Thought Leadership· 3min January 15, 2024
As we reach the end of 2023, it’s time to reflect on what has been another transformative year for the payments industry - and to look at what’s in store in 2024. The volume and value of digital payments continues to grow rapidly in all parts of the world. There have been significant innovations in the field of instant payments, with the introduction of the FedNow service in the US, while the eurozone moves closer to a widespread rollout of instant payments.
Looking ahead to 2024, as an overview, we’re likely to see an acceleration in the adoption of instant payments in the US catalyzed by FedNow, with many banks looking to connect to this network over the coming year. While payment volumes may not explode in 2024 as a result, there’s sure to be steady progress as banks make plans to make this capability available to customers and develop commercial use cases for instant payments.
In Europe, new regulations such as the Digital Operational Resilience Act (DORA) will be driving the strategic decisions of financial institutions, with operational resilience the phrase on everyone’s lips. The end-result will hopefully be better, more stable payment services for customers, and a foundational framework for reliable instant payments capabilities.
In this article, I will spotlight four of the trends to watch in payments in 2024, and outline how banks, payment service providers, and financial institutions can prepare themselves for the resulting changes.
Regulation around banking and payments is always an area that requires close attention, and compliance officers in financial institutions are likely to be busy again in 2024. With DORA setting rules for the protection, detection, containment, recovery and repair capabilities against ICT-related incidents – and due to come into force in January 2025 – turning theory into practice will be a key theme next year. By the time we get to the end of 2024, banks need to have a much better understanding of how the requirements of DORA can be practically operationalised and applied.
Similarly in the UK, financial institutions need to ensure their processes are in line with SS1/21 and PS21/3 – directives issued by the Bank of England and the Financial Conduct Authority respectively – over the course of 2024. While they’ll already have mapped out their ‘impact tolerances’ for critical banking services, they’ll need to translate words into action and perform testing to prove that their plans work. This means they need to have the right technologies in place.
One way in which banks and financial institutions can demonstrate their commitment to operational resilience is by adopting a multi-cloud approach to payments. Cloud technology provides the scale and flexibility to deal with the ever-increasing volume of digital payments and peaks in demand for these services; however, there’s always the risk of a cloud outage that could bring all of these payments to a screeching halt. A multi-cloud model has built-in contingency that means banks can continuously demonstrate that regardless of the performance or the status of individual public clouds, the service to customers will be uninterrupted.
A fully synchronized, multi-cloud payment service can handle any increases in demand, provide a reliable ledger, cope with outages and has a built-in backup for disaster recovery, meaning banks can prove the resilience of their system to the satisfaction of regulators. Throughout 2024, we’ll see more and more financial institutions incorporate multiple clouds as a foundational element of their payment platform.
The fight against scams is constantly moving to new battlegrounds, and 2023 has seen much of the action taking place in the APP (Authenticated Push Payment) fraud arena. In the UK, the Payment Systems Regulator introduced new rules that are intended to increase the number of victims of these scams that get their money back, while making both the sending and receiving banks equally responsible for issuing compensation.
APP fraud is particularly tricky to deal with as the people who are sending the money are convinced that they want to do so, having been tricked through social engineering tactics or some other kind of manipulation. While most banks have protections for identity theft, system hacking, password cracking and the like, it’s more difficult to put systems in place that can identify these types of payments among all of the genuine transactions that they are processing.
In 2023, we delivered a scaled proof-of-concept designed to combat APP fraud, and we’re gradually starting to see more technologies coming into play. However, to truly stamp out APP fraud, it’s not just technology that’s required, but clear customer communication, education too, and efforts from ‘big tech’. This is something that banks will have to address in 2024.
Next year, moving some critical processes like payments to cloud-native platforms make a lot of sense for banks. It increases performance and scale, while also offering greater flexibility for introducing new features. In 2024, I expect to see more banking processes being moved to the cloud; banks have had a chance to learn from the limited cloud transformations that they have already carried out, which should mean moving other critical processes to cloud-native platforms should be more straightforward.
While I don’t wish to say that making the transition to the cloud is an easy process, banks should now have their own learnings and best practice guidelines on how they can do this. And by moving more processes to the cloud, they can again feel the benefits of increased scale, speed, flexibility and resilience too.
The year ahead holds a great deal of promise for forward-looking institutions that want to improve the customer experience, satisfy regulatory requirements and future-proof their back office infrastructure. Those banks that don’t continue on this journey of digital transformation will find themselves falling behind; those that do will certainly reap the rewards.
Mike was appointed CEO in October 2023, having joined Form3 as CPO and co-founder in 2016. During his roles as CPO he was responsible for strategy, product development, product management as well as strategic initiatives, playing a key role in the business’ funding activities and key client relationships.
Prior to Form3, Mike held senior Product roles within Barclays:
As Product Director for Barclaycard Payment Acceptance (card acquiring) he was a member of the Executive Committee and responsible for P&L, product management, strategy development, vendor selection and management, digital transformation and M&A.
As Head of UK Corporate Payments for Barclays Corporate Bank, Mike held product management responsibility for all payment, receipting and reporting products delivered to Barclays corporate clients – this included defining the Barclays Corporate Bank mobile payments strategy and initiating, building and scaling multi-award winning mobile payment solutions. Earlier in his career he managed client relationship teams responsible globally for the North American Financial Institutions and FTSE 250 sectors providing him with significant product and enterprise client experience domestically and internationally.