The Future of Payments

16 BANKING PERSPECTIVES QUARTER 4 2018 Moreover, by adopting API-enabled product applications, more banks can participate in the scale economies of the industry’s biggest players because big banks could open up their product applications to other financial institutions to rebrand and resell. While the push toward open banking will require significant technology and process change across banks, data aggregators and third parties, as with the RTP network, the benefits in terms of innovation and improved safety and soundness for consumers, banks, and data aggregators will likely make open banking inevitable. Ever-evolving technology combined with consumer demand for secure, frictionless, and digitized services will drive the U.S. banking system toward open banking and APIs. A DIFFERENTIATING ROLE FOR BANKS Open banking and the widespread collection and analysis of consumer data do pose some existential threats to the banking industry. At worst, today’s retail banks could become mere “balance sheets” and “pipes” for information and transactions while other players create value in connecting with the customer. More optimistically, though, banks could attain new heights in scale and competitive pricing. Perhaps even more promising is the potential opportunity for banks to become exactly what consumers are seeking: a trusted advocate for their data security and privacy. As noted, consumers trust and expect their banks to keep their information safe. Perhaps better than any other player in the industry, banks are ideally positioned to serve a vital role in balancing technological advancement against consumers’ privacy interests by ensuring that data access supports the benefits to which consumers and service providers have agreed. In this role, banks can take several actions, including: 1) educating consumers about how their data is used, 2) working to develop standards and guidelines for data use, 3) promoting secure technologies, such as APIs, and 4) ensuring that aggregators and FinTechs are held to sufficient standards in terms of how they are using and storing customer data. They could even consider developing products or tools that would help consumers to control access to their data. THE FUTURE IS IN CUSTOMERS’ CAPABLE HANDS The future of payments is about giving customers more choices and advocating for their needs. RTP will become an indispensable arrow in a banks’ quiver of payment options as businesses discover their value and begin to call for real-time service. The Fed’s RTGS system might temporarily slow U.S. advancement toward faster payments, but ultimately market demand will drive the industry forward. In data aggregation and security, trust will become banks’ most valuable asset as they answer consumers’ desire for greater privacy. Banks can become a bulwark against the “Wild West” of online data aggregation and work alongside consumers – and with FinTechs – as trusted partners in protecting consumer data. Banks are aligning with consumers in pushing for market solutions that ensure consumers have the final say in how their data is shared, and they can work with data aggregators to ensure the proper balance between security and convenience. The brave new world of payments and banking is upon us, with many of these advancements coming together to form meaningful change in 2018. Ultimately, whether through the RTP network or increased data privacy and security, banks and their customers are still at the forefront. n ENDNOTES 1 Jim Daly, “The World Added 15 Real-Time Payments Systems in the Last Year, and 21 More Are Coming,” Digital Transactions, September 26, 2018. http:// www.digitaltransactions.net/the-world-added-15- real-time-payments-systems-in-the-last-year-and-21- more-are-coming/ 2 https://fedpaymentsimprovement.org/ 3 “Potential Federal Reserve Actions to Support Interbank Settlement of Faster Payments,” Federal Reserve, September 28, 2018. https://www. federalreserve.gov/newsevents/pressreleases/files/ other20181003a1.pdf 4 “Fintech Apps and Data Privacy: New Insights from Consumer Research,” The Clearing House, August 2018. https://www.theclearinghouse.org/-/media/ New/TCH/Documents/Data-Privacy/TCH-Consumer- Research-Report-08-20-2018.pdf 5 Bob Hedges, “Consumer Data in an API-Enabled World,” Banking Perspectives, vol. 6, no. 4 (2017). https://www.theclearinghouse.org/banking- perspectives/2017/2017-q4-banking-perspectives/ articles/open-banking Banks can become a bulwark against the ‘Wild West’ of online data aggregation and work alongside consumers – and with FinTechs – as trusted partners in protecting consumer data. Leader