The PaymentsJournal Podcast

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The post Open Banking Can Be an Equalizer for Small Banks and Credit Unions appeared first on PaymentsJournal.

The role of the Chief Financial Officer has evolved significantly in recent years, with finance offices increasingly tasked with driving business growth. As technology requirements and banking relationships grow more complex, CFOs often find it challenging to maintain the cash visibility necessary to optimize working capital and make informed strategic decisions.

In a recent PaymentsJournal podcast, Leo Gil, VP of Product at Bottomline, and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, discussed the expanding role of the CFO and the ways finance offices can use automation to drive change in organizations.

Visibility into an organization’s consolidated cash position is important, especially in the face of macroeconomic headwinds like interest rate fluctuations, market conditions, and supply chain disruptions. The CFO’s office holds primary responsibility for cash management and visibility, and as the importance of these aspects has elevated, the strategic role of the finance office has been amplified.

“CFOs these days are in a unique position,” Bodine said. “They know the financial elements of the business better than anyone, but they have also become key strategic contributors in an organization.”

The finance office works to maximize returns by reducing interest expenses and borrowing costs. It also allocates funds to investment accounts that drive better growth and profitability. Over the past few years, finance offices have had to simplify their operations to get a better return on investment, especially from technology.

Companies have had mixed results in those endeavors, and the size of the organization isn’t always the determining factor. Some small companies have full cash visibility and make appropriate, strategic investments. Some larger companies lag because they have too many disparate systems and excess complexity.

Unfortunately, many companies still rely on manual processes. They might log into multiple banking portals, extract the data, and combine it all into a spreadsheet.

“Technology can mitigate manual processing, but issues arise when companies take a big-bang approach,” Gil said. “They allocate substantial capital and resources to implement sweeping changes in an organization, hoping for an immediate result. They’re not willing to go through a long-term revamp or implementation to see results.”

Some organizations have sought to solve their financial issues by increasing the number of banks they partner with. Other companies diversified their banking relationships in response to recent banking failures.  

A company that previously managed three banks may now have expanded to 10 or more banking relationships, adding significant complexity. This expansion can make it challenging for the finance office to get a consolidated view of its cash position.

As the number of banking relationships increases, the importance of automation technology becomes even more pronounced. Businesses that rely on manual processes to manage multiple bank relationships will inevitably face the burden of constant financial aggregation in their daily operations.

“Aggregating bank statements might take two hours a day, then they must generate cash positions and cash forecasts, which takes three hours,” Gil said. “Then they need to generate liquidity forecasts and reconciliations, which takes another two hours. Before you know it, the day is over.”

Manual processes are inherently inefficient, and when data streams originate from multiple sources, finance offices struggle to manage daily operations effectively. If the finance team’s entire focus is consumed by operational tasks, they will never evolve into the strategic leaders that companies need.

Organizations should have a fully automated, consolidated view of all their cash positions. Once they have accurate cash visibility, the next step is cash forecasting. Businesses don’t just need to know their position today, they must know where the company will be at the end of the week, month, and quarter.

Finance offices operate in cycles. In each period, whether it’s monthly or quarterly, they manage cash and payments. They perform reconciliations and comply with regulations. They make sure operations and payments are secure. Then they close the period out.

“There’s always a rush at the end of the month or the end of the quarter, where everyone is trying to find information across different systems and in ERPs, and combine the data,” Gil said. “There’s always something missing, and it’s a constant struggle.”

That complexity can be reduced by automation, and that allows finance teams to become more strategic. They can weigh decisions about potential acquisitions, or how to allocate cash for investments. They can make decisions about borrowing, and about moving funds between banks.

If it’s a global company, the CFO’s office can give guidance on currency conversions or foreign exchange trading. The goal is to minimize expenses and to react quickly to business needs.

The acceleration of instant payments adoption will soon impact businesses substantially. Ultimately, every money movement will be affected.

“If you transfer money into an investment account, if you borrow from a line of credit, or if you move money between accounts across different banks, those transactions become payments,” Gil said. “For some businesses, the ability to react quickly and move funds without waiting three to five days for payment settlement can be critical.”

In industries that are tied to market conditions, such as the oil and gas industry, every minute counts. Instant payments give companies the ability to react to market conditions and allocate funds quickly, which could save organizations millions.

Even though there are an increasing number of technology solutions, finance offices should concentrate on simplicity and usability. Instead of focusing on large systems with many complex features and functions, the CFO’s office should be agile and drive benefits to the business in an incremental way.

“There’s an inversely proportional relationship between value and effort,” Gil said. “Especially with technology, you can get 80% of the value with 20% of the effort. Of course, it can work vice versa. CFOs must be aware of those points in their organization and adapt accordingly. They must constantly work to drive return on investment, because that’s how CFOs help their organizations thrive.”

The post The Elevated Role of Cash Visibility and Automation in the CFO’s Office appeared first on PaymentsJournal.

The ACH Network is set to surpass 33 billion payments by the end of the year, marking a significant milestone. Consumer Internet-initiated payments are set to surpass 10 billion, a remarkable achievement considering the payment method was created just 20 years ago.

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 this success story and the future of the protocol in a crowded payments landscape.

Instant payments rails like FedNow and RTP have received significant attention over the past year, but this hasn’t slowed ACH’s momentum. In Q2 2024, ACH payment volume increased by over 6% year-over-year, with an average daily payment volume reaching 132 million payments. The total value of payments flowing through the ACH Network topped $42 trillion in just the first half of the year.

“There are a few areas that are driving overall ACH volume growth,” Herd said. “The first is B2B payments, which are growing by more than 10% per year. That’s been a long-standing trend for the last seven or eight years. While there are still pockets of check use in industries like healthcare and higher education, overall check volume seems to be declining and the B2B space is moving towards ACH.”

ACH is also thriving in consumer single and recurring bill payments, as well as account transfers. This volume exceeded 2.6 billion in Q2 2024, up 8.3% year-over-year.

“With increasing automation of business processes and the digitization of payments, both businesses and consumers are looking for greater efficiency,” Tavilla said. “It comes as no surprise that there is now record-breaking volume being transacted over ACH. There’s more data that is available with digital payments and it also helps businesses improve cash flow.”

However, there was a recent slowdown in healthcare claim ACH payments, likely due to a large-scale ransomware attack on the healthcare sector. A major processor in healthcare payments was unable to process claims for a period, leading to a 2.8% year-over-year increase in healthcare claim payment volume in Q2.

There’s a strong demand for faster payment settlement, and Same Day ACH has a formidable use case in both consumer and business applications. For consumers, that includes transfers to non-DDA accounts like digital wallets and brokerage accounts.

Same Day ACH supports the two-way flow of funds in B2B, C2B and B2C payments, allowing for both debit pull transactions and credit push payments. This contrasts with many real-time payment networks, which are currently credit push only.

“To say Same Day ACH has a key role is an understatement,” Herd said. “Same Day ACH volume in 2024 is up 47% from last year, including 566 million payments in the first half of the year. April was a banner month, maybe because it was tax month, but there were over 100 million Same Day ACH payments in April. In all likelihood, Same Day ACH payments will exceed a billion this year for the first time ever.”

The payment landscape is trending toward digital and real-time payments. Consumers increasingly demand faster payment methods, and Same Day ACH is a key part of that trend.

A driving factor in the growth of Same Day ACH payments is the ACH Network’s firm establishment. ACH is ubiquitous, and businesses and consumers are familiar with it. Unlike some of the newer real-time payment rails, virtually all financial institutions are connected to ACH, facilitating money movement regardless of the customer’s bank.

“If you’re a business and you haven’t dipped your toe in the faster payments waters yet, start with what you’re familiar with, which is likely to be ACH,” Herd said. “Same Day ACH is just a faster form of what you already know. It’s the same system and the same processes. You will have to adapt to the faster settlement of funds, but ultimately there’s a much lower barrier to entry.”

While the ACH Network is well established, there are three key areas where the platform can improve: risk management, exception resolutions and ACH scheduling. To mitigate risks, Nacha members have adopted new rules to raise the bar for payment monitoring among every participant in the ACH Network.

The objective is to better identify and recover from fraud attacks that target ACH and other credit push payments. As fraud attempts rise, it’s crucial to understand how organizations continue to fall prey to criminals. The new rules aim to define the network’s response to fraud and mitigate criminal activity.  

Second, paper-based processes should be eliminated from the ACH payment exception resolution process. Exceptions are payments that don’t process directly through, and resolving those transactions often requires manual intervention from the two financial institutions involved.

The institutions must share documentation and information to resolve the exception, which is often still done through phone calls and faxes. Because the manual methods lessen the efficiency of the underlying ACH process, a better solution is to resolve exceptions through secure online platforms. The Federal Reserve’s exception resolution service and Nacha’s risk management portal are two examples of how exception resolution and information exchange can occur through secure channels.

The last area of opportunity is to expand the current Same Day ACH schedule to align with the close of business in the Pacific Time zone. Currently, the latest time a Same Day ACH payment can be sent is 1:45p.m. PT. There is significant value in supporting Same Day ACH processing up to the end of the business day for Pacific Time zone businesses and consumers.

Though the ACH Network has room to improve, there is little doubt that ACH will continue to have a place in the payments landscape for years to come.

“It’s not instant,” Herd said. “However, with ACH there is a lower hurdle to entry in nearly every situation. Wherever you’re transacting, wherever your employees have their bank accounts, and wherever your customers are, you’re going to be able to reach them with ACH.”

The post The Ongoing Success Story of ACH appeared first on PaymentsJournal.

Cards made from paper and other sustainable materials continue to gain in popularity. In addition to being ecofriendly, paper cards are more cost-effective and perfect for single-use purposes, such as gift cards.

To explore the future of sustainable cards, Peggy O’Leary, EVP, Prepaid and Digital Solutions for CPI, spoke with Elisa Tavilla, Director of Debit Payments for Javelin Strategy & Research, on a recent PaymentsJournal podcast. They discussed the flexibility available to consumers and providers with sustainable cards and looked at where the industry might be headed.

Sustainable cards are being made from a variety of materials, including paper, wood, recycled PVC and other substrates, as well as recycled plastic. All of these are much easier on the environment than traditional plastic cards.

“We’re seeing a greater effort toward fostering sustainability and protecting the environment across all industries,” Tavilla said. “For example, in the retail industry, there’s been greater attention and efforts toward things like consignment, thrifting, upcycling, focused on zero waste. In the payments industry and financial services, we’ve seen efforts to improve sustainability and help the environment, too.”

Single-use type prepaid cards (that is, not reloadable) are ideal for paper. Visa, Mastercard, and American Express gift products have increasingly moved toward paper cards. They are more environmentally friendly than traditional cards, and they don’t need to be as durable as credit or debit cards that people use more frequently. Paper cards are also more cost-effective for manufacturers than plastic cards.

The market has been pushing for assurances that paper products—and even the packaging around the paper products—come from responsibly sourced materials. 

“At CPI, we’re heavily investing in ensuring our materials are FSC-certified,” O’Leary said, referring to the Forest Stewardship Council, a group whose mission is to promote economically viable management of forests. “We’re making sure that our products have a trackable chain of custody and that our paper products come from responsibly managed forests. Not only are we creating something from a natural product that can break down after use, but the source itself is coming from a more ecofriendly supply chain as well.” 

Financial institutions have seen plenty of new investment around environmental, social, and governance (ESG) initiatives, indicating a desire by consumers to minimize their impact on the environment. Many of these customers may not even realize that the plastic cards in their wallet could be replaced by something more ecofriendly. The effort extends to finding partners to ensure that the types of materials used are responsibly sourced as well. That is an important part of CPI’s manufacturing process.

“From the ESG perspective, CPI’s approach and strategy are very thorough and well-rounded, whether it’s from the cards and the products that they’re producing or the sourcing and the supply chain of the material,” Tavilla said. “Consumers are increasingly environmentally conscious of the products that they’re using and the providers that they buy from. A Javelin survey asked the key factors that users consider when they apply for a new credit card, and 26% said that having the card being made of sustainable material is an important factor.”

Sustainable card manufacturing allows for more than just environmentally friendly transactions. It opens up a new world of design for the cards as well.  

“We have come up with innovative ideas such as gift packages that would have lights that lit up or scratch-and-sniff options for the holidays where you could definitely smell the peppermint,” O’Leary said. “When you think about what it takes to be able to deliver that kind of innovation, you need an extensive network of suppliers, partners, and innovators behind the scenes that help you bring that all together.” 

It’s a misconception that an ecofriendly production means giving up uniqueness or special designs. CPI has developed hundreds of designs suitable for all kinds of occasions and personality types. Indeed, moving beyond simple plastic can give cards a variety of distinctive tactile feels. Special embellishment and designs focus on strong tactile experiences, which consumers love when they’re shopping for gift cards. 

Similar developments can be expected in gift and retail cards. Even though these cards tend to be single use or limited use, consumers sometimes want them to have a certain degree of durability. Some people might leave a gift card in their wallet or in a drawer for months before they redeem it. Cards with a larger amount of funds attached may be used multiple times. 

There are other reasons to look toward more sustainable products. California, for example, has introduced legislation limiting single-use plastics, which could have ramifications across the country. Obviously, it would not be efficient for card manufacturers to produce one card to meet the standards of one state and different cards for other areas. The result is likely to be a standard based on the most restrictive state laws.

For card providers and their customers, these trends are likely here to stay.  

“From a cardholder perspective, it is ensuring that you’re meeting the new requirements that are coming more broadly from your market,” O’Leary said. “From a business perspective, businesses are taking steps to improve their impact on the environment. Overall, you can drive a really positive business outcome, not only from an investment perspective but also to win in the market.” 

The post Paper or Plastic: Sustainable Cards Are the Wave of the Future appeared first on PaymentsJournal.

As a reliable revenue stream, recurring payments help both organizations and their consumers by giving them the option to “set it and forget it.” However, ensuring that these recurring payments run smoothly can be a challenge when businesses face returns or declines due to errors, outdated payment information, insufficient funds or even fraud. With the right partner, a subscription model can help businesses run smoothly while ensuring sustained cash flow.

In a recent PaymentsJournal podcast, Suman Chaudhuri, global vice president of revenue growth at CSG Forte, spoke with Don Apgar, director of the merchant payments practice at Javelin Strategy & Research, about how businesses can take advantage of recurring payments.  

When Dollar Shave Club first launched its direct-to-consumer subscription model, the company garnered attention by combining a higher level of brand engagement with competitive pricing. This shift from one-time to recurring payments highlights a growing trend among businesses, bringing much-needed stability to their cash flow. That stable income allows them to forecast more accurately, allocate resources more efficiently and invest in growth opportunities with greater confidence.

A good example would be what has transpired in the car wash industry.

“When you look at a business like a car wash as something that’s heavily weather dependent and has extreme revenue swings from day to day or week to week, to be able to stabilize the revenue with the membership and recurring payments is tremendous,” Apgar said. “A business like a car wash was 100% card present, and the migration to a subscription model is moving that payments activity from card present to card not present. From a processing perspective, it presents additional challenges, and the businesses that are making that transition may not be ready for card-not-present transactions.”

There are broader benefits, too. Businesses can leverage data from subscription payment models to gain insights into customer behavior and preferences, enabling them to tailor their offerings and enhance customer satisfaction.

Customer retention is another key advantage. Subscriptions can help create an ongoing relationship between a business and its customer, increasing the likelihood of long-term loyalty and ensuring their ongoing business by automating the repeat purchases.

Whether from retailers like Costco or Dollar Shave Club or from utility and insurance companies, customers expect to see an autopay option at checkout.  

However, it’s important to note that recurring payments can fail for various reasons. Customers might get a new credit card due to fraudulent activity, or they might have insufficient funds in their bank account. Such declines and returns can cause cash flow issues that put extra stress on customer service teams to contact customers and retry payments. 

Businesses that experience declined card transactions  can consider using an account updater solution, which automatically updates the cardholder information for Visa, Mastercard or Discover. When these cards get replaced or reported stolen or lost, the updater ensures you have the new payment information, reducing the chances of failed payments. Businesses can also automate sending payment reminders ahead of time, so customers are reminded to update their account information or ensure their accounts are funded for the upcoming payment. 

Failed payments can lead to service cancellations, which ultimately cause customer satisfaction issues. An experienced payment provider can guide the business through these challenges and offer solutions to automate payment retries, alleviating the burden on the customer service team. 

While it might sound counterintuitive, businesses also need to make it easy for customers to cancel their recurring payments. 

“We’ve all worked with a business that has their cancel payment button buried seven layers deep inside their website or their application,” Chaudhuri said. “That can be very frustrating, because when a customer makes up their mind to cancel their payment, they will find a way to cancel that payment. If you don’t make it easy for them, you’re increasing the burden on your call center and customer service teams because the customer will fire off a ton of emails or make calls to your call center.” 

Credit cards, debit cards and Automatic Clearing House (ACH) payments are all well-suited for recurring payments. However, ACH offers several advantages over credit cards. For one, accepting ACH payments usually costs the business less. Additionally, account numbers typically change far less frequently than credit or debit card numbers. Another benefit of ACH is that banks can automate retries when an ACH payment fails.

“If you’re using ACH, we would highly recommend using a top-of-the-line validation service to validate the payments before processing the payment,” Chaudhuri said. “When customers make manual errors entering their payment information or are accidentally using cards that have expired or are invalid, a strong validation service can validate this up front and reduce the chances of failed payments.” 

Businesses that have relied on the subscription model in the past are now taking lessons from modern recurring-payments businesses.

“My cable company is happy to charge my rewards Visa card every month, even though for years companies like utilities and cable companies resisted billing on card-based transactions because of the interchange fees, processing fees, etcetera,” Apgar said. “But at the end of the day, when you look at the cost to print and mail the bill then wait for the payment process, in lieu of being able to just charge my card and receive the funds immediately, the fees become cost effective over time.” 

As the cable example shows, the more small and medium business explore recurring payments, the more benefits they see. The consistent cash flow, the improved customer retention and the additional data available all contribute to an environment that benefits not just the enterprise but its customers as well. 

The post Making the Most of the Recurring Payments Model appeared first on PaymentsJournal.

Paying bills is an essential part of life, but it’s a task that has become increasingly complex. Because bills often come in various forms and require different payment types, it can be hard for consumers to stay on top of their finances.

In a recent PaymentsJournal podcast, Derek Swords, VP, Head of Product, Bill Pay at Fiserv, and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, discussed the challenges consumers face when paying bills and the opportunities financial institutions have to provide value for their customers.

The volume of bills consumers receive has increased over time. In the past, consumers may have sent paper checks by mail to make those payments, but consumers now receive and pay bills in a wide array of methods.

Customers could pay a bill electronically through their bank, mail a paper check, or go to a biller’s website and make an ACH payment directly. Consumers receive bills via mail in some cases and email in others. All those factors have led to a significantly fragmented customer bill pay experience.

To consolidate that experience, new payment networks have been constructed on a digital-first framework. While the volume of bills is increasing consumers are increasingly paying billers directly. There has also been a rise in automatic payments from credit cards. Though checks can be problematic, it will take time for checks to be phased out because many smaller billers still rely on them.

Consumers are becoming more familiar with different payment methods, though many younger consumers may still not be aware that bank bill pay is an option. However, there hasn’t been significant innovation in the traditional bank or credit union experience, so many financial institutions are lagging customer expectations.

“Consumers are evaluating other payment methods because they want enhanced clarity, faster payments, and more payment choice,” Swords said. “They’re using their phone instead of the traditional desktop experience because it provides transparency and increased access. What they’re really looking for is an offering that rolls all their obligations into one, and that creates an opportunity for financial institutions.”

Around 85% of customers indicate that they would rather have a single, combined, integrated experience. Aside from simply viewing bills, consumers also want to make all their payments from that central, mobile platform, and financial institutions should keep that in mind as they design their experiences.

In many cases, customers adopt a service based on the quality of their first bill pay interaction, so financial institutions should make it simple for customers to find their bills and enroll in applicable programs.

“Onboarding is extremely important because it lets customers know the capabilities beneath the hood, if you will,” Swords said. “It’s about informing customers about the offering and getting them engaged. Once they get there, the consumer should have full control of the payment, transparency on when the payment will occur, and confirmation the payment happened.”

Thorough onboarding will be critical as the market heads to faster and, ultimately, real-time payments. Instant settlement makes it even more important for institutions to provide an accurate, transparent experience. When customers get notifications, they should be able to immediately access their mobile app, make the payment, and get back to their lives.

“It’s not like the traditional bill pay model, where they stacked their bills by the desk and paid them one by one,” Swords said. “That’s not how consumers work today. They want an on-demand experience where they can get things done on the go and get advice along the way.”

The advisory aspect is often overlooked in the bill pay experience, but innovative products now help customers proactively manage their finances. Timely push alerts and messages are critical functions. It’s not optimal for an accountholder to miss a bill because they were busy.

The advisory process should also be ongoing. After a customer sets up a bill, an institution might work to eventually transition them to an automatic payment. FIs might also offer customers the option to sign up for notifications or group certain types of bills. Banks and credit unions should inform customers about the different payment rails and the benefits of each.

“If a customer has a bill due tomorrow, they should be advised on how to use the fastest payment the biller accepts,” Swords said. “The goal is to make sure the payment is on time, the customer has a great experience, and users understand when money is sent or received.”

Financial institutions are constantly working to make it easier for accountholders to pay anyone, anywhere. There is an increasing demand for international payments, and that includes bill payments.

“It could be sending money overseas to family or paying for your daughter’s wedding in Italy, but customers want the ability to send money worldwide,” Bodine said.

Whether a payment’s destination is domestic or international, the process should be seamless. The goal should be to design a user experience in which the customer doesn’t have to think about which rail to use or which tab to click on.

Many companies are incorporating intelligence that will make it easier for customers to discover the bills that are available for them to pay. From a ZIP code, for example, a user could be matched up to the local power company. With permission, a bank could do a soft touch to a customer’s credit report, which gives the institution insight into the bills a user pays.

Many upcoming bill payment initiatives revolve around small businesses. That includes a push for small businesses to self-enroll to receive electronic payments because checks are still a staple for many businesses. Card payments are also beginning to pick up steam with small businesses, because a credit card can offer an attractive short-term line of credit.

“Whether it’s for consumers or businesses, the goal is to create a profound, smart, all-in-one experience where users can see all their obligations and make any kind of payment in an advisory environment,” Swords said. “Bill pay is an essential service that drives digital engagement and loyalty for financial institutions, but it’s not enjoyable for most customers. For financial institutions, however, bill pay is a both a competitive necessity and a substantial differentiator.”

The post A Competitive Differentiator: How Financial Institutions Can Leverage Bill Pay appeared first on PaymentsJournal.

Facing a continuing rise in fraud and fraud attempts against financial institutions, Nacha has announced new rules to help organizations mitigate these risks. These new rules will take time to implement, so institutions should begin preparing now rather than waiting until the rules go into effect. 

In a recent PaymentsJournal podcast, Brian Holbrook, Director of Product Strategy and Integrated Solutions at LSEG Risk Intelligence, spoke with Elisa Tavilla, Director of Debit at Javelin Strategy & Research, about how to prepare for the changes and ultimately reduce the success rates of fraudulent activities. They explained how the new rules provide institutions an opportunity to rethink their entire approach to the ever-evolving nature of fraud.

In 2023 alone, 80% of organizations fell victim to payment fraud, a 15% increase from the previous year. ACH payment methods have, in some circles, become the most targeted in business email compromise fraud situations. 

The proposed Nacha amendments provide new tools for combatting this issue. These changes are staggered to take effect between October 2024 until June 2026. For many organizations, the effort will require significant planning, budgeting and operational changes. Noncompliance with the rules can lead to monetary fines, increased scrutiny from regulators, reputational damage, and in severe cases, legal and regulatory actions. 

Another important aspect of the new rules is the encouragement of a more collaborative approach towards mitigating ACH fraud. In particular, they enlist both sending and receiving financial institutions into combating unauthorized transactions as well as authorized push payment transactions, such as credit push fraud.

While Nacha specifically addresses ACH credit push transactions, other payment rails also use credit push, including wire transfers, peer-to-peer payments, and real-time payments like RTP and FedNow. By preparing for the new rules and risks associated with credit push for ACH, organizations can also better prepare for other payment methods. 

In traditional fraud monitoring, most of the focus was on debit pull transactions. The new rules would empower the receiving financial institution to play a key role in monitoring ACH fraud risk as well. A receiving depository or financial institution may decide to return funds to the originating depository financial institution if it determines that the transaction is suspicious. 

“When you look at the responsibilities of both a sending and receiving organization, the operational adjustments are going to take time,” said Holbrook. “You have to take into account the entire customer lifecycle. Receiving financial institutions are now going to have more time to review transactions and potentially return those funds to the originator.”

Early preparation is key to success. LSEG has put together a preparation playbook focusing on three critical aspects to consider before the rules take effect. 

The first step is for organizations to review their current capabilities and identify where fraud is most likely to occur within the existing life cycle.

“Start thinking about not just a customer life cycle but a transactional life cycle,” said Holbrook. “Think about your capabilities in terms of ongoing KYC of not just your customer but of their transactions.” 

Next, define what success looks like within your organization. While reducing fraud is the primary goal, it must be balanced against customer friction and proper monitoring capabilities. Identify where significant impact can be made, not just to comply with regulatory or Nacha rule changes, but to enhance the customer experience, reduce fraud, and improve your organization’s reputation for prioritizing customer protection.

Lastly, identify areas for improvement, both internally and in terms of the customer experience. Ensure you’re educating customers so they understand how you are protecting their transactions, whether it involves money coming in or going out. 

Organizations that aren’t prepared for these new rules can leave themselves more open to fraudulent attacks.

“Some of the risks of not being prepared for these new Nacha rules—or just for ongoing more sophisticated fraud risks in general—is the fact that if all other players in the industry and your peers are prepared, that can make your organization more vulnerable,” said Tavilla. “You wouldn’t want to make yourself a target.”

Complying with the new rules will rely on an integration of technologies, processes, and people.

“It’s going to take all three of those things in order to be successful here,” said Holbrook. “It’s important to think of this as not just something that needs to be complied with, but as an opportunity for organizations to have a key differentiator. Are you looking for a vendor to check a box, or are you looking for a partner who’s going to be there with you day in and day out to help mitigate the instances of fraud?” 

The expected benefit comes down to a long-term strategic planning vision that will allow organizations to not just view these changes as a point in time, but to put in processes and procedures that will allow them to be flexible as the fraud landscape continues to evolve.

“When we look at the rise of AI, the fraudsters are getting more and more sophisticated with their abilities,” Holbrook said. “This is the right opportunity to find the right tools, the right partners, the right processes to in effect do as much as possible to future-proof any additional nuances or changes or new fraudulent activity that we see in the industry.”

The post Nacha’s Upcoming Rules Take a New Approach to Fighting Fraud appeared first on PaymentsJournal.

One of the most disturbing aspects of present-day fraud is just how prevalent it has become. Around 80% of respondents to an Association of Financial Professionals survey said they were victims of payment fraud in 2023. It was a 15% increase from 2022 and the highest number since 2015.

In a recent PaymentsJournal podcast, Ryan Clayton, Director of Solution Consulting at Bottomline, and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, discussed the technology and tactics criminals employ and the ways organizations can defend themselves.

Criminals are becoming more sophisticated every day. They use technologies like ChatGPT to create more convincing phony emails and voiceover deepfakes to trick finance offices. Business email compromise is on the rise, causing losses of over $300 million per month.

“It’s hard for organizations to stay above water because fraudsters are always one step ahead,” Clayton said. “It’s under any and every vertical, all industries are under attack. Public entities like higher education institutions, healthcare facilities, and government agencies are at higher risk because their data is much more readily available. But fraud is everywhere.”

Criminals especially target companies that process a high number of payments. In commercial real estate, for instance, where invoices come in and payments go out rapidly, it’s easy for something to fall between the cracks. Companies that have high turnover, or are understaffed, are more vulnerable to attacks.

The continued use of paper checks exposes companies to fraud risk as well. More than 80% of organizations still accept paper checks, and more than 90% still use checks to make payments. The Financial Crimes Enforcement Network reported in 2021 there were 350,000 cases of check fraud, and that number rose to 680,000 cases in 2023.

“It’s so susceptible,” Clayton said. “Once that paper instrument leaves a company’s hands it’s out in the wide-open world. It may seem like something out of the Wild West, but the United States Postal Service has had postal carriers held up at gunpoint, and what they’re really looking for are business checks. If they find one, there’s no tracking it. It’s gone.”

Criminals have increasingly employed tactics that exploit social engineering to manipulate employees’ actions. They study businesses to learn their behaviors. Because organizations have so much data that’s readily available online, it’s not difficult to learn how a company operates and who its partners are.

Someone posing as a vendor might call claiming their company will lose its business license if it doesn’t receive a payment today. The criminal is hoping the employee will have an emotional reaction and break protocol. Though it might seem like a spur-of-the-moment call, these criminals have likely been targeting the companies they go after for months before an attack.

Criminals have also hacked voice-over-internet-protocol (VoIP) phones. Once the phone system is breached, they can listen in on business conversations, record them, and use them against the organization.

“There have been instances of account takeover,” Clayton said. “When there are corporate phones across an organization, there have been SIM takeovers. There’s one famously involving former Twitter CEO Jack Dorsey. They took over his SIM, swapped the phone number to another phone, and acted as though they were him. To prevent that, organizations should add SIM PINs across all their phones.”

Although it’s important to leverage technology, social engineering methods mean it’s equally important for an organization to train its workforce to spot criminal tactics. However, fraud prevention training can’t be a one-time thing.

“It’s so critical that this is not just something that’s done once a year,” Bodine said. “Many companies get a survey about fraud, and they fast-forward through, check the box, and get the approval from the fraud and risk management team. Then they never hear anything about it until next year.”

Companies must continually audit themselves and stay vigilant because criminals are extremely patient. Criminals will pose as a fictitious company and charge the organization an amount that’s too small to be flagged. Over time, they gradually increase the amount. Once they have established trust, criminals will conduct a concerted attack for substantial billings. By the time the company finds out, the attackers are gone.

It’s extremely rare to recuperate funds from fraud, especially when the attack involves checks. That means prevention is the key aspect of fraud mitigation.

“Protecting yourself against business email compromise is critical, because it’s targeted at a business directly in those cases,” Clayton said. “In spear phishing, fraudsters target payers in an organization and impersonate a vendor. Sometimes public entities have a contract out for bid and the fraudsters pose as the winner of the contract, because all that information is public.”

In those instances, criminals will often ask for funds upfront, or at least a certain percentage for services or materials. Once the check is cut, the funds are lost. One way to mitigate that risk is to use a virtual card, which is a safer and faster way to pay vendors. ACH is an option, but there are risks involved if businesses don’t fully verify the vendor’s information before sending the payment.

Accurate vendor verification should include digital bank authentication and follow-ups to ensure the organization is routing the payment to the correct vendor and bank account. Another way to verify vendors is through device fingerprinting. If a vendor normally logs in from Chicago and one day the login comes from Nigeria, it’s a red flag.

Verification should include an Office of Foreign Assets Control check to make sure the vendor isn’t on a terrorist watch list, plus a validation to ensure the vendor isn’t operating from a blacklisted IP address. Another way to spot fraudulent websites is to confirm the age of a site’s URL. Criminals will often create new websites to impersonate vendors.

A fraud management plan should be integrated into every aspect of an organization, including its leadership.

“Make your fraud mitigation leaders a meaningful part of the leadership team,” Bodine said. “Much too often, organizations reach out to their fraud and risk management team after it’s already too late. Don’t put those people in a closet and take them out once a year.”

Though training is a critical step in fraud prevention, many aspects of modern-day fraud require technical solutions. Unfortunately, many companies don’t have the bandwidth to research and implement them.

Partners can help companies upgrade to electronic payments like virtual cards and facilitate the elimination of paper checks. They can also conduct vendor verification and email reviews and can deploy multifactor authentication across an organization.

“Ask yourself, what do I have the capability to do?” Clayton said. “Most organizations don’t have network-wide shared threat intelligence. That may sound like something out of a spy novel, but those are the kind of tools that are required to beat the fraudsters at their own game. There are so many facets to this, and if a company can’t check all these boxes, it’s time to talk to a partner that can help.”

The post Out of a Spy Novel: Mitigating Modern-Day Fraud appeared first on PaymentsJournal.

Payments data has become a crucial cornerstone for any company that processes transactions. Despite the availability of powerful analytics tools, many companies can’t leverage the true potential of their payments data because their information is siloed and scattered across multiple systems.

In a recent PaymentsJournal podcast, Mike Meeks, Chief Technology Officer at BHMI, Jon Protaskey, Director of Software Engineering at BHMI, and Brian Riley, Co-Head of Payments at Javelin Strategy & Research, discussed the approaches that enable companies to tap into the power of payments data.

Payments data is consolidated through a secure centralized repository where transaction data is stored, managed, and accessed. The first step is to pinpoint all relevant sources, such as data from authorization systems, information from external transactional systems, and even data from internal CRM systems.

Then the data is extracted using methods like APIs, parsing of structured files, and database queries. That captures a wide variety of payment-related information like transactions, customer details, and financial records.

After extraction, the data is transformed into a standardized format and enriched, where necessary, with details like client participation, programs, relationship with other participants, and billing terms. The data is then integrated into a central repository.

“There was a time when it made sense to have payments data in silos, whether it be for security reasons or simply the limitations of technology,” Riley said. “However, now being able to bring it all together into an actionable form is truly transformative.”

Throughout the process, consolidation providers should prioritize data governance, delineation of ownership, implementation of access control, and compliance. Once the consolidation is complete, businesses will have several key advantages.

“The biggest advantage of a consolidated payments data platform is it gives companies a uniform enterprise view of all their transactional data,” Meeks said. “It’s a challenge to implement an enterprise-wide data management strategy that provides access to all payments data regardless of transaction type or source. However, the centralized viewpoint makes it worth the effort.”

A data repository can eliminate challenges like duplicate data or missing data due to silos. It also allows businesses to normalize data from disparate sources to make it more understandable. Payments data consolidation sets up companies to leverage advanced analytics and reporting tools that can generate real-time insights. That enables informed decision-making and improves operational efficiency.

As data is ingested, a company could calculate fees, reconcile transactions from different sources, and link transactions from diverse sources to create transaction life cycles. The business can also process disputes as soon as the data arrives.

“On top of those benefits, there’s a substantial cost savings that goes along with it,” Protaskey said. “Eliminating data silos from redundant systems reduces overall maintenance costs and lowers a system’s complexity. It allows companies to allocate resources more efficiently and focus on innovation and value-added activities, instead of wrangling data and reconciling disputes.”

Payments data consolidation hinges on the data repository, so it’s important to select the right platform from the start. The process starts with examining disparate systems and detailing how they will be tied together.

“It takes time and expertise to do it right, but putting in the effort to create an effective system is just good data hygiene,” Riley said. “The beauty of the process is once it’s set up properly, the inputs become routinized and the structure can be repeated, or enhanced, as time goes on.”

Because there are a wide variety of data sources that all have unique characteristics, automating data loading can have a significant impact. It simplifies the data-gathering process and takes the load off operations staff.

Data should be continuously loaded through a real-time feed or by chasing an authorization log file. That allows a business to substantially improve their ability to meet tight SLA windows at the end of the business day. It’s also important to have a repository that can ensure data quality. If a transaction record doesn’t pass validation checks, the system shouldn’t stop processing.

“A best practice is to set the transaction aside into an exception list, continue processing, and notify operations staff,” Meeks said. “Oftentimes, it is a simple issue like a new merchant has been onboarded, but their configuration wasn’t entered into the system. Operations staff can correct the issue and resubmit just the exceptions for processing.”

Another important aspect of a data repository is that it’s scalable, and not just in terms of supporting increased transaction volumes. The system should also support constantly evolving payment types. For instance, the protocol for card transactions is ISO 8583, but systems should also be able to handle ISO 20022, which supports the emerging real-time and cross-border payment types.

“It’s important to address your current needs, but it’s just as important to get it right for the future,” Protaskey said. “The repository should be flexible enough to leverage future technologies like AI and custom data analytics tools. It’s difficult in a constantly evolving environment, but you don’t want to be stuck in a system where you can’t move forward as the technology and the industry advances.”

Payments have a short SLA, and companies need to respond quickly to complete transactions. That means a data repository shouldn’t impact the performance of the system. To that end, the repository should be externalized from the production system so it can be managed independently and leave payments unaffected.

If it’s externalized, however, the repository should have a secure PCI compliant user interface where authorized users can navigate and find payment data in one location. In addition, an external data repository should have extensive security protocols, so there’s no way for an unauthorized user to access the data.

Overall, consolidated payments data repositories can improve compliance, mitigate risk, perform back office processing, and even optimize marketing functions.

Learn more about BHMI’s Concourse Financial Software Suite

The post The Competitive Advantages of Payments Data Consolidation appeared first on PaymentsJournal.

Affluent families are increasingly targeted by criminals and financial advisors must take a more proactive stance to mitigate the cyberthreats, for both clients and their children. According to Javelin’s wealth management research, a large 45% of investors say they expect their wealth management advisors to educate and shield them from cyber and fraud risks.

In a recent PaymentsJournal podcast, two Javelin Strategy & Research analysts—Tracy Kitten, Director of Fraud and Security, and Greg O’Gara, Lead Wealth Management Analyst—discussed the emerging cyberthreats to families and how wealth managers can safeguard their clients against.

Ongoing financial advice requires a bond of trust between advisor and client. With the expansion of digital engagement, and the ability for consumers to seamlessly spend and move money, advised clients now expect wealth managers to extend this bond of trust to their cyber well-being and digital financial security. Often, the same advisor has been with a family for decades, and the client-advisor relationship can span generations. As new cyber threats emerge, clients will increasingly lean on wealth managers for support.  

“Advisors must consider their value proposition and move toward holistic financial planning,” O’Gara said. “They must foster engagement through ongoing conversations about risk in terms of goals and investments. Once that level of engagement exists, advisors must further nurture their clients and educate them about cyber risks and how they can protect themselves.” 

Because cyber risks often extend to a client’s entire family, it’s critical for the financial services industry to protect children and elderly relatives, those who are increasingly vulnerable. 

“Most adults are relatively savvy,” Kitten said. “They’re doing a good job of keeping up with the new types of scams and emerging fraud trends. Elderly populations, on the other hand, don’t often have that digital know-how. Children between 10 and 14 know the technology but they aren’t as well-versed in identifying fraud.”

Organizations like AARP have taken a proactive stance with elder fraud and corresponding tactics criminals use to target older consumers. With children, however, it’s often assumed that a parent or guardian has a child’s best interests at heart. Unfortunately, many parents simply aren’t aware of the risks.

Affluent households are increasingly popular targets for cybercriminals. Affluent children are more likely to have their own tablets, mobile phones, and other devices. They use gaming and social media apps more frequently, and they can typically purchase and download apps more freely. Those factors dramatically increase affluent children’s digital footprints, and with that increased footprint comes increased cyber risk.  

“Criminals manipulate their targets, and that’s why they often target children under 18,” Kitten said. “Gaming and social media are the primary platforms cybercriminals use to communicate with children.”

Parents often aren’t fully aware of the interactions their children are conducting online. Another main reason many children are vulnerable to fraud: Their parents give them unlimited and unsupervised access to the internet.

Experts mostly agree that children under 14 shouldn’t have social media accounts; but 10- to 12-year-old children from affluent households are more likely to have social media accounts than their less-affluent peers.

“It could be due to how parents themselves feel about social media,” Kitten said. “If parents are oversharing about themselves on social media, they’re probably oversharing about their children, too. Criminals pick up on that. Once they target a kid, the child can be socially manipulated into perpetuating a scam.”

It can be even more damaging when a child’s identity or persona is taken over or mimicked. Criminals can then use that stolen identity or mimicked persona to manipulate other members of the family or to open new accounts using the child’s name. 

Financial advisors do not have to become cybersecurity experts. Identity protection services (IDPS) providers specialize in identity fraud prevention, and many such companies offer turnkey solutions.

“Financial advisors could do a much better job of partnering with identity protection services providers, or at the very least recommending them to their clients,” Kitten said. “Portfolio planning should always include identity protection for the entire family.” 

Family offices, for example, often focus on physical client protection, travel protection, medical backup, and security for their inhouse systems, but there’s a gap when it comes to cyber fraud protection for the client, O’Gara said. Closing the client gap starts with education.

“It should be a topic that drives engagement with clients [across wealth models],” O’Gara said. “It’s a great way to show empathy and interest in your clients’ families. If you’re doing financial planning, you’re already discussing beneficiaries and learning about their holistic financial picture. Discussing fraud prevention is a great way to further the relationship and show more value to your clients. There’s an opportunity to expand that conversation all the way from ultra-high-net-worth individuals to the middle market.”

The post Cyber Risk Management for Children, Families: A Wealth Manager’s Role appeared first on PaymentsJournal.