Bank payment innovators are stepping up in times of crisis
The U.S. payments landscape is undergoing a period of profound change. As new developments emerge, such as the reinvigoration of existing payment rails, the advent of real-time solutions and the introduction of overlay services, the journey from digital to paper is accelerating.
In the last few months, with remote working placing a renewed emphasis on the importance of payment channel efficiency and security, innovative digital solutions have come into their own — enabling many businesses to continue their day-to-day operations with little to no reduction in workflow.
Organizations that are able to swiftly adapt to the evolving digital landscape are set to reap the greatest rewards — a faster, more secure payment environment for the future. But what is being done to unlock these benefits?
In more than 45 years of its existence, the ACH network has continued to modernize and grow. Most recently, for example, the transaction limit on Same Day ACH (SDA), which is driving convenience in the payments space, has been increased from $25,000 to $100,000 to unlock additional use cases for the market.
Elsewhere, entirely new, cutting-edge payment rails are being introduced, rewriting the nature of payments. The Real-Time Payments Network, known as RTP, provides real-time gross settlement and messaging on a 24/7/365 operating model — providing clients with greater efficiency, speed, convenience and transparency. In a further shake-up, the Federal Reserve has also announced it will launch its own real-time payments system, known as the FedNowSM Service, in 2023 or 2024.
Whether you are using ACH, Wire or RTP as your preferred payment channel, security remains a concern. And with people now working from home in greater numbers than ever before, these concerns, and the accompanying desire for enhanced authentication processes, have become further emphasized.
In response, market-leading banks are introducing real-time pre-validation services, which confirm the payee is the legitimate party before a payment is sent, increasing security and risk mitigation, while helping to reduce fraud losses. This is being achieved through collaboration with national shared databases maintained by operators like Early Warning Services, which fully validate and verify the owner of an account.
Increasingly, banks are utilizing an array of overlay services to address historical market challenges, such as the continued use of checks among businesses that do not have the information or capabilities to send digital payments.
Secure, nationwide databases are emerging to address such issues, with payees able to securely register their payment details electronically. One such directory is Early Warning's Zelle P2P service, which allows payees to register “tokens” such as an email address or mobile phone number, which can be used to send and request electronic payments when authenticated. Banks that use the service can then access this information from the network’s directory to learn the beneficiary’s bank — all before the payment is sent. Such capabilities are available for payments settled via ACH and card networks, with the RTP rail set to be added to the service within the next year.
In the business to business (B2B) vendor payments space there is also pressure to move away from — or even eliminate — paper checks. Increasingly, this is being achieved through Paymode-X, the largest B2B vendor payment network in the U.S., which allows clients to convert vendor payments from paper checks to ACH with electronic remittance.
Change in the U.S. payments landscape is undoubtedly upon us. By investing in digital and collaborating with trusted technology and data providers, banks are developing the innovative solutions necessary to deliver a truly optimized payments experience to their clients, with greater levels of security, ease and efficiency. Of course, throughout the digital journey, there's no single, catchall solution, meaning it is crucial that banks offer a varied suite of products and services so clients may unlock the full benefits of a faster, more digital payments landscape.
The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute Treasury Services advice, or any other business or legal advice, and it should not be relied upon as such.