Payveris’ Jeff Weikert recently took the position that faster payments are more of an opportunity than a threat to financial institutions’ customer relationships. I agree, and see faster payments as not only an opportunity, but a responsibility to our customers and all consumers in the U.S.
Financial institutions must start making significant changes to prepare for the inevitable shift the banking industry is making towards real-time payments. If not, they will find themselves unprepared and could lose ground to other banks and technology providers that move faster to seize the opportunity of early market leadership. †
Let’s first clarify that yes, consumers want greater convenience. However, slick apps and attractive user interfaces are only one part of the equation. What consumers really want is faster access to their funds. Apps, kiosks, ATMs all have one thing in common; they are delivery methods for providing access to consumers’ funds. Financial institutions are positioned to enable faster funds availability, and this is what makes faster payments such a unique opportunity for us relative to technology or other non-bank players.
Delays in funds availability is the single largest friction point for most consumers in payments. In fact, funds availability is the cornerstone of convenience. In many cases, it can take several days for a consumer to receive full access to his or her money. What might appear as a simple inconvenience for some is a considerable hardship for others; delays in funds availability translate to significant costs for countless consumers who are often forced to regularly visit check cashiers and pay exorbitant fees just so cash is available to pay their bills. In fact, many even forego the direct deposit option because it still does not afford them fast enough access to their funds.
Despite the prevalence of non-bank options, consumers still look to their banks and credit unions as their most trusted partner in managing their financial lives. Jeff noted that accountholders are not yet handing over the reins to nontraditional payment providers, and he’s right. The ability of alternative P2P and other payments services to keep consumers’ sensitive financial information secure has and will continue to be scrutinized. This is where financial institutions already have an advantage as customers’ trusted financial service providers.
The key to financial institutions retaining their place at the center of customers’ financial lives is addressing the integrity of real-time transactions as they simultaneously make customers’ lives easier.
Re-engineering fraud prevention tactics to accommodate the accelerated payment speed is the most challenging aspect of making real-time payments a reality. As Jeff pointed out, batch-based systems and multi-day processes won’t cut it anymore for payments, and they certainly won’t cut it when it comes to pinpointing and preventing fraud.
Expediting fraud and risk decisions is necessary for truly achieving secure, faster payments. This is done by creating an emphasis around verifying individuals, not transactions. This means unifying identification, authentication and authorization in a way that quickly answers the question: are we dealing with a robot or a human, and do we have the right human? This question can only be answered if financial institutions apply newer, continuous authentication techniques and behavioral and cognitive biometrics. These might be on their long-term roadmaps, but should be hastened. Only with these risk capabilities can financial institutions continually assess key authentication factors, such as users’ familiarity with an application, their speed in providing required information and tendencies when holding and using the mobile device itself.
In this era of faster money movement, financial institutions’ opportunity is not just to remain relevant, but to have a positive impact on people’s lives. Recognizing and responding to the real need that many consumers have to receive their money faster is essential to our success. However, we need to act collectively to provide greater speed and convenience without sacrificing safety or security.
Lou Anne Alexander is chief market development officer of payments for Early Warning.