2023 Predictions: Payments for US financial institutions

Blog· min January 10, 2023

2022 was a challenging year for many with the Russian invasion of Ukraine to the continuation of supply chain issues and inflation at its highest in years. Tightening financial conditions caused many US companies, FinTechs and financial institutions to adjust priorities and change operating models.

We’re grateful at Form3 that we’re continuing to build on our multi-cloud platform, cross-border capabilities and growing our team. With the FedNow service available this year, payments innovation is a top priority for financial institutions. We sat down with Dave Scola, Chief Executive in the US to discuss what he sees in the future for 2023.

Fednow launch accelerates real-time payments

“In 2023 we're going to see a continuation in the trend of real-time payment adoption. In the US, FedNow will roll out in the summer, and we'll also likely see an uptick in adoption for The Clearing House RTP. Looking further afield, we expect to see a big increase in real-time payments in some developing economies, particularly in Latin America, building on the traction we have already seen with PIX in Brazil.”

“The Fed has specified May to July as the go live period for FedNow. Realistically adoption will likely be slow initially, but it will ramp up within the next 12 months following the rollout after a slightly muted initial impact. Volumes are unlikely to be huge, but it does represent something significant for the US economy. This broad base move towards RTP will see people starting to develop and build use cases around that capability, meaning it will accelerate pretty quickly in the mid to long term.”

Fraud detection and AI are key

“The only way to deal with any kind of real-time payments fraud, especially APP fraud, is by churning lots of data in real time in order to analyze the patterns and start to recognize the vectors in which the fraudsters are operating. That's only possible through a combination of large, scalable, public cloud architectures combined with super sophisticated AI.

“We will see more and more the application of AI in the fraud detection space in 2023 because it is the perfect use case for AI. There's no way humans or even typical Sequential Processing computers can manage that level of data and come to conclusions and act on those conclusions in real time, but with AI and machine learning it is possible.”

“Banks are going to have to continue to invest in their infrastructure in 2023 to facilitate not only real-time payments, but fraud detection and analytics as well. We're seeing massive growth in fraudulent activity now, so investment in this area will be necessary.”

“In 2023 we're going to continue to see a movement away from card rails and towards account-to-account payments. We've already seen this happening in Europe, but it's also beginning to happen in the US now. This has been instigated to some extent by high interchange fees, and the move towards account-to-account payments will be facilitated by the adoption of real-time payment systems.”

Transforming payments with multi-cloud

“We already see the regulators giving much more scrutiny to the dependence on public cloud providers by critical infrastructure - not only banks, but FinTechs as well. As other institutions like hospitals and utility providers start to use the cloud, there is an increasing recognition of the level of concentration risk placed on public cloud providers.

“In 2023, we expect to see more and more interest around our multi-cloud capability, how we've constructed and how we've architected it, but how we could potentially leverage it both with banks and more broadly. Not just hosting our own platform on multiple clouds but hosting others' platforms on multiple clouds. Perhaps not just financial institutions either, but other industries that rely on public cloud-as-a-service and need weapons grade architecture to ensure that they have resilience and they're always available.”

“Every bank I've talked to seems to have some level of payment modernization program already planned for 2023. The reason is they recognize that they have to do this in order to remain competitive. You don't get the advantages of moving to ISO20022 unless you upgrade your payments infrastructure. You can't possibly monitor fraud activity in real time unless you have a modern payments architecture. Everything that banks need to do for their clients and in the payments space becomes very difficult to achieve if they're working with a legacy platform.

“Banks need to move away from the mainframe to the cloud and start looking at creating a far more composable environment in the future. What every CIO now realizes is that to compete in the future, they're going to need to be able to chop and change aspects of that environment. That means leveraging the cloud, and it means leveraging microservices within the cloud. It means breaking up your big monolithic system into components and working with third parties to provide some of the solutions for those components.”

FinTech and banking relationships

“While previously FinTechs were seen as being disruptors to the banking industry, in 2023 we will see continued cooperation between banks and FinTechs to facilitate real-time payments and real-time fraud detection. The environment has changed drastically over the last five to seven years, where banks have started to view FinTechs more as collaborators than threats, so that dynamic will persist.” 

“However, for some FinTechs - particularly in the retail space – things are likely to get tough. FinTech valuations have been crushed recently. Those who had only questionable business cases and meager funding are going to fall by the wayside.”

Modernizing payments in the US

Start the year on the right foot and download our latest report, which explores the ins and outs of the payments transformation in the US. Learn from industry experts including executives from Fifth Third Bank, Bank of America, Santander US and Ernst & Young.

Written by

Dave Scola
Dave Scola Chief Executive - US

Dave joined Form3 in 2022 in order to lead the charge to bring Form3’s platform and capabilities to bear on the US market. 

Dave has worked in transaction banking for over 20 years and has joined Form3 from SWIFT where he was Chief Executive for the Americas, UK and Ireland with responsibility for the company’s largest relationship as well as its global securities business.  

Prior to SWIFT, Dave was the Global Head of Financial Institutions at Barclays, responsible for the bank’s correspondent banking, FI trade, flow FX, and liquidity management businesses for FIs. 

He has also worked at Deutsche Bank and Bank of New York in both product and strategy roles and across various products lines including cash, trade finance, custody and corporate trust. 

Dave holds a MSc in Development Economics from the School of Oriental and African Studies in London, and a BSFS in International Relations from Georgetown University.