healthcare entity, for example, but the majority of its collections are in the back office or online, then that service is not likely to help the business achieve its goal,” Badawy said. “A business that’s considering credit card surcharging will have to evaluate every end point where they’re collecting payments and verify if the process can support their needs.”

Partnering with the right processor before shifting into surcharging is key because there are compliance requirements. Regulations don’t allow surcharges on debit cards, so the card acceptance technology must be able to discern a credit card from a debit card and only apply the surcharge to credit cards. 

A business is also required to advise customers that it will apply a surcharge to credit card transactions. There should be clear signage in the front office, but also everywhere a provider accepts payments, including online check-out. Another best practice is to detail surcharges on billing statements and invoices.

“A business has to apply a surcharge correctly and compliantly, but it should also generate a consistent user experience,” Apgar said. “As the customer does business with the organization across a variety of channels, whether it’s paying in an office or paying on a bill pay site, it’s important to find a process that that can support all those aspects.”

Surcharging at the point of service will continue to gain momentum. Though some regulators have strived to reduce or eliminate credit card fees, there is no immediate shift on the horizon.

“The $30 billion settlement between Visa and Mastercard and merchants has been tabled, so who knows when businesses will see relief from interchange fees?” Apgar said. “Surcharging is a tool that merchants and healthcare providers can use today to offset some of the costs of credit card acceptance and still keep compliant and customer friendly.”

Particularly in healthcare, where many healthcare entities and systems have had lingering financial difficulties that were exacerbated by the pandemic, surcharging will pick up steam.

“As rewards cards, which often have higher processing fees, become more popular, surcharging is a means to offset those fees and keep business owners’ margins intact,” Badawy said. “Surcharging will grow within all verticals, but especially in healthcare, because it can substantially reduce costs. Healthcare providers can use those resources to serve their patients and scale their businesses.”

The post How Credit Card Surcharging Can Benefit Healthcare Providers appeared first on PaymentsJournal.