As Form3 CEO Michael Mueller told PYMNTS’ Karen Webster, “nothing ever moves very quickly in payments.”
But the last 12 months, said Mueller, show us that some long-term trends are accelerating — particularly the need for reliable payments infrastructure in financial services.
What We Learned From SVB
Mueller noted to Webster that the SVB experience showed that there’s some resilience already baked into the payment technologies that banks are using. These financial institutions have the flexibility to respond to market events and the higher volumes that suddenly flow through digital channels.
But at the same time, he said, the situation has provided an opportunity for fraudsters to take advantage.
During those dark days in mid-March, as SVB fell, the pressing concerns facing enterprises — and by extension, banks and FinTechs — were whether deposits could be accessed and whether they would be able to meet payroll and pay suppliers. For the companies that had capital tied up with SVB as their sole provider of banking services, the ripple effect might have been a crippling pause in operations or even bankruptcy. Simply put, being able to make payments makes or breaks a business.
Fortunately, the fallout has been relatively contained. We’re nowhere near the systemic risks seen more than a decade ago during the financial crisis that saw marquee banking names face an existential threat amid their own bank runs.
But as to the lessons learned since March, generally speaking, in the post-SVB world, companies should have a set of “backup” operational banking relationships in place with several different providers, Mueller said.
For the banks themselves, the key questions revolve around whether they have the systems in place to manage payments situations on an ad hoc basis, with the ability to re-route payments to alternative providers on the clearing and settlement side.
What Matters Now
Speed and security are top of mind, he said, and now the impetus is on providers to determine how they need to get ready for real-time payments, set to receive a push in the U.S. by the launch of FedNow as soon as July.
There’s good reason for the measured approach in moving toward new technologies and ways of transacting, especially with the rise of instant payments. The payments landscape is woven across an intricate web of providers, geographies, regulatory regimes and settlement processes.
Now, he said, “there’s a recognition in the industry that payments are moving towards real time — and this is a trend that is unstoppable.”
Indeed, the phenomenon is global, as evidenced by real-time payments adoption in the United Kingdom and Brazil, to name but two examples. When FedNow joins in July, he said, FinTechs (Form3 among them, with its platform-based, cloud-native technology) will have the opportunity to reimagine financial infrastructure provided to enterprise clients to enable a host of new payments use cases.
He said real-time payments would prove to be especially useful during times of crisis because retail transactions will move at the same speed as they do for institutional clients. Any move toward real-time payments requires a regulatory push to change the payments infrastructure in a given country — then banks will realize there’s an opportunity to improve the payments experience.
And then, he said, requests to pay and other offerings wind up being layered on top of the real-time payments infrastructure. Low-hanging fruit includes just-in-time payroll, gig economy payouts on demand and connected economy payments as drivers pay at the pump from behind the dashboard.
“But all of this requires a different level of technology on the banking side of the equation — and this is technology that is always ‘on’ is fast and allows banks to be agile in ways that allow them to manage events like the SVB situation,” Mueller said.
For smaller banks to become that agile, he said, they’ll need to take a closer look at the technology setups. All too often, FIs have cobbled together a slew of solutions and providers that may have worked in the past but will not be able to handle the growing demands of real-time payments.
“I’ve been in the industry for years, and there are different approaches to technology migration,” he said. “There are no magic wands in terms of moving to a different type of infrastructure — and you have to do this step by step and in a responsible way.”
Partnering with providers is critical, he said, as banks find value in FinTech relationships that can help them transition to more modern infrastructure, with know your customer (KYC) and anti-money laundering (AML) processes automated and streamlined in the background.
Although the move to real-time payments can benefit everyone, he said, faster payments must be safer too, which in turn means that there may need to be additional security/fraud checks along the way. For example, in the U.K., there are confirmations needed that recipients’ names and account numbers all match up — and Form3 assigns risk scores to help embed real-time fraud detection into real-time payments.
As FedNow becomes a real-time reality, he said, there may be some cues from abroad. In the U.K., it’s taken a decade for faster payments to scale where there are more real-time than non-real-time payments. The United States is a larger market, but consumer expectations in America have changed.
“There are enough use cases to drive the adoption” of real-time payments, he told Webster, adding that “payments will slowly disappear in the consciousness of the consumer by making them seamless and settling them in real time.”
