According to the Millennial Disruption Index, millennials believe payments innovation will come from outside their bank, with nearly half showing more confidence in what startups and technology companies add to payments than what their banks do. This presents a challenge and an opportunity for financial institutions moving forward.
As an industry, we're at a crossroads on whether to evolve or be left behind. If we choose not to evolve, we risk becoming irrelevant. Our competitive advantage is our interoperability and ubiquity; our ability to connect payments in a way no other can. At the core of this connected infrastructure is the Automated Clearing House Network, which for 40 years has linked all financial institutions in the United States and served as a backbone of payments. We need to leverage this foundational network and the opportunity it affords all financial institutions to take us to the next level.
NACHAthe Electronic Payments Associationannounced last month that it is developing a "phased approach" to establishing faster processing and settlement, facilitating multiple same-day settlement windows to safely and securely move the funds between all banks and credit unions. This phased approach can result in faster time to market, enable user confidence and allow us to more quickly evolve as changes in technical paradigms shift the face of payments.
Just thinking short-term, same-day settlement would extend our ability to offer core products and services: expedited bill payments through online banking; person-to-person and account-to-account payments; just-in-time supplier payments and premium small business services; and weekly payroll for hourly workers. If that's what we can do now, just imagine all we can offer future users.
All too often, I have heard those in the industry say customers aren't asking for specific same-day capabilities. Could it be that they aren't asking because they are finding solutions elsewhere? And should we really be waiting for customers to ask us for next-generation products and services?
It is crucial for banks' success to embrace technology as a software development provider would, not as an industry bogged down with regulatory initiatives at the cost of innovation. Building upon the ACH Network will help reduce the added expense and effort of implementing totally new platforms to meet future customer needs. We can build upon multiple same-day ACH windows and add real-time messaging that doesn't require immediate settlement as long as there is acknowledgement of receipt in a good funds model. There is significant potential in layering services on what we have collectively built already.
Clearly, the time is right to support and advance same-day settlement on the ACH Network. We must collaborate on infrastructure to ensure we remain competitive on services and allow for new innovative offerings. Together as an industry, we will build the future of payments, leveraging the rock-solid foundation that exists today.
Pat Thelen is executive vice president of Treasury Management, Capital Markets and International Banking at UMB Bank, n.a. and NACHA board chairperson.