The digital economy is here and, for many consumers, it has become a way of life. Direct deposits, push payments, eWallets, same-day ACH transfers, PayPal, Zelle and myriad other platforms and tools are now second nature.
But, with this progress comes friction in the form of a payments patchwork. It has these newer, faster methods running across core payments infrastructure that was not built to support so many, so fast. The persistence of legacy infrastructure can often throw sand into the wheels of digital payments progress at the very same time that consumers demand innovation — and options that are faster, cheaper and evermore secure.
In a recent webinar, Karen Webster dug into this topic with Fiserv’s Tammi Shapiro, vice president of electronic payments product strategy and management, and Paul Diegelman, vice president of electronic payments partnerships and business development. The question at the heart of it all: How can the industry move money at the speed of digital — or, as Fiserv calls it, “the speed of life” — to enable the many opportunities of the digital economy?
Supply and Demand
The ability to keep up with consumer demand is the crux of any capitalist enterprise. Although there is no physical “supply” in digital payments, the need to keep up with consumer’s expectations is just as real and can pose just as much of a challenge.
Fiserv comes to the conversation with 30 years of insider industry knowledge, and on the heels of a year in which it moved more than $75 trillion across 30 billion digital payments in peer-to-peer (P2P), consumer-to-business (C2B) and business-to-consumer (B2C) transactions.
In other words, it’s seen some stuff.
“The ways that consumers and businesses want to pay and be paid are changing,” Shapiro said. That’s why checks are declining, and why new payment methods are emerging all the time — often faster than legacy infrastructure can keep up, and even giving the most agile organizations a run for their money.
The use cases for digital payments are also evolving. More consumers want to leverage electronic payments for purposes like paying rent, maintenance or tuition — higher dollar-value transactions that may or may not be recurring and, in which case, paying by card may be prohibitive or undesirable.
It’s interesting to note that 25 percent of those who pay their mortgages by check told Fiserv they would switch to eCheck payments if given the option — no additional prompting required. While 75 percent were not so eager, Webster hypothesized those numbers would change if the option were placed in front of consumers in the real world instead of as a hypothetical scenario.
Ultimately, whether it’s paper check, eCheck, credit card, same-day ACH or another method, options play a key role in the changing payments landscape by allowing consumers to do business on their own terms. Therefore, accepting one specific method may be less important for businesses and organizations than enabling as many payment types as possible to meet consumers where they are.
Millennials, in particular, have expectations around money movement that the generation ahead of them may not always share. For example, 77 percent would prefer a digital payment over a physical check, according to recent research by Fiserv, and two-thirds of urban consumers felt the same way.
Shapiro said these are unforgiving demographics: Consumers want those capabilities and will go to the service that provides them. Those expectations are not limited to one demographic, however. From millennials to baby boomers, all want payments to keep up with their lifestyles.
B2C, C2B, B2B and P2P: There are many ways that individuals and companies need to move money, and some have advanced more than others as agile new players enter the race. Today, countless FinTechs are powering consumer payments to businesses and one another.
The transition to digital in the B2C payments space is accelerating in industries that have otherwise been slow to embrace a digital change. Take insurance, for example. As new competitors like Lemonade enter the scene, legacy insurers are being forced to up their game, with everyone’s eyes on a single prize: meeting customer needs, especially when claims payments put speed and digital front and center.
Making that move to digital has great benefits to businesses, too, according to Diegelman. Going from paper to digital improves operating efficiency and management processes. Even if the money isn’t actually moving faster, the shift may give businesses more time to plan and forecast before sending payments.
The transition to digital is toughest in the B2B space because the friction isn’t always in the act of moving money, he explained, but in the data that must move along with it. The sending company must deliver information with the payment so that the receiving company can properly log the transaction in its financial records, and there’s no industry standard for how to efficiently do this.
The persistence of bank wholesale lockboxes, invented in the 1950s, shows this problem has not been tackled to the same degree as payments between consumers and businesses, Diegelman said. Until that changes, payment and accounts receivable (AR) posting data will continue to be one of the most significant obstacles in automating B2B payments.
Traditional companies simply can’t adapt their old technology to the new ways as fast as new companies can implement technologies like application program interfaces (APIs) right out of the gate. These legacy companies are moving in the right direction, Shapiro said, but it’s just happening slowly.
Whether companies are API-capable or not, Diegelman noted it’s incumbent upon Fiserv and similar organizations to enable them to access payment rails regardless of their underlying infrastructure.
What Does ‘Faster Payments’ Really Mean?
Faster than what? Faster to whom, the sender or the receiver? How fast is fast enough?
Like so many industry buzzwords, “faster payments” has lost a lot of its meaning. Consumers want it, so every organization wants to offer it, even if they must tweak the definition to do so. The result is that faster payments has become more of a philosophy than a specific process or product.
“It’s almost a misleading term,” Diegelman said. “‘Faster’ in the gig economy is very different from ‘faster’ for companies that send out rebates when you buy certain products.”
Then there’s the issue of security: The faster payments move, the more opportunities they create for fraudsters to crack the code, he added. It is possible to reduce risk while moving payments more quickly, but it’s no easy task. The best payment processors have devised methods that don’t require sacrificing one for the other.
Another consideration is user interface. Yes, consumers want speed, but it does them little good if a product doesn’t make sense to them. Diegelman explained that a good user interface must work the way consumers’ minds work. They must like and want to use it or the speed of the payment is irrelevant.
That’s a lot to consider already. But, Shapiro said, there are still some self-evident lessons to be learned and applied across the board.
Automatic payments should be truly automatic and not require information to be inputted each time. Consumers should be able to sleep at night knowing their information is secure and their payments have reached their destinations.
In the event of a natural disaster or emergency, people should not have to wait for a check to arrive by mail, Shapiro said. Electronic money can be placed onto a debit card in real time, and that is what is needed in an emergency circumstance. If it can be done, then why isn’t it?
Shapiro and Diegelman agreed the digital future is here, and that Fiserv is doing its part to draw corporates, FinTechs and financial institutions into it. It is powering flexible transactions across the alphabet soup of payments needs, and creating easier integration for banks as faster payments move out of the realm of sci-fi and into the realm of everyday reality.