The Future of Payments

41 BANKING PERSPECTIVES QUARTER 4 2018 30% of consumers would potentially switch to another financial institution if their current financial institution did not offer access to real-time payments. enablement of relevant real-time experiences through the RTP Network will be imperative to create a path to digital leadership, user engagement, and enhanced profitability. THE COMPETITIVE LANDSCAPE The surge of FinTech providers has created significant disruption which will continue to accelerate as younger customers deepen their use of alternative solutions providers such as PayPal, Venmo, Square Cash, Acorns, Robinhood, and SoFi. The expansion of fundamental transactional services by the FinTechs focused on the recurring aspects of payments is also accelerating. According to a recent article published by CBInsights, 2 60% of younger clients are willing to try a new financial product from a FinTech provider they already use. In the coveted emerging consumer segment of 18- to 34-year-olds, that number rises to 73%. Additionally, a 2017 study 3 by the Boston Fed noted consumers age 18+ generate an average of 70 payments per month, with 32% via debit cards, 27% by cash, and 23% on credit cards. The long-term success for the FinTech offerings noted above will be the ability to transition the digital payment activity, which is primarily a person-to-person (P2P) transaction, into a sustainable financial services relationship where the debit card becomes the fundamental tool for managing a consumer’s payment needs. The FinTech providers currently leverage a payments rail that has been in existence for decades, the debit card rail, to create the appearance of a near-real-time data movement function for transaction requests, with a bank being responsible for the management of ongoing settlement, network management, and back-end operational management functions. Although the existing payments rail provides the assurance of ubiquity, the standard Automated Clearing House (ACH) message format is different from RTP in two ways: the debit rail does not support the enriched data needed to enable a conversational banking framework afforded through the RTP Request for Payment (RFP) or Request for Information (RFI) messages, and the standard debit rail does not support the real-time reconciliation and settlement of standard P2P transactions or more complex transactions types (business to business, business to consumer) because the settlement process typically occurs through an ACH batch exchange. The FinTech community is also seeking access to a platform leveraging API functionality. The API services exposed by FinTech providers, financial institutions, and platform providers such as The Clearing House (TCH), will create an opportunity for all parties to securely integrate unique experiences into the core products and processes. According to a recent study issued by Oracle, “Banking at the Crossroads,” 44% of those institutions listed as digital leaders plan to follow an approach of integrating FinTech solutions into their core processes and solutions. Within the same study, digital leaders are noted to have a 16% improvement in market share over digital laggards. APIs will continue to transform access to legacy platforms. According to data from Programmable Web, 4 an organization that maintains an API directory with over 20,500 APIs, there has been a significant surge in new FinTech APIs since 2017. For the period 2014–2017, there was an increase of 90% for financial APIs and a 51% increase for payment APIs. Open banking developments in the U.S. will drive future increases in API access, as will the need for infusing real-time experiences and payment functionality within the API offering. RELEVANT EXPERIENCES AND INTELLIGENT RESPONSIVE ARCHITECTURE Convenience and speed are the key attributes redefining the customer/member experience, and financial institutions must respond with responsive and intelligent architectures designed for real-time data analytics and conversations that are relevant to the consumer. Within a study issued by Accenture, 5 which surveyed over 23,000 consumers representing 33 countries and eight industries, 64% of the instances when customers switch from one brand to