Modernizing payment methods: tough competition and a chance to differentiate

The payments space, populated with traditional financial services organizations, retail partnerships, mainstream technology companies and virtually any business that transacts with any person, arguably brings banks and credit unions their widest and most challenging competition.

Therein also lie some of the biggest opportunities to satisfy banking customers’ needs and keep them around for the long run.

We already know that meeting consumers where they transact with digital ease goes a long way toward fostering loyalty, and with it, loan demand and sticky deposits. Our industry has also made clear that a major area of growth lies with small and medium-sized business (SMB) banking. And since the makeup of SMBs can be a lone vendor at a farmers’ market reliant on a fast payment offering, to a custom artisan fabricator selling and shipping abroad, the fact that payment services should fit within most banks’ portfolios is of little surprise.

But where unknowns do creep in is with understanding how fast the payments landscape is changing, by rule or by trend. Or in deciphering when best to go it alone in expanding this business line or by partnering with others.

It’s in the BAI Executive Report: Modernizing payment methods, that we look to answer some of those very good questions.

For certain, modernizing doesn’t have to mean abandoning the sound fundamentals at the core of your operation. With real-time payments comes even greater consumer and SMB uncertainty that fast and easy delivers the same level of safety that traditional ways of doing business did.

And then there are global industry-wide considerations shaping this topic, such as progress for the newest shared domestic and cross-border payments platform FedNow and the slightly more seasoned system from The Clearing House. In response, our lead article asks, “What will it take to get more banks plugged into FedNow and RTP?”

Progress is influenced by the magnitude of a U.S. banking system built on 9,000-plus financial institutions and because domestic participation remains voluntary. However, there is progress, which our article details.

That piece fits nicely with a Q&A shared by Kristen Jason and Neeraj Gupta of Alacriti. They look at how the March 2025 active date of the ISO 20022 payments data and messaging standards could — or should, in their view — accelerate bank urgency around payments automation.

Shifting from these very important international linkages back to more intimate considerations is our feature looking at the popular credit payment habits of consumers. Specifically, what the rise of digital wallets could mean for how banks have historically leveraged brand identity on physical cards.

Sean Gelles, senior director of payments intelligence for J.D. Power, tells BAI he is optimistic for brand programming tied to rewards and other value-added features, but ultimately how banks rethink marketing will matter. Gelles offers an important outlook for the digital wallet as a whole, including what could be next for banks as more align behind Paze to take on Apple Pay and Google Pay.

And there’s more in the issue:

• Importantly, contributors stress that size does not matter when it comes to payments exploration and expansion. Please check out my interview with Pathward’s Will Sowell about the importance of Banking-as-a-Service, payments offerings and overall financial product flexibility for community banks.
• And small and mid-sized banks are top of mind for NICE Actimize’s Eric Tran-Le, who urges these market segments to leverage machine learning and AI to fortify against payments fraud.
• The fraud fight energizes Bottomline’s Jessica Cheney as well. She wants banks and their corporate customers to break up with physical check writing and clearing once and for all. She argues that it’s paper, not digital, that creates greater vulnerabilities.
• Our issue wraps up with a comprehensive look at what’s on the horizon for financial services technology and the higher-stakes question of open banking. In his article, Jack Henry’s Dennis Jones covers BaaS and PaaS, and posits this idea: payments systems and their adoption holds the key to financial freedom.

Enjoy this wonderfully tactical and philosophical edition of BAI Executive Report.

Rachel Koning Beals is Senior Editor with BAI.