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The PaymentsJournal Podcast
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Not Just Another Bank: How Credit Unions Can Reach Younger Members
Feb 2500:21:11Tap to summarizeCredit unions have distinct hallmarks: they are not-for-profit and member-owned. Yet amid the flood of financial services companies in today’s digital landscape, these differentiators can be difficult to convey. While many younger consumers are actively seeking the kind of guidance credit unions excel at providing, they often perceive credit unions as just another bank. In a recent PaymentsJournal podcast, Velera’s Tom Pierce, Chief Marketing and Communications Officer, and Carrie Stapp, Vice President of Marketing, along with Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research, analyzed two Velera studies—Eye on Payments and CU Growth Outlook—to distill critical insights into how credit unions can reclaim their brands and stand out in a crowded field. From Emerging to Standard Several of the most compelling insights center on how consumers pay. While debit and credit cards have jockeyed for dominance in recent years, usage was nearly evenly split last year. Despite this balance, the two methods tend to serve different purposes. Consumers typically use debit cards for everyday purchases—such as convenience stores, pharmacies and grocery stores—while credit cards are more often reserved for larger purchases at big-box retailers or entertainment venues. Another notable trend is the continued momentum behind digital wallets and contactless payments. Roughly seven in 10 consumers now use a mobile wallet at least a few times per year, and about a third use wallets multiple times per week. “Another key finding is about other areas that have moved from emerging payments into payment standards, including buy now, pay later and P2P payments,” Pierce said. “With BNPL, we’ve got 38% of credit union members saying they would be likely to use that type of program if it was offered by their credit union.” “On the P2P side, three-quarters of consumers say they use these payments at least periodically, and some of the younger generations are using them as a primary payment method,” he said. As Gen Z ages into adulthood, the preferences of younger consumers are coming into sharper focus. When it comes to payments, digital is—unsurprisingly—the default. Still, this makes it even more critical for credit unions to keep digital capabilities top of mind. “It calls out the big trio within payments right now, which are digital wallets, BNPL and contactless cards, and those are very important high-growth areas,” Riley said. “They also appeal to younger generations, which feeds right into the significance of Gen Z. One of the common problems with credit unions is the aging level of their members. Making sure that you’re building the business for decades to come is the reason you want to engage the younger age cohorts.” The Growing Identity Crisis To establish meaningful engagement, organizations must look beyond payments and understand how younger consumers learn about financial services. For Gen Z, guidance frequently comes from non-traditional sources, rather than established FIs. “Social media, for the first time across all of our generations, showed up in the top three as most trusted for financial advice,” Stapp said. “Understanding the role that social media plays, understanding where younger generations are getting their information, and how they’re trusting that information is incredibly important for the financial services industry to understand, absorb and adapt to.” At the same time, younger consumers are experiencing heightened financial stress. Social media can exacerbate this anxiety by encouraging constant comparison, while the growing number of apps, cards and digital payment options can make it difficult to track spending and stick to a budget. Although digital financial management tools exist, many consumers are increasingly looking to their financial institution for support and guidance. Credit unions thrive in delivering this personal touch, yet many younger consumers remain unaware that this lifeline exists. “Only 16% of respondents from the Gen Z category said that credit unions are focused on community, and they equally felt that they were profit-driven,” Stapp said. “They’re not understanding what the basis of a credit union is, and that it’s people helping people. It’s creating an identity crisis and an opportunity for the credit union industry to re-educate, and I would go so far as to say rebrand itself.” The Embedded Opportunities As part of broader rebranding efforts, credit unions have several key opportunities to consider. First, economic uncertainty in recent years has driven strong interest in credit cards, making competitive credit card offerings an important area of focus. “I’ve seen some numbers out there that only about 20% of credit union members have a credit card with their credit union, so there is a lot of white space there,” Pierce said. “This year, we had nearly four in 10 credit members apply for a new credit card in the last year and over 50% of Gen Z said that they would look to apply for one in the next year. So, a lot of growth opportunity is there in the credit card space.” “We also saw nine in 10 folks saying they received real-time approval or denial following application for a credit card, so having that real-time response through origination solutions is critical for engaging that member quickly,” he said. Outside of card offerings, credit unions should also rethink how they engage with members. In the Velera Eye on Payments study, consumers across all generations expressed a strong preference for online interactions, especially for tasks such as paying bills, adjusting card controls or applying for new accounts or products. This digital preference is reshaping traditional definitions of financial solutions. Embedded finance, once understood simply as financial products accessible within a website or app, is rapidly expanding into a more comprehensive and integrated experience. “We’re seeing a lot of the big banks, as well as the fintechs, embedding themselves in the lives of consumers at the point of sale,” Stapp said. “I was buying a birthday card over the weekend and the birthday card aisle had an entire section where you can add a Venmo code inside of the card.” “This is what we’re talking about when we’re talking about embedded. I’m watching Netflix or Amazon Prime and I can buy whatever’s on that ad right there from my phone or from my TV,” she said. “The definition of embedded goes further than just, ‘Can I access a product or service on a website or my mobile app?’ That’s important to understand, on top of understanding how they’re preferring to pay.” Bringing Members Along These shifts in expectations and technology underscore the need for credit unions to revisit the overall member journey and experience. “What is it that we’re creating that makes their lives easier?” Stapp said. “We now have to meet them where they are instead of them coming to us for a product or solution. When you’re thinking through your digital strategy, when you’re thinking through the products and solutions that you are going to invest in for your financial institution, map out that digital strategy and experience that your member is going to get with the lens of, ‘Is this enticing to all of the generations, particularly those generations where I’m going to get my growth?’” As they develop this roadmap, financial institutions must also plan for fraud, which is increasing in both scale and sophistication. Instead of relying on physical tactics like gas pump skimmers, bad actors now deploy advanced impersonation scams to trick consumers into sharing personal data or sending money. Artificial intelligence has made these fraud attempts more effective, but it also offers powerful tools for detection and prevention. Equally important, consumers themselves are embracing AI. Velera’s Eye on Payments report found that one in three consumers uses AI several times per week, and over half use it for financial planning or budgeting. While shifting preferences, emerging threats and rapidly evolving technologies present challenges, they also create ...
Transcribe →Financial Institutions Can Be the Payments Hub That Small Businesses Need
Feb 25, 202500:21:21Tap to summarizeCommercial solutions offered by banks have typically been tailored to larger corporations, with a one-size-fits-all approach that often doesn’t meet the unique needs of small businesses. As a result, many small business owners have turned to consumer-focused products, which lack many of the key functions they need. The lack of compelling options available have driven many to seek financial solutions outside of their financial institution. In a recent PaymentsJournal podcast, Tim Ruhe, VP, Head of Small Business Payments at Fiserv, Ryan Looper, Director of De Maison East, and Brian Riley, Co-Head of Payments at Javelin Strategy & Research, discussed the challenges small businesses face and the opportunities financial institutions have to better support their small business clients. The De Maison East Case Study De Maison East is a beverage company founded in 2020, right at the beginning of the pandemic. “Everything changed,” Looper said. “In that moment, it was like diving into a pool in the dark and hoping there was water there. One of the challenges was our customer base had just been decimated, because all restaurants were closed. This put a spotlight on connecting with customers and getting revenue going, getting accounts receivables and payables going as part of our operational load. It just felt like one of the things we needed to focus on.” During the pandemic years, the company focused on examining its business processes and identifying potential growth strategies. While the beverage industry is well-established, it remains somewhat conventional in many ways, and many of De Maison East’s customers were still paying invoices by paper check. Recognizing digital payments as a powerful growth driver, the company began to encourage its customers to make digital payments. “It might sound a little far-fetched that digital payments would be innovative, but they definitely are for our business,” Looper said. “As we were thinking about scalability and the customer experience, we decided to go with a fintech partner. The move allowed us to give very fast feedback to our customers with regard to payments. To this day, we still receive a majority of our payments digitally, and it was a blessing in disguise that we could do that in a difficult time.” The Goldilocks Solution The speed and transparency gained from the shift in payment processing made an immediate operational impact for De Maison East, which typically handles numerous smaller transactions. The improvements in the receivables process helped De Maison East optimize cash flow to focus more on its customer relationships and driving its business forward. “One of the things we hear from small businesses is they’re spending close to 20 hours a week managing the back office and payments, and they’re not able to focus as many hours and cycles on their businesses they’d like to,” Ruhe said. “Businesses are finding themselves using lots of different tools from different providers and not necessarily going through their financial institution.” Small businesses want to perform and automate tasks such as paying suppliers, receiving payments from customers, sending invoices, and performing transactions at their physical point of sale. In many cases, an integrated solution isn’t available to accommodate their needs. The commercial offerings from financial institutions can be daunting because they are highly sophisticated. While they are capable, they are often not designed for companies with less than 30 employees. On the flip side, consumer solutions don’t offer enough capabilities for small businesses. They may be able to pay bills, but an organization will have trouble paying suppliers. There’s also no invoicing capabilities or merchant services. “What we’re finding is that there’s this Goldilocks segment,” Ruhe said. “How do financial institutions serve the small business segment and their needs while retaining the capabilities and the simplicity? There’s this new category, which is integrated small business solutions, that they’re trying to solve for.” A Home Base Although the lack of a fit-for-purpose solution has caused many businesses to partner with fintechs, many would still prefer a solution provided by their financial institution—if it were available. “If a financial institution provided a small business with an easy to use and highly capable solution, it would be a huge advantage and very appealing, because it creates less dispersion of platforms,” Looper said. “We’re constantly in our financial institution, so if it was a home base, that would be incredibly advantageous.” One main reason a small business solution offered through a financial institution is so compelling is that it’s a one-stop shop. Instead of paying for multiple platforms and spending time manually reconciling the information, the payment data can be consolidated in a single dashboard. Another critical advantage is that banks can offer access to real-time payment rails like FedNow and RTP. Overall, the speed and efficiency gains that a financial institution can provide can have an exponential effect on small businesses. The End State The small business segment has been somewhat underserved by financial institutions, which is why many companies have turned to fintechs. As banks begin to tailor their small business offerings, they should start by taking a holistic view of their customers. “If a financial institution had the ideal full relationship with a small business, what would that be worth?” Ruhe said. “I’m sure they have a need for business cards, and I’m sure they have deposit accounts. I’m sure they need, in many cases, invoicing capabilities or merchant services. What would be the value of that relationship? Put a number on it and do the math. Now you can say, how am I doing in terms of wallet share?” Once an institution understands the full needs of their client, they can deliver an integrated experience that includes all the key jobs to be done and work to win the customer back. “If you define that as your end state, it gives you a good road map,” Ruhe said. “Now you know what the value of the business is, you know how well you’re doing in serving that small business. You’ve done an assessment, and you have a clear road map for how to deliver an integrated solution. The customer doesn’t want to go to different places, he just needs the best possible set of capabilities.” As financial institutions consider their small business solutions, they should understand that there can be a vast difference between organizations. A physician and a plumber might both be considered small businesses, but they have far different financial needs. “It’s not just a one-trick pony about fixing the receivables and the cash flows, it’s getting deeper into the relationship with that business,” Riley said. “As the business grows, the relationship could move to treasury services and deposits and even bleed over to the consumer side of the business. Having that whole view is important in an area that’s somewhat amorphous because of the definition of a small business.” Small Businesses: The Heartbeat of America Even though small businesses have varying needs, there are many common threads between them. One of those threads is they are constantly looking to their financial institution for help. “The messaging to small businesses is important,” Looper said. “It’s a massive opportunity for financial institutions, especially in the beverage space, which is a bit of an analog space, to transition us over. We’re all using banks. We have our financial institutions. It’s a huge opportunity to bring us over and give us some tools to grow an important segment in the U.S. economy.” For financial institutions, there are solutions that can help them deliver the key functions that small businesses require. For instance, Fiserv recently launched its CashFlow Central platform designed to support a small business’ accounts payable, invoicing, merchant services, cash flow management, and business card demands. The integrated platform can help financial institutions deliver the solutions their clients need and take advantage of a unique opportunity. “We have a market of 34 million small businesses in the U.S., representing 43% of the GDP and 70% of GDP growth,” Ruhe said. “That’s $150 billion in value to financial services, so there’s a tremendous opportunity here. Small business is big business—it’s the heartbeat of America and the fuel ...
Transcribe →Biometric Authentication Faces Barriers, But Use Cases for Merchants Have Emerged
Feb 24, 202500:36:28Tap to summarizeThere have been many highly publicized efforts to introduce biometric authentication into the merchant space, such as Amazon’s palm payment technology. While widespread adoption of biometrics in retail has yet to occur, intriguing use cases continue to emerge. In a recent PaymentsJournal podcast, Christopher Miller, Lead Emerging Payments Analyst, and Don Apgar, Director of Merchant Payments at Javelin Strategy & Research, discussed the scenarios where biometric verification has proven effective for merchants, the challenges hindering widespread adoption, and the future of identity verification technology. The Rise of Biometrics: Transforming Authentication and Payments Over the past few years, biometric technology has gained traction in three key areas. The first is consumer authentication for rewards and loyalty programs. For example, some fast-casual restaurants have implemented facial recognition software at kiosks to quickly connect users to their accounts. “It is primarily used as a means of reducing friction for the consumer and potentially rewarding loyal customers with a unique experience,” Miller said. “Lurking behind that is the notion of authenticating payments, because the store or the merchant can of course have payment information on file that is authenticated by your biometric, but that’s not necessarily the driver or the problem that the merchant is trying to solve.” The second area is payment authentication, where biometrics enhance identity verification. In the EU, for instance, it’s increasingly common for issuing banks to request biometric authentication through their apps when customers transact with a card. This additional security layer helps reduce risk, fraud, unauthorized transactions, and even returns. Many merchants have also adopted biometric authentication to minimize fraud, particularly when renting out high-value goods. “If you want to secure a bulldozer for a weekend project with a credit card, it’s important that the merchant who is renting the bulldozer knows that you who are renting this are actually the person who owns that credit card, and you haven’t given them a bad card, or one that eventually is going to be declined,” Miller said. “Because once you leave with the bulldozer, it’s over, and that’s a big loss.” The third area of biometric adoption is replacing traditional payment devices with biometric credentials, such as in pay-by-palm, facial scanning, or fingerprint recognition. In these cases, the customer presents a biometric credential linked to their payment method, authorizing and completing the transaction seamlessly. The Merchant Perspective From a merchant’s perspective, there are two main barriers to biometric adoption. For in-store biometrics, the primary challenge is the cost of the systems such as optical scanners or fingerprint readers. For major merchants with thousands of point-of-sale stations and checkout lanes, this expense can be significant. The other challenge is the consumer adoption process, which often involves multiple steps and introduces friction. “About 20 years ago there was a pilot with a company called Pay By Touch that enabled you to pay with your fingerprint in the grocery checkout,” Apgar said. “But that required consumers to pre-register and to put their payment card and their fingerprint in a database. Then the reader could access and translate the fingerprint into the payment card. In the case of the bulldozer rental, that would require me to have my fingerprint on file with the issuer.” To address these issues, companies like CLEAR, which provides identity verification at airports and stadiums, offer reusable biometric credentials. CLEAR already has a large customer base that has enrolled for streamlined airport authentication. These existing customers could use their credential at any merchant that partners with CLEAR—or a similar network—without needing to re-enroll. “The emergence of reusable networks of biometric credentials goes a long way towards solving some of the consumer friction problems,” Miller said. “In the same way that it was impossible to expect that consumers would establish a unique credit line at every store that they shop. The same consumer logic that led to the general-purpose credit card is likely to lead to at least a small number of general-purpose biometric credentials.” Out of Alignment Though consumer adoption may present a challenge, consumers have shown they are not opposed to biometric authentication. In fact, many routinely use biometric credentials every time they pick up their mobile devices. In many cases, they also rely on biometrics to make payments through digital wallets. “One of the advantages of Apple Pay in the e-commerce environment is that if you pay by Apple Pay online, you can use your fingerprint on your iPhone as an authentication method,” Apgar said. “Validation and identity confirmation is much more important in e-commerce and in remote transactions than it is in in-lane, in-store transactions, because in the e-commerce space, merchants have liability for identity fraud.” Retailers bear the full burden of chargebacks in e-commerce transactions, giving them a strong incentive to verify consumer identities. However, cart abandonment remains a major concern, as businesses strive to balance security with a seamless customer experience. In an ideal scenario for merchants, payment methods would free, transactions would be irreversible, and consumer identities would be fully authenticated. “Consumers want the ability to charge back a transaction if the package doesn’t arrive like it’s supposed to,” Apgar said. “They like having the card issuer, in the case of card payments, being able to intervene as the arbiter if the merchant doesn’t deliver as promised. There is a cost to that, and there is this back and forth; the needs of consumers and merchants aren’t entirely aligned.” Another point of contention between merchants and consumers is privacy. Payment authentication is often seen as a threat to privacy, as a record of a consumer’s purchases can paint a detailed portrait of their behavior. “There are ways that those connections can be severed such that nobody knows that a person, who is actually me, bought these embarrassing items at this embarrassing store,” Miller said. “Rather, it’s some token of a card that I have that is confirmed by another party, and that’s less good for the merchant, if only because they can do less with the data at the end, but also because they’re less able to monetize the data that they’ve gathered around consumers.” The collection and use of consumer data have long been sources of tension in the marketplace, and this issue is unlikely to be fully resolved. The introduction of biometric data adds another layer of complexity, raising critical questions about who stores this data and how is it secured. The Impetus to Implementation The cost and privacy concerns likely mean that the return on investment for biometric authentication investments isn’t there for merchants right now. However, issuers are also involved in these transactions and may have a stronger incentive to implement biometric authentication in retail environments to reduce fraud and risk. The expense will likely be lower for issuers since they wouldn’t need to install fingerprint readers or other physical devices. Instead, they are more likely to leverage existing mobile apps to collect biometric credentials. Some banks have even discussed how implementing a biometric authentication program for their customers could strengthen their relationships. “If there’s a place where this is more likely to happen, it is issuer-driven,” Miller said. “It is mobile-gathered and performed, and it is possibly part of a larger grab by those issuers. It’s interesting to think of banks becoming potentially identity-confirming sources of their own. Certainly, the larger banks might have the ability to take their networks of 30 or 50 or 100 million customers to create biometric authentication methods for their own purposes.” The post Biometric Authentication Faces Barriers, But Use Cases for Merchants Have Emerged appeared first on PaymentsJournal.
Transcribe →The Downside of Not Offering Real-Time Payments
Feb 20, 202500:17:12Tap to summarizeThere have been remarkable strides toward U.S. real-time payment adoption in recent years, driven by growing demand among businesses and consumers. As the long-awaited ubiquity of instant payments draws closer, the financial institutions that have yet to adopt this nascent payment method face tremendous downsides. In a recent PaymentsJournal podcast, Justin Jackson, Head of Enterprise Payments at Fiserv, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, discussed the concerns many institutions have about instant payments support, the benefits of real-time payment adoption, and the steps institutions can take to stay competitive. Real-Time Concerns There are approximately 9,000 banks and credit unions in the U.S., and roughly a quarter of them are active in instant payments. While financial institutions are often separated into adopters and non-adopters, the actuality is a bit more complex. “We often speak as though the other 75% are one homogeneous group that all look and think and act the same, but that’s not the case,” Jackson said. “They’re all individual businesses. They have their own strategies and their own goals and concerns. Each of them has factors that influence their decision of what they’re going to do with real-time payments.” Some institutions are concerned about potential technology challenges when implementing instant payments. They aren’t sure about the magnitude of the change, its impact on operational processes and existing systems, and whether it will require additional staff. Cost is another major concern for many banks and credit unions, as they worry that instant payments could introduce incremental expenses beyond their control. For example, if an originator were to come online and the volume of received instant payments increased by 10X or even 100X overnight, it could lead to unforeseen ramifications. Additionally, many banks remain uncertain about the fraud risks associated with instant payments. These concerns—spanning technology, fraud, and cost—are weighing on institutions to varying degrees. However, as more organizations adopt instant payments, many of these worries will subside. “They’re thinking through these concerns, and they are seeing what their peers and their colleagues are doing and they’re deciding that maybe it’s time,” Jackson said. “We’re nascent in the adoption of instant payments within the U.S., with FedNow being live for about a year and a half and we’re not even at a decade with the Clearing House’s RTP network. We have about 25% of the industry live and that’s tremendously fast for a totally new payment mechanism like this.” Table Stakes: Powering Deposits and Efficiency For all the concerns about adopting instant payments, the disadvantages are mounting for financial institutions that lag behind. Consumers have quickly become accustomed to real-time experiences, such as instant access to vast libraries of music and movies. As these experiences become the norm, both consumers and businesses are increasingly perplexed as to why moving money still takes so much longer. “Retail goods are an example that comes to mind, where you can order something on your phone and sometimes receive it the same day,” Tavilla said. “There is also the precision and the transparency with my packages, where I know exactly where the UPS guy is. But when you move your money, it takes multiple days, and you don’t have the precise information as to when and where the money is in terms of the process.” The increased demand for real-time money movement means instant payments are becoming a table stakes offering for financial institutions. However, real-time payments are much more than an obligation—they are a transformative force that delivers substantial benefits. “There’s one credit union that we worked with to take live on the instant payments networks,” Jackson said. “In the first couple of days after going live, incoming transactions hit the 1,000-payment milestone. After a few months, they got to the point where they were processing 10,000 transactions a month for their members, who were receiving these real-time payments from originators outside of their institution.” The resulting deposit growth at the credit union was almost $60 million in net new deposits, simply due to taking their real-time connection live. Other advantages of real-time payments are more efficient controls and better risk management processes. When an institution initiates a payment, it knows exactly what the balance of the account is. The financial institution secures funds instantly when its user makes a payment, and it can restrict unauthorized use of those funds. In addition, the bank doesn’t carry the risk that the funds aren’t there. The institution is also immediately ready to process a payment at any time, and it is guaranteed credit. If a bank receives a transaction and posts it to an account, it doesn’t face the risk that comes with a return window of two to three business days, where a payment could be clawed back. This extra control is a significant benefit that isn’t available with non-instant payment methods. There is also a less obvious benefit to the acceptance of instant payments: customer retention. For example, after many gig economy workers perform their food-delivery or ridesharing services for the day, they want to cash out their earnings immediately to pay for groceries or bills. Many fintech companies that facilitate gig economy platforms have touted their ability to pay out instantly to attract talent. However, that real-time payment capability is only available if the worker’s financial institution supports it. In some instances, if a contractor requests instant payment but their bank isn’t eligible, fintech companies have encouraged them to switch to a competing institution that supports real-time payments. “That’s huge, when someone else is marketing against you and encouraging your customers to go to another institution because you don’t offer the service,” Jackson said. “That attrition risk is something that just kind of comes out of left field. It’s easy to solve for—just accept the instant payment—but it’s something that isn’t often thought about. It’s becoming more of a problem for the institutions that have decided not to get into instant just yet.” Business Impacts In addition to mounting consumer demand, recent research indicates that 90% of businesses consider instant payments to be important or very important. “As a business owner, one of the things that’s most important is cash flow and access to working capital,” Jackson said. “The nice thing about instant payments is they are 24 hours a day. There is no availability window, they are seven days a week. There’s no weekends or holidays, they are 365 days a year. At any time, a business owner can receive or send a payment and know that within 15 seconds it’s available and it’s confirmed.” These transactions could include payments to vendors and suppliers or incoming payments from customers or investors. Immediate access to money movement is tremendously valuable to business owners, as it increases efficiency. Business owners know exactly where their payments are, and once received, there are no exceptions—no two-day return window and no risk of a clawback. Real-time payments allow organizations to use funds immediately and confirm that an obligation has been satisfied. They also give business owners more time to focus on running their company and serving customers. “The improved customer experience that I get from my bank or my credit union as a result of the instant payment goes a long way,” Jackson said. “There is a lot of impact to the business owner by having access to instant payments and that is going to become more of a drag on the institutions that haven’t gotten into this space. Businesses are starting to think about where they bank based on the availability of instant payments functionality.” Getting Into the Game The demand from businesses and consumers me...
Transcribe →ISO 20022 Is the Beginning of the Road for Mid-Market Financial Institutions
Feb 13, 202500:16:32Tap to summarizeAfter 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. Learning A New Language 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. The Richness of Data 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 Implications of the Format 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?” A Must-Have 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.” [contact-form-7] The post ISO 20022 Is the Beginning of the Road for Mid-Market Financial Institutions appeared first on PaymentsJournal.
Transcribe →Fast, Secure, and Future-Ready: Santander Consumer’s Payments Tech Transformation
Feb 12, 202500:25:06Tap to summarizeIn 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. Why Payments Modernization Matters 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.” A High-Risk Decision 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. Total Cost of Acceptance 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. The Role of Self-Service One of the standout features of the 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. Measuring Success 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 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.
Transcribe →What’s Driving the Adoption of Virtual Cards?
Feb 11, 202500:21:24Tap to summarizeVirtual 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. The Pandemic Effect 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. Volatility and Regulation 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.” Advantages of Virtual Cards 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.” Industry Use Cases 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.
Transcribe →The Looming Cyber Threats Targeting Smaller Financial Institutions
Feb 4, 202500:21:01Tap to summarizeCyber 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. Where the Threat Lies 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.” How Criminals Are Leveraging Social Engineering 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. Collective Insights Help Fight Fraud 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 Growth of Deepfakes 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. Fighting Back 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. [contact-form-7] The post The Looming Cyber Threats Targeting Smaller Financial Institutions appeared first on PaymentsJournal.
Transcribe →ACH Has Best Year on Record, Driven By Accelerating Same Day ACH Adoption
Jan 30, 202500:25:02Tap to summarizeAmid 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. Milestone Growth 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.” Renewed Interest 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. A Lighter Lift 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.” Areas of Focus 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.
Transcribe →Money Mules Up the Ante on Fraud, Creating Significant Impacts on Financial Institutions
Jan 28, 202500:26:27Tap to summarizeCriminals 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. Scam-Fluencing Recruits 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.” A Trojan Horse 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. Perpetual Verification 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?” No Lone Wolves 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. Infused With Intelligence 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.
Transcribe →