Webinar Recap: Demystifying Payment Modernization - Separating Fact from Fiction

Webinar· 10min February 6, 2024

In an age where technology is fundamentally altering the fabric of our daily lives, the payments industry is witnessing its most transformative phase in years. In our recent webinar "Demystifying Payment Modernization: Separating Fact from Fiction" we brought together Jennifer Moore Lucas, Head of Payments for FSO Americas at EY, Bryan Schneider, Group Product Head for FinTech Strategy & Partnerships at U.S. Bank, and Preeti Chaturvedi, US Head of Domestic and Emerging Payments at HSBC, each a leading figure in the financial space, to provide an in-depth examination of this evolution. The webinar looked to unravel the complexities surrounding modern technologies like ISO20022, cloud solutions, instant payments, and APIs, which are pivotal yet often misunderstood elements in banking systems.

Below you’ll find a summary of the first half of the webinar where the speakers touched upon the emerging challenges in payment processing, stemming from the advent of new payment rails and evolving standards like ISO20022. They discussed the dual necessity for banks to prioritize efficiency while continuing their rapid modernization journey. The speakers stressed the importance of understanding and leveraging these technologies to create new payment solutions, enabling financial institutions to embark on the path of modernization without the daunting tasks, risks, and costs associated with a complete overhaul of existing systems.

Listen to the full webinar here or continue reading below for some of the key takeaways.

Exploring the realities of payments modernization

The discussion opened with an exploration of the immediate demand for real-time payments in the U.S. Lucas, leveraging her extensive background in The Clearing House and real-time payments committee, highlighted the "pockets of activity" where real-time payments are gaining traction. Financial services, FinTech wallets, the gig economy, and sectors like insurance and online betting are leading the charge. The need for faster payouts in these areas is not just a convenience but a necessity for market competitiveness and consumer satisfaction. However, Lucas pointed out a notable gap in the point of sale and e-commerce sectors, where the demand for an alternative to existing payment systems remains unmet, despite significant economic incentives.

Echoing Lucas's observations, Chaturvedi brought to light the surge in digital payments driven by advancements in technology and changing user preferences. She emphasized the critical need for instant payments, especially for gig economy workers who often rely on weekly or bi-weekly payrolls. This demographic, according to Chaturvedi, is increasingly turning to costly short-term loans due to the lack of instant payment options. She also highlighted the importance of real-time payments in fragmented sectors like real estate and supplier payments, where instant disbursements can enhance relationships and foster trust within the supply chain.

Schneider, taking a slightly different angle, discussed the demand for real-time payments from a merchant acquiring perspective. He pointed out that merchants are increasingly seeking immediate funding, moving away from traditional ACH (Automated Clearing House) systems. Schneider also noted the growing interest in real-time payments in sectors like transportation and logistics, where immediate reimbursements are crucial for operations. His remarks underscored the broader trend of FinTechs leveraging payments in innovative ways to differentiate their services and address specific market needs.

The conversation then shifted to the keys to success and lessons learned for payment providers in driving modern platforms in the U.S. Chaturvedi stressed the importance of simplifying the customer experience and creating seamless onboarding processes. She drew parallels with countries like India and Brazil, where regulators have played a pivotal role in transitioning from cash-based to digital economies. Chaturvedi argued that in the U.S., the presence of multiple payment options, such as same-day ACH, FedNow, and TCH, could dilute focus and impede adoption. She underscored the need for interoperability and ISO harmonization to fully harness the benefits of instant payments.

Schneider shared his learnings, focusing on the practical aspects of implementing real-time payments. He mentioned the initial challenges with payment limits and the importance of intelligent payment routing to avoid creating exceptions for businesses. Schneider emphasized that integrating user experiences and connectivity are crucial. Financial institutions need to ensure that their systems can seamlessly connect with clients' existing systems, like ERP and AP automation systems. He also highlighted the significance of data management for efficient reconciliation processes.

Lucas brought a different perspective, cautioning against oversimplifying the nature of payments. She argued that each payment type is unique, with distinct rules, risks, and data requirements. Lucas emphasized the evolving regulatory landscape, particularly regarding fraud and scams, and the need for payment platforms to be adaptable and flexible. She called for a future where payments could be more standardized while acknowledging the complexities involved in reaching that state.

The panelists then addressed the biggest inhibitors to adopting payment modernization. Schneider pointed out the complexity of integrating various systems and the necessity of creating straightforward workflows. He advocated for the development of pre-existing integrations and API connectors to facilitate easier adoption for companies. This approach would allow businesses to leverage off-the-shelf solutions, reducing the need to build from scratch.

Lucas highlighted common myths surrounding payment modernization, particularly the idea of a single platform capable of handling all payment types. She advised a more modular and thoughtful approach, focusing on solving specific problems rather than attempting to tackle 'world hunger.' Lucas also touched on the challenges posed by legacy systems and the dwindling talent pool capable of maintaining them, emphasizing the need for balance in deciding when to modernize.

Chaturvedi concurred, stressing the importance of defining a clear scope for modernization projects and understanding customer needs. She dispelled the misconception that moving to real-time payments necessitates a complete overhaul of existing systems. Chaturvedi underscored the role of education and awareness in guiding clients through their modernization journeys, ensuring that they can adapt their current systems to new payment rails without extensive overhauls.

As the industry continues to evolve, staying informed and adaptable will be key to navigating the future of payments. The insights shared by Lucas, Schneider, and Chaturvedi not only highlight the current state of payment modernization but also illuminate the path forward. The need for real-time payments is clear across various sectors, driven by technological advancements and changing consumer expectations. The journey towards widespread adoption will require a thoughtful approach, considering user experience, regulatory environments, and the complexities of existing financial infrastructures.

This webinar served as a valuable platform for sharing expert insights and fostering a deeper understanding of the challenges and opportunities within the U.S. payments landscape. As we look forward to the continuing conversation in the second half of this webinar, the insights offered in this excerpt provide a compelling glimpse into the dynamic world of payment modernization.

Written by

Bob Blacketer
Bob Blacketer Head of Sales - US

With 25 years in banking, fintech, and payments, Bob has collaborated with over 500 client banks in 40+ countries. He has partnered with these clients on improving performance and profitability by identifying and matching key strategic initiatives with fintech and consulting solutions. Currently Chief Commercial Officer for the Americas at Form3, Bob has held strategic leadership and operating committee positions at startups such as Verituity and the Carreker Group, as well as a senior global leadership position covering multiple business units at Fiserv, Inc. Bob began his career at Ernst & Young in the firm’s large bank consulting practice. Bob has master’s degrees in finance and economics and continues his support of the academic world as an instructor at the University of South Florida’s FinTech Research Institute.