Discover essential payments takeaways and unlock the top priorities for bank and credit union CEOs over the next two years with key insights from the Jack Henry™ 2024 Strategy Benchmark.
Why you need a payments strategy
As ways to pay and get paid become progressively faster and increasingly digital, payments remain a critical driver for success and longevity.
Both consumers and businesses demand flexible payment options while fintech firms and neobanks are infiltrating the market with low rates and attractive features. At the same time, banks and credit unions face challenges on several fronts, including dated infrastructure, compliance and regulatory uncertainty, and a fraud epidemic to name a few.
As economic uncertainty adds to the mix – creating the perfect storm of flux – pressure to gather deposits, increase revenue, remain relevant, and compete effectively continue to be top priorities for banks and credit unions alike.
On the bright side, payments create ample opportunities for you to differentiate yourself, serve a broader client base, drive deposits, enhance revenue, and create stickiness that forms loyal, lifelong relationships.
Following the launch of RTP®, the first new payment rail in 40 years, comes FedNow® Service – designed to further elevate the realm of faster payments and provide enhanced opportunities and options through real-time transactions. Moreover, person-to person (P2P), digital wallets, and account-to-account (A2A) – once considered alternative payment methods – have now become commonplace alongside traditional cash, debit, and credit card payments.
These new rails and competitors further contribute to the trend of payment fragmentation and complexity – causing end-user loyalty to stretch even thinner.
As we move into the coming year and beyond, it’s crucial to recognize payment fragmentation is driving disintermediation and giving third-party competitors a segue to lending and other financial services – underscoring the importance of integrating payments into your strategic planning.
The latest trends in payments
As global consumers and businesses seek more cost-effective, rapid, and convenient payment methods, there’s a growing trend toward embedding payments to meet the needs of modern users who desire hyper-connected, frictionless, and personalized payment experiences.
While flexibility, optionality, and speed are on the minds of both consumers and businesses alike, businesses are more concerned with cost, complexity, and volume. Serving both sides of your client base will be critical to your near- and long-term success.
Faster payments gain traction. As the momentum behind faster payments continues to accelerate, the launch of FedNow may serve as a catalyst that elevates all other instant payment methods. In fact, many experts believe FedNow will be the real-time payment method of choice for both fintechs and community financial institutions alike, as they join forces to move toward faster payment ubiquity and gain market share. By 2027, real-time payments are anticipated to account for 28% of all electronic payments globally.
Pay-by-bank or A2A payments accelerate. In the coming year, A2A payments are expected to post a direct challenge to card payments. The increasing adoption of open banking (which gives permissioned third parties access to bank accounts) has made it easier to facilitate A2A payments. This A2A disruption is reshaping payment value chains by attracting merchants with lower costs and immediate availability of funds.
Small businesses confirm interest in faster payments. 92% of businesses anticipate making significant investments in payment enhancements over the next 12 to 36 months. To address this demand, businesses will focus their investments on faster payments solutions to improve cash flow, secure working capital on-demand, and manage payment timing effectively. This represents an incredible market opportunity for financial services providers to assist businesses in enhancing their payments processes and automation.
Analytics take center stage in assessing and forecasting payment flows. The integration of GenAI is expected to revolutionize back-office and customer service applications for payments – offering personalized services that manage payment choices, transaction flows, and more. This advancement will usher in more sophisticated payments analytics through smart bots, offering features like payment status and details, routing requests based on time and cost, and diagnosis of causes behind payment failures and exceptions.
Strategy Benchmark study insights: Plans for new payment services
- 96% of financial institutions plan to add payment services over the next two years, with FedNow being the top priority for both banks and credit unions.
- The percentage of bank CEOs planning to add RTP via The Clearing House doubled this year, while credit union CEOs expressed greater interest in adding a P2P alternative to Zelle®.
- Digital card issuance, contactless cards, and same day ACH round out the top payment priorities for 2024 and 2025.
Plan for the future of payments
Refine your payments strategy. As new payment options come to fruition, understanding which methods and use cases are meaningful to your clients is imperative to your short- and long-term success. It’s also important to connect the role payments play in gathering deposits, as your payments strategy will directly impact your deposit and lending strategies.
Develop a solid foundation for business payments. Community banks rely on SMBs for over 60% of their revenue, yet many of those businesses are still being served by consumer solutions. As businesses seek electronic invoice presentment and payment capabilities – especially on the B2B side – you have a unique opportunity to bridge this gap by offering real-time capabilities.
In fact, nearly 50% of businesses globally have changed or will change financial service providers to access real-time payments.
Embrace non-credit payment methods. Consumers are grappling with mounting credit card debt and seeking alternative payment methods. This year, we witnessed a sharp increase in consumer credit card debt paired with soaring interest rates that made it harder to pay down. Furthermore, credit card losses surged to their highest levels in almost 30 years – surpassing the $1 trillion mark (excluding the Great Recession).
At the same time, merchants are pressing to lower card interchange fees and decrease their cost of doing business digitally. With recent shifts in the payments landscape, merchants can offer diverse, lower-cost alternatives such as real-time, P2P, and A2A payment methods – challenging the dominance of the card schemes.
Ensure you have a strong digital wallet strategy. Digital wallets are the fastest-growing and most widely used payment method globally in both e-commerce and point-of-sale transactions. In 2022, 46.9% of adults used their mobile wallets while nearly 25% of accountholders used their digital wallets weekly. Analysts predict 72% of smartphone users will adopt digital wallets by 2027.
Use payments to differentiate your user experience. The race to achieve real-time payments ubiquity in the U.S. will be a marathon – not a sprint – and you cannot afford to stand on the sidelines. With the introduction of new features from FedNow and RTP, more use cases will emerge to meet the growing demand for instant payments – which can play a vital role in the financial health of your financial institution and your accountholders.
In addition to early wage access, which can facilitate more flexible paydays and deliver earned wages in advance for emergency purchases or critical past-due accounts, real-time payments give consumers and businesses greater control over incoming and outgoing payments – offering clear insights into their financial positions on-demand.
Download the 2024 Strategy Benchmark to create successful strategies and help you compete effectively.
Ready to learn more? Connect with a Jack Henry expert today.
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