Change in the landscape of emerging payments seems to be ever-accelerating. FinTechs arise and evaporate on a near-daily basis. Traditional card issuers dabble in cryptocurrencies and then don’t. There is a significant debate at the state and federal level in the United States concerning CDBC (Central Bank Digital Currencies), new ISO2022-based payments rails (like FedNow) which have been recently launched or are about to launch, and the US dollar as the world’s reserve currency may be challenged by a hypothesized BRICS currency.
As payment professionals continue to track emerging payments, three critical questions quickly arise:
- What might the impact of emerging payments (such as BNPL, Cryptocurrencies, and instantaneous payments) have on traditional payments (such as card payments, ACH, and legacy cross-border payments).
- Which individuals or entities are likely to be early adopters of instant payments like TCH RTP and FedNow, and what potential advantages, if any, will they gain as first movers?
- What emerging payment systems, technologies, and processes will have the greatest potential to ensure the safety and soundness of the payment system and engender ongoing consumer confidence in our payment systems?
I recently shared these questions with Maggie Jiang, VP of Transaction Banking at DNB Bank and Creston Stickels, Senior Lead – Payment Card Operations at Robinhood. On the topic of emerging payments’ impact on traditional payments, Creston shared with us how CBDC’s value and relevance will grow as the global financial systems continue to evolve into the digital space. Digital currency will allow for money movement and payment ecosystems to evolve faster and with lower risk.
Exploring the future state of cryptocurrencies, Creston offered the following thoughts,
“Similarly, cryptocurrencies will continue to grow in use and will create valuable use cases for both the financial sector and payment system users. We see this daily in how crypto networks move and store digital value today. The ups and downs of the crypto market are often taken away from the advancements and ease they can bring to the payment ecosystem.” – Creston Stickles, Senior Lead, Payment Card Operations, Robinhood
When asked about the continuously evolving landscape for Buy Now Pay Later products and their impact on financial institutions, Creston called out the criticality of security in such systems, BNPL has garnered increased value to financial institutions as they strive to support the needs of all customers. Financial security is critical to those that need it. This is the type of product that can provide that. It is as important as ever to create a credit entry point that has clear terms and is non-predatory.
Creston summarized the landscape and growth of these emerging payments with a focus on the need to keep customers top of mind and affirmed that these products will grow and adapt to the needs of the customers they serve. They remain in somewhat early adoption stages while the products continue to be developed and mature. There is not a one-size-fits-all with these products but expect significant growth and enhancements in the coming years.
Maggie provided great insight into the first mover advantages associated with the US instantaneous payment systems FedNow and The Clearing House’s Real Time Payments systems,
“The FedNow rollout in July represents an important step forward in the modernization of the US payment system. Early adopters would include financial institutions that are already part of the Fed’s payment system, from credit unions and community banks to larger financial institutions. There are advantages to being an early adopter. Aside from the competitive advantage of being first to market, there is also an opportunity to give feedback with a dedicated team to shape the service how you see fit. The dedicated product support that is likely to be given to early adopters is also a very big value add. In the context of the existing RTP product, which rolled out in 2017, FedNow would be competing for market share. The success of each platform will depend on adoption rate, ease of use, and service experience. Ultimately though, having more options and increasing competition will better the instant payment arena overall.” – Maggie Jiang, VP of Transaction Banking, DNB Bank
As we shifted our thinking to the soundness and security of emerging payment systems, Creston shared the following observation: Customer authentication remains a critical part of managing and reducing external threats. This is a space that needs to see continued improvements as threats evolve. Layered approaches to fraud mitigation remain a key trend. Knowing your customer, monitoring, and detection along with real-time decision-making. A key aspect that I think is often overlooked is educating your customer. This needs to be a strengthened layer of support as customers are often unknowingly creating the entry point of an attack.
As we can see from the thoughtful input from Maggie and Creston there is a tremendous overlap and interconnection between multiple disciplines. Interestingly, FinTech Connect North America will bring together experts, including Maggie and Creston, across DX, PayTech, Blockchain and RegTech and Security.
Just a few of the key themes include:
- AI/ML application, including automation
- Open Banking Update
- The role of technology in driving B2B payments
- Web 3 – What it means to financial institutions and regulators
- How RegTech is transforming the compliance function
FinTech Connect North America will be held on June 27th at Convene Quorum in NYC. This will be their first in-person event since the pandemic – I plan to attend and hope to see you there to hear and share information and insights on the hyper-change we are seeing in payments and adjacent spaces.
Author: Dean Sheaffer, Commercial Director, Reading, Payments Consulting Network
Dean Sheaffer is a highly experienced leader in the US payments industry, with over 30 years of expertise. His extensive knowledge encompasses both traditional payment systems and emerging areas like BNPL, open banking (A2A), cryptocurrencies, and real-time payments.
Payments Consulting Network is one of the media partners of FinTech Connect North America.
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Maggie Jiang will be participating on the panel entitled ‘Open banking and embedded finance – the new face of Finance?’ together with Matthew Saal, Digital Finance Initiatives of International Finance Corporation, and Carl Salbicki, Co-Head of Global Payments, BNY Mellon Treasury Services.
Creston Stickels will be participating on the panel entitled ‘Redefining the payments value chain – how to keep innovating and evolving’ together with Philip McHugh, Executive Director of FlexCharge, Kevin Garlan, Vice President, Product Sales of Goldman Sachs TxB, Kristen Kines, Vice President of Evolve Bank and Alexandra Johnson, Head of Innovation of Bank of America.
Download the full agenda here.
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