2023: The year of payments innovation

For both businesses and individuals, faster and more secure ways to make and receive payments are a top priority, and as banking goes ever more digital, institutions have a lot riding on building up speed and safety in transactions.

According to recent research, almost two of every three owner of a small or mid-size business has cash flow worries arising from the challenges of collecting payments from their customers, which leads to difficulties staying current with their own bills. For individuals, the desire for real-time payments is in tension with the rising threat of fraud, leaving banks working toward finding the right equilibrium.

In the latest BAI Executive Report, we explore what’s new in the payments space and where the sector is heading.

Our lead article by contributing writer Katie Kuehner-Hebert projects that 2023 could be a pivotal year for payments, as new products and technologies under development start being deployed for customers with an emphasis placed on personalization.

One innovative newcomer to the U.S. payments marketplace to watch is an online shopping site out of Shanghai called Temu, which enables “team purchases” that allow family members, friends and influencers to recruit other shoppers with an eye toward getting quantity discounts on their combined purchases.

Other predictions include that cross-border instant payments will also grow in prominence and scale as more businesses operate globally, and that cloud-native solutions developed for payments could open up other parts of the banking environment in a cost-effective fashion.

Enhanced identity and account takeover protections, and a deeper understanding of the “last mile” of transactions are also seen as progress areas for 2023.

On the real-time payments front, expected to debut this year is the Federal Reserve’s FedNow program that promises to greatly expand RTP availability for customers, and overcome obstacles and reduce operational risks for banks. Contributing writer Lauri Giesen speaks to a number of industry watchers about FedNow and whether the RTP reality will measure up to the hype. At this point, it appears from her reporting that it just might.

For customers, anticipated benefits include lower-cost borrowing and more protection from late fees. For banks, RTP redundancy and reduced payment and settlement risk are among the potential upsides. “The Fed has long had a gap in the marketspace for instant 24/7 movement of funds,” one expert tells Giesen.

The most common form of real-time payments is peer-to-peer (P2P) payments via services such as PayPal, Venmo and Zelle. In the United States and elsewhere, P2P payment growth in recent years has been staggering, both in volume and in value – the global P2P market is estimated at $2 trillion-plus now, and is expected to exceed $5 trillion by 2028.

And when your dollar value begins with a T, that’s going to attract more attention from criminal elements seeking to peel off some of that value for themselves.

The once-clear line between authorized and unauthorized transactions is blurring, which may put institutions on the hook for payment scams affecting customers if the customer is tricked via social engineering or other means into approving a payment or transfer, or revealing their account credentials.

For this month’s Q&A, I speak with Jake Emry, a fraud prevention specialist at NICE Actimize, about the reinterpretation of the Fed’s Regulation E, particularly for P2P payments, and what that mean for banks and credit unions.

Emry explains that the Consumer Financial Protection Bureau is taking the view that, because so much of banking is now digital and fraudster schemes have gotten so sophisticated, someone who is scammed into making a payment or sharing credentials has not really authorized that transaction.

And finally, Christina Luttrell from GBG Americas (IDology and Acuant) offers her perspectives on how modern identity verification technology can help strike that delicate balance between providing the low-friction payments environment that customers crave, and at the same time, keeping them safe from the growing number of fraudsters out there prowling banking’s digital streets.

She makes a case for using data-driven intelligent ID technology with a layered approach as a way to validate customers earlier in the transaction process. Doing so can help counter the dramatic upswing in synthetic identities that the industry is seeing. An added benefit of intelligent ID tech, Luttrell writes, is the ability to better locate and serve thin-file consumers, including millennials and Gen Zers, who are looking for speedier payment options.

Terry Badger, CFA, is the managing editor at BAI.