The digital economy is here. People are participating in it every day with direct deposits, eWallets, same-day ACH transfers, PayPal, Zelle and myriad other platforms and tools. But the result has been a payments patchwork in which digital and analog financial activities are running side-by-side, and that creates its own set of challenges.
In a recent webinar, Karen Webster dug into the topic of enabling the digital economy with Fiserv’s Tammi Shapiro, vice president of electronic payments product strategy and management, and Paul Diegelman, vice president of electronic payments partnerships and business development.
The question at the heart of it all: How can the industry move money at the speed of digital — or, as Fiserv calls it, “the speed of life” — to enable the many opportunities of the digital economy?
Fiserv comes to the conversation with 30 years of insider industry knowledge, and on the heels of a year in which it moved more than $75 trillion across 30 billion digital payments in peer-to-peer (P2P), consumer-to-business (C2B) and business-to-consumer (B2C) transactions.
In other words, it’s seen some stuff.
“The ways that consumers and businesses want to pay and be paid are changing,” Shapiro said. That’s why checks are declining, she said, and why new payment methods are emerging all the time — often faster than legacy infrastructure can keep up, and even giving the most agile organizations a run for their money.
The use cases for digital payments are also shifting. More and more consumers are wanting to leverage electronic payments for purposes like paying rent, maintenance or tuition — higher dollar-value transactions that may or may not be recurring and in which case paying by card may be prohibitive or undesirable.
It’s interesting to note that 25 percent of people who pay their mortgage by check told Fiserv they would switch to eCheck payments if given the option — no additional prompting required. While 75 percent were not so eager, Webster hypothesized those numbers would change if the option were placed in front of consumers in the real world instead of just a hypothetical scenario.
Ultimately, whether it’s paper check, eCheck, credit card, same-day ACH or another method, options play an important role in the changing payments landscape by allowing consumers to do business on their own terms. Therefore, accepting one particular method may be less important for businesses and organizations than enabling as many payment types as possible to meet consumers where they are.
Millennials, in particular, have expectations around money movement that the generation ahead of them doesn’t. Seventy-seven percent would prefer a digital payment over a physical check, according to recent research by Fiserv, while two-thirds of urban consumers felt the same way.
Shapiro said these are unforgiving demographics. They want those capabilities and will go to the service that provides them. However, she said those expectations are not limited to one demographic. From millennials to baby boomers, everyone wants payments to do better at keeping up with their lifestyle.
B2C, C2B, B2B and P2P: There are many ways that individuals and companies need to move money, and some have advanced more than others as agile new players enter the race. Countless FinTechs are powering consumer payments to businesses and to one another.
Even B2C payments are speeding up. Take insurance, for example. As new competitors like Lemonade enter the scene, legacy insurers are also upping their game, with everyone’s eyes on a single prize: evolving customer needs and how the company can solve it, whether that company is a nimble new FinTech player or an established legacy player adapting to the new world.
Removing friction, said Diegelman, helps businesses in many ways. Going from paper to digital improves operating efficiency, and rising to meet consumer expectations for speed creates an advantage in cash management — even if the money isn’t actually moving faster, the shift may give businesses more time to plan and forecast before sending payments.
Diegelman said the B2B space is moving slowest of all. The biggest obstacle is not the act of moving money. That’s relatively easy, he said. What’s challenging is data. The sending company must deliver information with the payment so that the receiving company can properly log the transaction in its financial records, and there’s no industry standard for how to efficiently do this.
The persistence of bank wholesale lockboxes, invented in the 1950s, shows this problem has not been tackled to the degree that payments between consumers and businesses have been, Diegelman said. Until that changes, payment and AR posting data will continue to be one of the most significant obstacles of automating B2B payments.
Traditional companies simply can’t adapt their old technology to the new ways as fast as new companies can implement technologies like application program interfaces (APIs) right out of the gate. These legacy companies are moving in the right direction, said Shapiro. It’s just happening slowly.
Whether companies are API-capable or not, Diegelman said it’s incumbent upon Fiserv and similar organizations to enable those companies to access payment rails regardless of their underlying infrastructure.
Diegelman said one question that’s leaving many FinServ companies confused is, “What does ‘faster payments’ really mean?” Faster than what? Faster to who, the sender or the receiver? How fast is fast enough? Like so many industry buzzwords, he said, “faster payments” has lost a lot of its meaning.
Consumers think they want it, so every organization wants to offer it, even if they have to tweak the definition to do so. The result is that “faster payments” has become more of a philosophy than a specific process or product.
“It’s almost a misleading term,” Diegelman said. “Faster in the gig economy is very different from faster for companies that send out rebates when you buy certain products.”
And then, he said, there’s the issue of security: The faster payments move, the more opportunities they create for fraudsters to crack the code. It is possible to reduce risk while moving payments more quickly, he said, but it’s no easy task. The best payment processors have devised methods that don’t require sacrificing one for the other.
Another consideration is user interface. Yes, consumers want speed, but it does them little good if a product doesn’t make sense to them. Diegelman said that a good user interface must work the way consumers’ minds work. They must like and want to use it, or the speed of the payment is irrelevant.
That’s a lot to consider already. But still, Shapiro said, there are some self-evident lessons to be learned and applied across the board.
Automatic payments should be truly automatic and not require information to be inputted each time. Consumers should be able to sleep at night knowing that their information is secure and that their payment reached its destination.
In the event of a natural disaster or emergency, Shapiro said, people should not have to wait for a check to arrive by mail. Electronic money can be placed onto a debit card in real time, and that is what is needed in an emergency circumstance. If it can be done, then why isn’t it?
Shapiro and Diegelman agreed that the digital future is here, and said Fiserv is doing its part to draw corporates, FinTechs and financial institutions into that future by powering flexible transactions across the alphabet soup of payments needs — and creating easier integration for banks as faster payments move out of the realm of sci-fi and into the realm of everyday reality.