Two Tiers of Payments Innovation Will Shape Industry’s Future

The innovations shaping the payments industry are moving in real time.

And increasingly so, too, is money itself.

“What we’re seeing from a product perspective is a lot of focus on faster payments,” Keith Vander Leest, head of payments at Cross River, told PYMNTS as part of a discussion for PYMNTS’ “What’s Next in Payments Series: The current state of payments innovations, security & fraud, B2B payments experience, and cross-border.”

“With the higher cost of funds, higher interest rates, capital flows tied up in various areas, payments are becoming more expensive. If you can move money through the flow faster, that lowers costs … all of our FinTech [partners] are trying to figure out how some of these newer, faster payment rails can help them in their offering to their customers,” Vander Leest said.

Technologies and bank rails such as RTP® (Real-Time Payments) and the FedNow® Service have gained traction in the past year, offering FinTech companies the opportunity to better facilitate secure and efficient transactions that move money faster with reduced costs.  

After all, speed and efficiency are vital for meeting the demands of consumers and businesses who expect instant transactions in today’s 24/7 global economy.

And they will be even more important in tomorrow’s.

Moving Money Fast, Moving Money Securely

Despite — or in many ways, because of — the relentless pursuit of speed, payment security remains a paramount concern for network participants. Fortunately, the two don’t have to be a tradeoff.

“From a payments security perspective, the buzzword is AI [artificial intelligence],” Vander Leest said. “AI will really help in not just reducing false positives, but also in driving efficiencies across back-office AML [anti-money laundering] and transaction monitoring teams.”

“While AI is a buzzword, it is also a big area of opportunity … but people are still in the early stages of evaluating this new technology and how it can fit in their current flow,” he added.

Whether it is talking about AI or adoption of RTP and FedNow Service payments, everyone gets “really and rightly excited” about these new technologies — but adoption always takes a little bit longer than the buzz might indicate, Vander Leest said.

As fraud prevention technology advances, it enables businesses to strike a balance between security and user convenience. Payment providers are working to ensure that the fastest payment methods are also the most secure.

“There’s no reason speed and security can’t be hand in hand. On the card rails and on the bank rails, compliance and security are the number one priority,” Vander Leest said.

Personalization and User Experience

Personalization is another factor driving innovation in payments — one that needs a strong technical architecture as a foundation.

“[Banks] are the base layer of the value chain, we are about as low as you can go, so our partners build on top of us, and they create really great tools to prevent fraud as well as drive a great user experience. In many of the payment offerings, there’s talk of commoditization and the way to get away from that cycle of commoditization is to provide significant value to end-users,” Vander Leest said.

“Our partners can build atop our layer and add significant value because we offer APIs [application programming interfaces]. We’ve moved away from the legacy bank core and built a proprietary bank core that is API first,” he said.

Through personalization, users can access tailored payment solutions that align with their specific needs and preferences. This approach enhances user satisfaction and fosters customer loyalty while maintaining a strong focus on data privacy.

Unlocking Cross-Border With Blockchain

Stablecoins, digital assets and tokenized deposits are potential game-changers in the cross-border payments landscape.

“There is a lot of demand we have as a global economy for global payments, and while I don’t think anyone in the blockchain space has figured that out quite yet, a lot of companies are pretty close to solving it,” Vander Leest said.

But if you can “take the friction out of cross-border payments” then there is a large revenue opportunity, he said.  

As for what he sees happening in the near future, Vander Leest predicted that infrastructure players in the payments ecosystem background will accelerate some of the biggest innovations.

“There are multiple partners in payments who aren’t end-user-facing but are still moving money, and I think that’s where we will see innovation,” he said.