Category Archives: Alacriti Blog

Alacriti Blog

Payments Modernization – What to Look for in a Fedwire Solution?

Payments modernization strategies can be tricky. On the one hand, many organizations, from large multinational banks to smaller local credit unions, have well-established payment operations to support existing volume and products today. On the other hand, the U.S. is starting to adopt faster and real-time payments en masse, opening up a slew of questions on how to support the new use cases and growing demand from their client bases—within the confines of those well-established payments operations. This conundrum puts pressure on financial institutions, 9,500+ in all, to rethink their payments strategies, and look to modernization. However, there is still a need to support the existing payment needs for heritage payment types including ACH and Fedwire. Which leads us to our question of the day, what should you look for in a new payments platform?

Fedwire isn’t a new payment type in the U.S. In fact, it’s far from it. I have mentioned in prior blogs that it is the “OG” when it comes to real-time payments in the U.S. since it is and has been our Real-Time Gross Settlement system since well before my time. The system itself pre-dates the Titanic and has moved along a digital journey through most of the 20th century, with upgrades coming as technology advanced from telephonic to internet-based. In today’s market, the solutions that support Fedwire, for the most part, rolled off the production line more than 25 years ago and have been cranking away ever since. As the years have rolled on, the Fedwire process itself hasn’t changed that much. The window still opens in the morning and closes at night, much like it did when bankers would bring their instructions down to the Federal Bank of New York in the early 1900s to settle their accounts and enter their transactions. Overnight the systems on both ends run through their batch-based processing cycles, and they’re up and running again (so long as it is a Monday-Friday and non-holiday).

Today’s market needs have started to stress these older systems, beginning with the rollout of digital banking options in the late 1990s and early 2000s and growing exponentially in the last ten years or so. As technology advances, we are at an interesting inflection point for Fedwire solutions for the masses (smaller regional banks and credit unions). 

From my perspective, new solution searches should focus on the cloud. For starters, it gives banks and credit unions a much lower point of entry in terms of having a Fedwire solution (beyond just a fed terminal in the bank to manually key in payments). Additionally, it allows everyone to stay up to date on third-party upgrades and security updates from a tech behemoth (whether that’s Google, Microsoft, or Amazon). All of whom have deeper pockets than any individual entity or hosting facility would have. Also, the geolocation issues that arise from physical data centers are more or less neutralized with cloud-based computing. 

But the cloud by itself isn’t enough. The next big thing is making sure the product/solution is built for and on the cloud. Taking a big monolithic application and deploying it on AWS or Azure brings the same problems that exist on-prem and in data centers. It is costly to maintain, at least way more costly than a solution built with the tools from the cloud provider, so look for what tools the product uses and what technology it is taking advantage of. For the record, Alacriti is Amazon WAR (Well-Architected Review) certified. 

The final thing is to dig into the engine process itself. Ask, what is the solution’s native standard? For many older applications and Fedwire itself today, the messaging standard of the solution is proprietary. The Federal Reserve announced in 2018 that they would be moving the Fedwire system to the ISO 20022 standard, which is also leveraged in its FedNow network. While the solution today uses a proprietary based messaging protocol, the future of Fedwire is ISO-based, so look to solutions that are also handling the message natively. 

Due to the aforementioned reasons, Alacriti’s payment solutions are both cloud-native and ISO 20022 based. Alacriti’s Cosmos Payment Services supports real-time payments on the RTP network, ACH, and Fedwire payments, giving institutions a future-proof platform for payments innovation. 

More on Fedwire in Will Faster Cannibalize Your Fedwire Revenue? 

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Alacriti Blog

EBPP for Commercial Clients—How Banks Can Defend Their Turf

Treasury services is a complex labyrinth of needs that goes way beyond just having good rates and available credit. Banks that are successful in the space have great talent in their relationship managers and excellent financial products to meet their clients’ complex needs. They also have the products and services to help their clients manage the money coming in, going out, and maximizing their working capital in between. It’s already extremely complex and is becoming more and more complicated by the introduction of FinTech players that sell services directly to the market. At first, they started to disintermediate the banks on the periphery with services aimed at very specific segments, such as accounting software packages, point-of-sale terminals, bill payment services, etc. However, FinTechs have now begun to move more directly into the core aspects of the relationship with lending services and access to capital. What can banks do to defend their turf? The answer is in partnerships! 

Looking at your portfolio of products and services is a great place to start. When you think about the portfolio, having best-in-class technology vendors (you can think of us as the “good” FinTech) is a key to defending the business. Just having the “check the box” offering instead of best-in-class is how many banks find themselves significantly behind in their digital pay offering. Make sure you’re staying up to date with the space, especially since technology started advancing at a relatively quick rate about 10 years ago. 

An area that we have a particular focus on at Alacriti is our EBPP solution, Orbipay EBPP. The solution gives your treasury customers a best-in-class bill payment system to not only send bill information out to their customers but accept payments back through all of the modern payment options that consumers have grown to expect. 

Having a comprehensive bill payment solution in the treasury sales toolbelt helps to ensure the commercial clients are kept happy and satisfied—and most importantly IN your product portfolio. This is versus your business client’s going out to the FinTech market to replace that part of the puzzle, which puts the core lending relationship closer to “at risk.” Having a great bill payment solution isn’t the only piece of that complex puzzle, but it’s one that has more visibility than most people realize.

Read Busting 5 Common EBPP Myths for a better understanding of EBPP.

Alacriti’s Orbipay EBPP is a customizable electronic billing and payments solution for businesses and financial institutions of all sizes. Ella is an AI-powered chatbot that facilitates seamless, personalized, and context-aware interactions between you and your customers through messaging apps, intelligent personal assistants, and directly on your website. For more information, please contact us at info@alacriti.com.

Alacriti Blog

Zoomers: Banks Vs. Credit Unions

How do Zoomers interact with banks and credit unions? A preview of this will be given shortly, but first, let’s dive into a quick recap.

As we all know, much of the Zoomer population are those who are currently 9-24 (born between 1997-2012). A lot of them are opening their first checking and saving accounts to begin building credit. Soon they will be very financially independent. It’s important for credit unions to understand that they should start marketing to their younger audience, Zoomers, sooner than later. As mentioned in the previous blog, Zoomers value speed, and efficiency.  Zoomers will be more likely to choose who offers them a fast solution to do their task and a place that lays out all the information in front of them in a very concise manner.  

Recent research shows that the average age of credit union members is 47. Although they share similar values with Gen Z, credit unions are going to have to improve when it comes to digital solutions which are faster and easier for Zoomers to use. Currently, banks offer more appealing deals and technological advances. Credit unions, on the other hand, sometimes lack that. The main aspect of a credit union that could potentially attract Zoomers is its base values, as mentioned in the previous blog.

Similarly, community banks and their strategy to attract the younger audience could use some help. For instance, “Every year, community banks invest millions sponsoring financial education in the classroom” intending to gain more younger members. However, students sitting in classrooms learning about a subject that is not yet relevant to them can get extremely tedious, and I for one have experienced this first-hand. With over 80% of Zoomers worried about their finances it is easy to say that early exposure to banks, credit unions, and community banks would be extremely beneficial. However, the approach needs to be as appealing as possible for the younger generation. Pairing up courses with financial services, or even offering student discounts is also a way to attract the young generation. 

Just like community banks, large banks should make their approach to the Zoomer generation more appealing. As stated previously, large banks have enough budget to add more technological advances to their services. Since zoomers “Shun traditional services and having to go to a physical location to access it”, they would much rather choose a service that they can access with ease. Just as value-based programs and services are important to Zoomers, speed and efficiency are too.

The Aftermath of COVID-19

As of late 2020, 27% of Gen Z wanted to switch their financial institution in the next few years, and COVID-19 played a major part.

According to Marqeta research, as of June 2021, 87% of Gen Z use a traditional bank. Gen Z makes up a fifth of the U.S. population (about 67 million).

A study done by Next Caller found that 74% of Zoomers (and Millennials) are more intent on investing, saving, and taking out loans more than they used to be. This is a clear opportunity for credit unions since they offer better and lower interest rates. As we see, Zoomers are more likely to choose banks over credit unions because banks also have their advantages. A common perception (albeit sometimes incorrect) is that credit unions services are not as advanced as banks are. For instance, banks have more branches and ATMs all across the nation, whereas credit unions do not since they are smaller. However, the downside is that banks have stricter rules and regulations, whereas credit unions are more customer-friendly and flexible. A huge difference is that “At a bank, you are a customer. At a credit union, you are a member.”

Looking at credit unions in-depth, it’s clear that they can offer an even more member-friendly environment. With some changes, they could attract members who will help the credit union’s future growth: Zoomers.

Since banks make more revenue, they can use that money to invest in more technology which would be appealing to the Zoomer generation. So far, the Zoomer generation looks to banks more when it comes to financial decisions or help. Credit unions that understand this are adding technological advances, knowing that this is best in the long run.

Alacriti Blog

Request for Pay (RfP)—Exploring the New Frontier of Bill Payments

When The Clearing House (TCH) launched the first new payment rail in the U.S. in over forty years, most of the focus (rightly so) went to the money movement functionality of the system. TCH’s RTP® Network officially brought the U.S. market to the modern money movement scene. Finally, we had a real-time payment system where money could move from an account at one financial institution to another “instantly.” At the same time, another less-heralded functionality was introduced, and until the last few weeks of news, was largely out of the public eye. That functionality has the potential to revolutionize the bill payment space as we know it, and it is called Request for Pay (RfP). 

Globally, Request to Pay (as it is known in the U.S.) is an emerging “payment” channel. It’s important to note that all of the real-time payment systems globally are based on a credit push model, meaning that the individual or company paying must initiate the transaction. Therefore, you can’t give a company permission to debit your account in the same way the ACH network works.This design is to help mitigate fraud, which is an important feature  due to the irrevocable nature of real-time payments. However, without debit functionality, there’s no way for  a company/person to send a “request” to be paid for a good/service. For example, if applied to a P2P scenario—a request to split a dinner tab or concert tickets. The solution was to initiate a request that can be sent directly to the recipient’s financial institution through the payment network, turning the payment rail into a super messaging system as well! 

The potential utility for RfP is significant—around 65% of the 15 billion bills consumers pay annually are not recurring payments. They’re performed as a one-time exercise. And about 75% of those non-recurring bill payments are done through a biller website. That’s a lot of user names, passwords, and inputting of information for each consumer—a stark contrast to the centralized RfP experience.  

Many of you likely have already experienced this workflow in the closed-loop P2P offerings we all use in our personal lives. When you open up the app to send money to a friend, there are options to pay someone or request to be paid. Now imagine this at a grand scale where the request can actually go to ANY bank account in the U.S., and you can see why both financial institutions and businesses are so intrigued. This capability unlocks the possibilities for both consumer bill payment experiences as well as business invoicing and treasury payables and receivables. The functionality is not only in TCH’s RTP network but is also supported by Zelle and will be a key concept in the Federal Reserve’s FedNow network. 

In some markets, non-bank RfP solutions are already available and target businesses directly. So already, it’s important for financial institutions to take this opportunity sooner than later. RfP holds a lot of promise, allowing financial institutions to create new revenue streams and engage consumers in a new way. 

Learn about the different ways your financial institution can connect to RTP in RTP: How to Connect?

Alacriti’s Cosmos for RTP® enables financial institutions and organizations to quickly and seamlessly connect to The Clearing House’s RTP® network without the burden of significant infrastructure overhauls or capital investments. To speak with an Alacriti real-time payments expert about RfP, please contact us at (908) 791-2916 or info@alacriti.com.

Alacriti Blog

Will Faster Payments Cannibalize Your Fedwire Revenue?

It’s been four years since the launch of The Clearing House’s RTP Network, and as the market continues to embrace and grow the network, one question that many bankers have asked me over that time is, “What will happen to Fedwire?” It was a fair question in 2017 and becoming an ever more readily asked question in 2021, especially as the Faster Payments market matures and new rails come online (we are talking about you, FedNow)! But what will happen to that revenue is a great question. It’s something that many financial institutions will have to grapple with in the coming months and years as the use cases for faster payments grow exponentially and clients start to embrace them—both at a business level and for consumer money movement expectations.

Why would Fedwire revenue be at risk? Well, for one, it’s the “OG” faster money movement system in the U.S.—if you needed to move a large sum of money during business hours, you inevitably used Fedwire to do it (or its cousin from TCH, CHIPS). And I’ll tell you what, it worked! Even as a consumer, I could send money instantly through the Real-Time Gross Settlement system for a small fee of $30-$50, which, if you are moving money for closing on a home, for example, represents a very small percentage fee. The system has worked for the better part of the last half-century and has become a backbone to the U.S’s financial system, used by the largest corporations to move money to meet their needs. Hence the common lingo of “wire me the funds…”

This was all good when the initial use cases of peer-to-peer money movement dominated the discussions on real-time payments ten years ago. Those transactions looked more like the small-dollar or high-volume transactions you’d see in the ACH world that had 2-3 day settlements at the time. However, as the dollar limit increased, the discussion in the U.S. market started to shift. The dollar limit shifted from $25,000 at RTP’s launch to the current $100,000 network limit. Also, there have been announcements about the Same Day ACH limits moving to $1,000,000 next year. There are a decent number of transactions from both the consumer market and business market that, five years ago, were nowhere near the value that was in scope of these new payment rails. With the limits increasing, these transactions are now candidates to move off of the higher cost Fedwire system to the lower cost, modern money movement networks.

So how do you protect the current revenue streams associated with Fedwire? The answer is that you can’t look at the revenue today as you would tomorrow. For one, the rich data that moves with real-time payments in the ISO 20022 model is extremely valuable to business users. As new invoice and remittance data start to move away from email (or even snail mail), users will start to realize the time savings and cost savings associated with the more modern money movement set, which is going to lead to new business models and services that financial institutions provide. Can you charge the same dollar for dollar you did for just the money movement? No… but can you charge for the full end-to-end service and reconciliation for the business? Of course!

Part of payments transformation is breaking down the existing product set and business models in place today and rethinking/rebuilding them for the future of money movement. It won’t be a straight line experience, and there will be growing pains along the way, but the value and ability to think through the full product, solution, and service stack and truly focus on the value creation that is possible with faster money movement capabilities will be the key to unlocking even greater and larger revenue streams. 

For an overview of faster payments and use cases of real-life applications, read the blog Faster Payments: Full Speed Ahead. 

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Alacriti Blog

Zoomer Generation’s Core Qualities and Values

Zoomers, also known as Gen Z, are the “Digital Natives,” making up 32% of the U.S. population as of May of 2020. First, let’s talk about what the name Zoomer actually means. Zoomers are those born in the late 1990s and early 2000s, They are in the 9-24 year-old range, and they immediately follow millennials. Zoomers often joke about having nothing to lose, hence the unfortunate fact that a portion of them carry an exceeding amount of student debt. About 20% of Zoomers say they are indebted. As a Zoomer myself, I can say that student debt is something that is more impactful than I had ever thought it could be.

As a refresher, here is an overview of the generations:

Source: Pew Research Center

To gain an overview of the qualities that make up Zoomers, let’s start by diving into how community-minded they are. Standing up for communities and their betterment and fighting for a cause that is important to them is common for Zoomers. With their shared interest in the common good, credit unions and community banks are well poised to relate to Zoomers. They not only stand for communities but they also offer better rates. They essentially encourage members to save money, which, later in this blog, you will see how that resonates with Zoomers. Since they are nonprofit cooperatives, they often give out lower rates as well, which is, of course, attractive to a generation already in debt

According to Ben Rinshall, author of “How Credit Unions Can Connect with Gen Z, “Zoomers are likely to pay more if they really have to. What I mean by that is, if paying for a service will make their experience faster, they would not mind doing so.”

As per an article from last year, “Sustainable Retail: How Gen Z is Leading The Pack”, Gen Z, also known as Zoomers, are more likely to spend money on sustainable products, along with being more eco-friendly. About 59% of Zoomers buy upcycled products.

Zoomers are also known to be one of the largest groups that use digital banking apps. A study found that 99% of Zoomers use mobile banking apps. Digital banking, as we all know, is extremely popular. It is also very fast and efficient, which is important to Zoomers because they value speed. Since larger banks typically have bigger budgets for the latest technology, this is a potential advantage when it comes to targeting Zoomers.

If something is fast and efficient, they like it. If it’s not, they will most likely find something else that is. Having technology at their fingertips, it is easy for them to Google just about anything. When it comes to a website being too slow, they will quickly find something similar or better. Along with this, Twitter now has become a huge platform where you’ll find Zoomers giving reviews about anything and everything. That said, if a service or company is causing them to delay with their long wait times and other inconveniences, chances are a Zoomer will tweet about it. Zoomers, although easygoing and community-oriented, are also very fast-paced and even stern at times.

Making things easier and to the point, for Zoomers, is expected. Eliminating unnecessary steps in a process will make things easier to understand and, of course, make things faster. Making videos or “simple walk-through videos for [the] most complex operations” will attract more Zoomers. This same article uses Apple as an example of a website that makes things much easier to navigate, which in turn makes the user experience much better.

Aside from speed and efficiency, Zoomers also expect much more in the sense that they want clear communication and a good understanding of what they are doing. Whether it be the first day of work or just any other given task, 45% expect hands-on training, and 33% expect to know everything about their job on the first day.

By being aware of qualities like these in Zoomers, banks and credit unions can attract their Zoomer audience in a more targeted way. Think about the products and services that you offer that would be more appealing to this audience. Keep speed and efficiency as a high priority. If you lack in that area, they may turn elsewhere.

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Alacriti Blog

3 Applications of Machine Learning in Financial Services

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Machine learning is a subset of artificial intelligence that allows computers to “learn” from data without explicit programming from humans. In financial services, it can transform business processes related to customer service, personal finance, and fraud and risk management. Here are some real-life applications of machine learning in each of these areas.

  1. Customer Service

Chatbots are being deployed in financial services to automate common customer service requests, answer frequently asked questions, and assist with transactions like making bill payments. They use natural language processing to understand what a person is saying and formulate an appropriate response in return. However, chatbots sometimes struggle with interactions that go off-script from specific instructions they’ve been programmed to follow.

Machine learning helps customer service chatbots assimilate information from each interaction and “teach” them how to respond in the future. For example, machine learning can teach chatbots how to identify frustration and adapt subsequent responses. This might mean replying with calming language designed to diffuse the situation or perhaps redirecting the frustrated customer to a live agent.

Machine learning can also be used to improve the customer experience. For example, if a customer tends to pay the minimum amount due on their bill at the latest possible date, this behavior might indicate that the customer is facing a cash-flow crunch. Machine learning can identify these patterns and offer the customer a different due date, a payment plan, or even a personal loan to help improve their ability to make on-time payments.

  1. Personal Finance

Budget management apps powered by machine learning provide customers the benefit of highly targeted financial advice and guidance. These apps allow customers to track their spending daily using their mobile devices. Machine learning can then analyze this data to identify spending patterns that customers might not be aware of and identify areas where they can save.

Machine learning helped one international bank identify struggling customers and provide better options for serving their needs. When the system detected unusual spikes in late-night credit card usage among certain customer segments, combined with low savings rates, the bank determined that these customers were facing some level of financial stress. To reduce the risk of defaulting, customers tagged by the system were automatically given credit limit increases and offered free financial advice.

  1. Fraud and Risk Management

Financial services organizations handle a staggering amount of customer and transaction data that must be scanned for fraud. Payments, in particular, are a hotbed for fraudulent activity—and surveyed treasury and finance professionals believe much of the increase in 2020 can be attributed to the pandemic. Organizations must constantly look for new ways to strengthen fraud prevention and risk management protocols to handle these demands.

Companies like PayPal are using machine learning to enhance their fraud detection and risk management capabilities. Through a combination of linear, neural networks, and deep learning techniques, PayPal’s risk management engines can determine the level of risk associated with a customer within milliseconds. Similarly, financial services organizations can replace statistical risk management models with machine learning algorithms. Several organizations use programs that scan transactions for risk, move flagged transactions to a risk queue, and investigate suspicious activity automatically. Continuously expanding knowledge bases improve the ability of these programs to detect (and prevent) fraud over time.

Insight gathered by machine learning also provides financial services organizations with actionable intelligence that acts as a foundation for subsequent decisions. For example, a machine learning program could tap into various data sources to assign risk scores for loan applicants. Algorithms could then predict which customers are at risk for defaulting on their loans, allowing the bank to tailor its services or adjust terms for each customer.

Machine learning can also help lenders determine the creditworthiness of potential customers. By analyzing past spending behavior and patterns, machine learning could help identify how much credit should be extended to a given customer. The technology would be especially useful for new customers that lack long credit histories. Automating credit and risk scoring processes on a mass scale can help these organizations enhance their models across the board.

The Bottom Line: The applications of machine learning in financial services extend far beyond these few examples. Machine learning shows promise in helping the overall financial system enhance security, deliver better service, and increase operational efficiency—and that’s just the beginning.

More on artificial intelligence in Conversational AI for the Customer Experience.

*This is an update on an original post published July 2019

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Alacriti Blog

Improving Loan Portfolio Performance

*Originally published on CUInsight.com

Financial institutions are continually tasked by their boards with optimizing the performance of their loan portfolio. Today’s low-interest rate environment is continuing to drive both interest and volume at many financial institution loan portfolios, making improving loan portfolio optimization more important than ever. 

According to Celent, here are three ways to improve your loan portfolio performance with consumer experience top-of-mind:

  1. Give account holders what they want!

Recent research from Celent showed that U.S. banks and credit unions reported a 41% ¹ increase in real-time payments during the pandemic. With consumers from 2,000 financial institutions in the U.S. already using Zelle, it’s clear that demand for real-time payments is already here. Offering real-time payment products could particularly be the key for your customers or members who seem like consumer account holders on paper, but are actually small business owner members. By offering real-time payment options, such as real-time disbursements, or Any2Any account transfers, you are giving them more control over their money movement needs any time of day, which brings us to the next point.

  1. Give consumers control over their finances

Traditionally, late payers were penalized with large fees for missing their payment due dates, sometimes through simple faults in the clearing and settlement offerings in the bill payment ecosystem (we are looking at you ACH). Consumers now have an alternative for expedited payments, giving them the full procrastination window of the due date, not just the 2-3 days in advance an ACH payment requires, or a full week for a check to be cut and sent. Coupled with an ability to diarize (request on a future date) payments, account holders should never be caught by surprise by having to pay a late payment fee again. For financial institutions, real-time has many advantages—better margins, better insights, and of course, receipt of funds faster (and in the case of TCH’s RTP irrevocable). Also, flexible channels and payment options such as pay by text or pay by AI assistant make it easier, and therefore more likely for your payees to pay their loans on time.

  1. Utilize Request For Payment

Request For Payment (RfP), a message capability that has entered the market with push-based real-time payments (e.g. Zelle, RTP, and soon to be FedNow), adds additional functionality to real-time payments beyond the payment itself. Real-time isn’t just about speed, it’s also a data-rich messaging system that supports “chatter-based” payments. Using RfP to open up a conversation with your customer or member, whose payment account resides at another institution, allows them to have better control over their finances by either choosing when they want to pay or and directly from the source of the payment itself. That flexibility could greatly improve collection rates while offering a higher level of security in the payment workflow as the payment messages are not going over a channel like SMS or email. Instead, they go directly through the payment channel to another financial institution, to be viewed by the account holder in a secure location. In addition, because RfPs are tied directly to the transaction itself, it saves financial institutions on reconciling invoices and lowering the number of checks and processing costs associated with manual processing. 

¹ Celent “State of the Payments Nation Survey”, May 2022

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Alacriti Blog

Bill Payments on Mobile Devices: A 5-Step Approach

Americans love their mobile devices. Ownership levels of smartphones have continued to climb steadily to 85 percent, while tablet ownership has remained steady since 2016. And in some demographics, mobile device ownership is at near saturation. The average user spends 5.4 hours on their mobile devices per day, and nearly every household in the U.S. owns at least one smartphone. 

This vast ownership of mobile devices has empowered users to streamline many aspects of their lives, from finding information online and communicating with others to consuming media on-demand. The global pandemic has only increased the demand for mobile access to products and services. Mobile devices have transformed commerce experiences with both retailers and service providers. One of the most important elements of this transformation is the ability for consumers to make payments directly from their mobile devices.

Only a few years ago, estimates suggested that almost half of Americans made a mobile payment on their smartphones, and though slower in adoption than other transactions, mobile payments use is increasing. The widespread ownership of mobile devices combined with the increasing use of digital wallets, mobile apps, and P2P payments will only make mobile payments more ubiquitous over time. Customers can benefit not only from the handheld convenience of mobile-based bill payments but from other perks like electronic receipts, custom alerts and notifications, and direct integration to rewards and loyalty programs.

Considering that bill payments are among the most critical payments that consumers make, billers must offer a fully optimized bill payment experience on mobile devices. How can billers do this? Here are five steps to consider.

  1. Mobile optimized biller websites

A mobile-optimized website is a must for bill payments. Users that make payments via a mobile web browser must be able to do so quickly and easily. If not, they might abandon the transaction altogether. Think about design choices like larger font sizes, not-to-be-missed buttons, auto-fill form fields, and limited scrolling.

  1. Guest Pay

Why make bill payers log in on their mobile devices at all? An electronic bill presentment and payment solution (EBPP) can offer a Guest Pay option that eliminates the need for users to log in with a user ID and password. Simply configure the system to request limited information (like an account number and ZIP code) to identify the bill payer and accept their payment.

  1. Text-based bill payments

Text messaging is one of the most-used features on mobile devices and is increasing, so it’s a natural place to engage with customers regarding their bill payments. EBPP solutions can send bill-related alerts and notifications via SMS text message, and users can also configure their accounts to make payments directly via text.

  1. Messaging apps

Messaging apps like Facebook Messenger can also facilitate customer bill payments. EBPP solutions can allow users to connect their billing accounts to Facebook to access billing information and make payments directly in the app via chatbot technology.

  1. Biller apps

Billers might want to invest in their own apps as well. When a user downloads an app, it gives the biller valuable real estate on a device that heavy phone users may check up to 86 times per day. It can also push alerts directly to the user’s home screen and integrate to payment methods saved on the mobile device.

The Bottom Line: A holistic, mobile-based bill payments strategy includes components like optimized websites, Guest Pay, text-based payments, messaging apps, and biller apps. A modern EBPP solution can help billers deliver a seamless bill payment experience directly to the mobile devices that consumers use most. 

Read more about mobile bill pay: Bill Pay the Mobile Way.

*This is an update on an original post published June 2019

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Alacriti Blog

Faster Payments: Full Speed Ahead

Modern commerce can be described in one word – immediate. Customers expect on-demand transactions whether they’re hailing rides, consuming media, or paying bills. Technology has elevated business-to-consumer (B2C) interactions with the help of apps, mobile payments, and ecommerce software that streamline even the simplest transactions.

Now that consumers can pay for goods, services, and experiences with the touch of a finger, expectations are rising for immediate payments in other aspects of commerce. For example, businesses moving money to other businesses more quickly and efficiently. Insurance companies paying their customers’ insurance claims on the spot to lessen disruption to their lives. Employers paying contract employees and freelancers more expediently than issuing paper checks. And cross-border payments of all types being conducted in simpler, more streamlined transactions.

Faster payments are evolving quickly to bring new speed, connectivity, and efficiency to money movement around the world. This blog provides an overview of faster payments, what’s currently underway in the U.S., and global systems that have been developed in support of faster payments. It also provides use cases of real-life applications for faster payments in business to business (B2B), B2C, and consumer to business (C2B) transactions.

Faster Payments Defined

So, what are faster payments? This blog uses the term as a catch-all for advancements in the payments ecosystem designed to help move money between entities faster than the traditional settlement times of the past. Faster payments are also built to leverage safety and security features that can help businesses and consumers better manage the risk that surrounds payment transactions.

Faster Payments in the U.S.

How are faster payments taking shape in the U.S.? Let’s take a closer look at how payment rails are being developed and adapted in support of faster payments.

  1. The Clearing House: Real-Time Payments (RTP®)

When was the last time a new payments infrastructure was launched in the U.S.? In 2017, The Clearing House (TCH) launched its real-time payments (RTP) system, the first new core U.S. payments infrastructure in over 40 years. As a net-new payment network (or “rail”), RTP enables businesses and consumers to instantly send, clear, and settle payments. In addition to speedier transactions, RTP also conforms to consumer protection criteria designed to prevent fraud and increase safety.

The RTP network is currently accessible to financial institutions that hold 70 percent of U.S. demand deposit accounts (DDAs), and the network currently reaches 56 percent of those accounts. The network is built to streamline financial transactions between businesses and consumers by supporting fund transfers, payment requests, and two-way communication between parties.

  1. Same Day ACH

Automated Clearing House (ACH) transactions are the backbone of money movement in America. The network has been in place for over 40 years and facilitates everything from employee payroll direct deposit to mortgage payments. In 2015, Nacha (the governing body of ACH) announced improvements to ACH in support of Same Day ACH. These improvements were intended to accelerate the traditional settlement time of one to two business days to same-day settlement.  

In 2018, Nacha announced further improvements to Same Day ACH that accelerate the availability of funds, increase the dollar limit of transactions to $100,000, and extend the submission window an extra two hours per business day. These improvements took effect over the course of 2020 and 2021, with the expansion of business hours effective March 19, 2021. ACH’s established ubiquity among financial institutions and businesses makes it a natural place to facilitate faster payments via Same Day ACH. In Q1 of 2021, more than 141 million Same Day ACH transactions were recorded, and this number is only expected to keep growing.

  1. Early Warning Services: Zelle®

In 2017, Early Warning Services launched Zelle® to streamline person-to-person (P2P) payments among account holders at U.S. banks. The solution allows money to move by providing an email address or a phone number, thereby avoiding the need to provide sensitive banking, personal, or payment information. Users can pay one another via Zelle through their banking websites, the stand-alone Zelle app, and or other mobile apps.

Zelle leverages relationships with major national banks, credit unions, and regional/community banks to extend its reach to millions of U.S. customers. Transactions are completed within minutes, eliminating the need to write personal checks or use cash. At the end of 2020, Zelle reported 1.2 billion transactions worth $307 billion. Given this uptake and the huge reach of Zelle’s infrastructure, one can only imagine that its usage and adoption will continue to grow over time.  

Faster Payments Around the World

The U.S. faces unique challenges in adopting faster payments due to legacy systems and a fragmented marketplace. However, many countries around the world have established infrastructures in place. Japan was at the forefront of faster payments, launching its Zengin System in 1973. Dozens of countries followed suit in the coming decades, with China’s Internet Banking Payment System (IBPS)  and India’s Immediate Payment Service (IMPS) both rolling out in 2010. More recently, Australia’s New Payments Platform (NPP) went live in 2018. All told, there are approximately 54 real-time payment systems globally, with more to come.

Faster Payments for B2B, B2C, and C2B Transactions

Given that backdrop, what are the real-life applications of faster payments for businesses and consumers? Here are three examples where faster payments can expedite commerce.

Use Case #1: B2B Payments

Businesses depend on suppliers to keep operations running smoothly. And suppliers require on-time payments to keep their goods flowing to businesses. Faster payments can be used in these B2B situations to make immediate payments that reduce the need for invoices, bills, paper checks, and lag times. A supplier can even use RTP messages to make a Request for Payment, a non-obligatory payment “ask” in lieu of a bill or an invoice.

Use Case #2: B2C Payments

Insurance claim payouts are a prime example where faster payments can create an immediate impact on consumers’ lives and strengthen their relationships with insurance providers. In the event of a natural disaster, policyholders may require immediate payouts to help secure basic human needs like food and shelter. Insurance companies can expedite these emergency payouts using faster payments methods, cutting down the time required for policyholders to receive their funds.

Use Case #3: C2B Payments

There are situations when consumers need to make immediate bill payments to, quite literally, keep the lights on. Using utilities as an example, a customer who is delinquent on their account might be at risk of losing basic services. Faster payments can allow them to make an immediate bill payment on their account and have the funds transferred near-instantaneously.

The Bottom Line: Faster payments are becoming a reality both domestically and globally. As the US catches up to major infrastructures around the world, the use cases for faster payments are sure to expand. The positive impact of faster payments could be a game-changer for businesses and consumers alike, with the potential to streamline commerce like never before. 

What can the rest of the world teach us about faster payments? Find out here. 

*This is an update on an original post published June 2019

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Alacriti Blog

How to Convert Customers to Paperless Billing

Some customers might prefer paper bills for perceived benefits like record retention and physical reminders of upcoming payments due. However, the global pandemic has increased the demand for paperless everything. Providing a choice between the two options is important. But e-bills can provide benefits for billers and customers alike.

What are some ways your organization can encourage a permanent switch to e-bills? Here are six techniques to consider. 

  1. Present digital bills designed with users in mind

Paper bills are designed to help readers easily identify important account information on the first page. A digital bill must present an equally easy-to-read design customized for the screen it’s displayed on (desktop, tablet, or smartphone). It must also allow users to quickly identify the amount owed, due date, and any additional fees or charges without unnecessary clicking, scrolling, or searching. Delivering an easy-to-use electronic billing experience is the first step in convincing customers to move away from paper.  

  1. Reinforce the eco-friendly benefits of electronic bills

Paper bills require precious resources including, ink, paper, and fossil fuels, for delivery. Electronic distribution can help reduce the overall carbon footprint of the bill issuing process. As customers become increasingly aware of their consumption habits, reinforcing the message of e-bills as a friendlier option for the environment might encourage them to make the switch.

  1. Maintain historical bills in a secure online location

A key benefit of paper bills is that the physical copies can be easily retained for future reference. Many electronic bill presentment and payment (EBPP) solutions provide access to archived bills for easy reference and printing on-demand. In addition, accessing these bills with a user ID and password also helps protect the personal information they contain.

  1. Send timely, personalized electronic bill reminders

Many customers may depend on paper bills as physical reminders that their payments are due. EBPP providers can send email and text message reminders with bill information, delivered to the electronic channels that customers use most. This is a critical customer touchpoint that can help encourage on-time bill payments and create positive brand interactions.

  1. Offer incentives for adopting electronic billing

Convincing customers to adopt e-bills might just come down to incentives like gift cards, promotional items, and or discounts. A small financial incentive might be the tipping point that encourages a customer to change their billing behavior. To determine which incentives are most appropriate, consider their cost in relationship to the long-term operational savings your organization can realize.

  1. Remind customers of the benefits of touchless self-service bill pay options in light of COVID-19

Demand for contactless everything has increased exponentially in the days since the pandemic began. Remind customers that paperless, digital options for paying bills exist and offer a safer way to settle their accounts while educating them on the features that can replace the benefits of paper bills, like digital record-keeping and automated reminders, to overcome objections.  

More on bills in Bill Payments: Helping Small Businesses Think Big.

*This is an update on an original post published May 2019

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments,  digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences.  To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Alacriti Blog

Back to Basics: ACH for Bill Payments

Electronic bill payments are only possible because of the payment methods that make digital fund transfers possible. The “big three” funding methods of electronic bill presentment and payments (EBPP) include credit cards, debit cards, and ACH transactions. While there are benefits associated with each of these payment methods, ACH dominates the transactions processed via Alacriti’s Orbipay® EBPP. In 2020, 68% of total transactions used ACH as their funding source, far outpacing debit card and credit card payments.

For those that might be unfamiliar with ACH, here’s a quick look at the basics of how it works and some of the attributes that make it a desirable choice for funding bill payments.

What is ACH?

ACH stands for the Automated Clearing House network, which moves information and money electronically between U.S. bank accounts. The network is a batch processing system that supports two types of transactions, Direct Deposit and Direct Payment. For example, Direct Deposit of paychecks from employer to employee are typically executed using ACH when the employee authorizes these transactions and provides their bank account information to their employer. Direct Payments are popular for making bill payments, both one-time and recurring because customers can automate their payments and reduce the likelihood of missing a due date.

Which entities participate in ACH transactions?

ACH transactions require cooperation across several different entities. Here are the key players.

Originator

An Originator is a company, consumer, or organization that is authorized to initiate ACH entries (both credits and debits) into the payment system. These entries can initiate  once an arrangement is in place between the Originator and the Receiver. In the case of Direct Deposit, the Originator would be the employer that is transferring payroll funds to an employee. In the case of a bill payment, the Originator would be the biller that is requesting funds from their customer.

Originating Depository Financial Institution (ODFI)

The ODFI is the financial institution that receives payment instructions from the Originator and forwards the entries to the ACH Operator.

ACH Operator

The ACH Operator acts as a central clearing facility that works on behalf of the DFIs, both Originating and Receiving. It receives batches of ACH entries from the ODFI and then sorts and distributes those entries to the appropriate RDFIs. There are currently two ACH Operators, The Federal Reserve, and The Clearing House.

Receiving Depository Financial Institution (RDFI)

The RDFI is the financial institution that receives ACH entries from the ACH Operator and posts the entries to the accounts of its Receivers.

Receiver

A Receiver is a company or consumer that authorized an Originator to initiate an ACH entry (credit or debit) into their account via the RDFI.

How does an ACH transaction work?

The workflow below illustrates the progression of an ACH transaction for a customer bill payment.

The Bottom Line: The ACH network is an integral player in money movement throughout the U.S. ACH is often chosen for bill payments because customers can authorize direct debits of their bank accounts and automate future transactions, reducing the likelihood of missed bill payments.

Learn statistics about ACH usage in our 2020 Trends Report. 

*This is an update on an original post published April 2019

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments,  digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

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Report: Modernizing Payments Infrastructure in the Era of Real-Time Payments

*Originally submitted by Mercator Advisory Group

Payment products are the connective tissue of financial institutions, serving as a major source of core revenue. But what are the business and technology priorities and market dynamics that drive this array of payment services? To answer that question and more, Alacriti sponsored a Mercator Advisory Report titled Payments Infrastructure Outlook: Real-Time Payments Take the Lead.

For the report, Mercator Advisory Group surveyed 100 senior-level bankers using an online executive questionnaire designed in collaboration with Alacriti; 19% of respondents represented community banks or credit unions. The report provided insight into the opinions toward payments modernization held by senior leadership at banks and credit unions. 

Some of the key points are highlighted below. 

FIs recognize payments as a valuable revenue stream 

Most executives surveyed for the report agree that consumer, small business, and commercial payments are important revenue streams for their businesses. Most also agree that their FI is working to be a leader in payments products and technology. A breakdown of the data around how executives view their institution’s payments products and services can be seen in the chart below:

The pandemic environment for the past year has been particularly favorable to payments modernization, with 79% of surveyed executives indicating that payments technology modernization efforts have been boosted by the pandemic. Additionally, the advent of real-time and faster payments is similarly turning up the urgency of infrastructure modernization. 

This urgency corresponds with rising consumer expectations for new services, which will translate into new revenue streams for financial institutions. For example, most executives (87%) agree that real-time payments will drive new revenue streams and that they are already receiving client requests for this service.  

But how are these modernization efforts being accomplished?

The role of the cloud in IT strategy modernization 

As financial institutions update payments processes, rapidly evolving business products and business lines add complexity to IT infrastructure. Even as executives are acknowledging the importance of payments modernization, payment operation simplification is a dominant approach at 66% of financial institutions. 

Cloud-based infrastructure is the overwhelming preference for achieving this simplification due to advantages including a superior end-user experience, quicker speed to market, pay-as-we-go, and implement-as-we-go possibilities. Overall, 90% of executives agreed or strongly agreed that cloud-based infrastructure is their current preference for payments IT infrastructure; 91% agreed that cloud-based infrastructure is their current preference for overall IT infrastructure.

Even so, previous sunk costs in proprietary and licensed IT can reduce interest in cloud implementation. Ultimately, cloud implementation will mainly lie in the hands of outsourcing partners. 

Meeting the real-time need for real-time payments 

Moving forward, real-time payments will be fundamental in payments technology modernization efforts. When asked about the future of real-time payments at their institution, the top two major use cases for real-time payments listed by executives are immediate payroll payment or gig economy payments (73%) and account-to-account transfers (71%). 

As for how they anticipate real-time payments solutions to integrate at their institutions, executives overwhelmingly anticipate doing so through core providers and other third-party providers, building upon the key role of outsourcers in payments modernization. Ultimately, real-time payments are on the horizon and are a compelling reason for financial institutions to modernize their infrastructure now. 

The takeaway 

The Mercator Advisory Group report sponsored by Alacriti digs significantly deeper into the trends and strategic implications regarding payments modernization, including: 

  • Banking executive attitudes toward the centrality of payments businesses and technological modernization efforts.  
  • Perceptions toward simplifying payment operations and utilizing a cloud-based IT approach.
  • Institutional outlooks and priorities on real-time and faster payments.
  • The future of real-time payments and anticipated use cases across financial institutions. 
  • The critical role third parties will play in real-time payments integration.

Interested in learning more? Click here and fill out the form to access the Mercator Advisory Group research brief sponsored by Alacriti, Payments Infrastructure Outlook: Real-Time Payments Take the Lead.

Alacriti Blog

Ditching Paper Checks for Digital Disbursements: 5 Use Cases

Paper checks still show up regularly in people’s mailboxes. They’re a go-to not only for personal debts but also for businesses that need to pay their employees, vendors, and customers. Mobile banking apps have streamlined the check cashing process, allowing customers to deposit checks with the snap of a smartphone camera. But many people are still willing to sign their checks, physically visit a branch location or ATM, and deposit them in person.

With so many advancements in FinTech, it’s hard to believe that paper checks are still issued to the extent that they are. Although not as popular as they used to be, pre-COVID, Americans did write out 14.5 billion checks in 2018, and as of 2019,  42% of B2B payments were still made by check. But the global pandemic may finally accelerate the demise of paper checks. In its aftermath, some 31 percent of surveyed consumers indicated they are ditching paper checks in favor of digital payments. Solutions like Zelle® have emerged to facilitate person-to-person payments without the need to write physical checks. And businesses are increasingly interested in adopting solutions that can reduce, or eliminate, their dependence on paper checks.

For businesses, this ongoing dependence on paper checks can be time-consuming, costly, and not to mention consumer-unfriendly. The costs of writing a paper check can vary anywhere from $1 to $10, depending on the nature of the business and the transaction. These costs not only include the physical components of paper checks – the printing, fulfillment, and postage – but also the employee hours spent managing the check issuing process. Add to that the financial and operational headaches of managing who has cashed outstanding checks and when, and it becomes clear that moving toward digital payouts can have a significant positive impact on business operations.

Digital Disbursements are a solution that can help businesses move away from paper checks and toward electronic payouts. With Digital Disbursements, payouts can be issued directly to payees’ bank accounts without the need for a paper check. In doing so, businesses can better manage their cash flow and operations while also providing a more streamlined experience for payees.

The need for Digital Disbursements is becoming greater as people increasingly expect on-demand payment experiences. In addition, the changing nature of our economy makes quick, payee-focused payouts more important than ever. Here are five use cases where Digital Disbursements can eliminate paper checks and streamline payouts.

Insurance Claims

Perhaps the most critical component of any insurance policy is the policyholder knowing that funds will be available when they need them. Filing an insurance claim often coincides with disruptive life events like auto accidents, severe weather, medical emergencies, or catastrophic events like fires. At these times, policyholders might need funds immediately to cover basic human needs like food, water, and shelter. The ability to issue payouts digitally to policyholders can lessen the disruption of these events and help them return to their normal lives sooner.

Healthcare

Navigating healthcare payments can be a dizzying experience involving insurance, co-insurance, deductibles, co-payments – the list goes on. Patients are often unsure of what they owe in conjunction with their insurance, which can lead to overpayment of their accounts. For healthcare providers, there can be delays in payments from their patients’ insurance companies. This can also lead to inaccurate calculations of balances owed. When a patient overpays on their account, they want the funds returned to them as quickly as possible. In these cases, Digital Disbursements can facilitate the return of funds to patients quickly and easily, without the need for a paper check.

Contract Employees and Freelance Staffing

Freelancers and contract workers are an undeniable employment force in America—and growing rapidly in light of the global pandemic. Upwork’s Freelance Forward Economics Report estimates that over one-third (36%) of Americans are freelancers and that 53% of Gen Z workers are freelancers, more than any other generation.

As more and more people flock to contract and freelance work, the need for digital payouts is increasing as well. Digital Disbursements can help mirror the experience of direct deposited paychecks while also ensuring that contractors and freelancers get their payments without any delay. This can help sustain their continued engagement and potentially reduce the risk of losing them to other short-term gigs.

The Sharing Economy and Online Marketplaces

The sharing economy has revolutionized everything from personal transportation to selling goods and services online. This decentralization means that payouts are often issued directly to individuals instead of businesses. Digital Disbursements can mean quick payouts to the underlying providers without the hassle of issuing paper checks. These electronic payouts can help keep the sharing economy and online marketplaces humming along. Supporting the streamlined experiences that customers have come to expect.

Rentals

Most rentals – whether an apartment, house, vacation property, or storage unit – require an upfront payment of a security deposit to cover any damage that might be caused by the renter. The underlying owner must maintain these funds and ultimately pay them back if the terms of the rental agreement have been met. This process can be time-consuming and even lengthier when paper checks are involved. Digital Disbursements can speed up the return of a security deposit without the renter needing to cash a physical check. For property management companies, Digital Disbursements can also be an easy, low-cost way to disburse rental payouts to underlying property owners. 

The Bottom Line: As the economy changes, so do consumers’ expectations for quick and easy payouts. Digital Disbursements can help businesses modernize the payout process, eliminating the need for paper checks.

Learn about what faster payments, in general, can do for your industry in our blog. 

*This is an update on an original post published January 2019 

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

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Best Practices to Prevent Payment Fraud

*Originally published on CUInsight.com

It’s hard for paranoia not to set in when you see organizations as important as Colonial Pipeline, the U.S.’s largest refined products pipeline, held for ransom for $4.4m from cyber attackers. The CEO, Joseph Blount, made the difficult decision to pay the ransom because they didn’t know the extent of the intrusion by hackers and how long it would take to restore operations. An FBI-led operation led to the recovery of $2.3m in Bitcoins paid to the hackers, but the situation highlighted extreme vulnerabilities. 

No industry is immune. Since March 2020, identity thieves have taken nearly $1b in unemployment payments from The Texas Workforce Commission. 

Consumers are also anxious about fraud. Sixty-five percent of 2,000 consumers surveyed stated that they are more concerned about fraud than before COVID-19 hit, and a quarter admitted to being victims of fraud within the last 12 months (a 25% increase over the prior year). 

To add to an already challenging environment, attacks are becoming more sophisticated and are harder for common security tools to detect. For instance, mimicking human behavior to thwart traditional bot detection tools by running scripts that show common browser and application behavior. Techniques include spoof locations and slowing down attacks so they better resemble human interaction. In the first half of 2020, 96% of FI attacks were considered “sophisticated”. 

As payments get faster and more rails become available, fraud is a reasonable concern. It can be expected for bad actors to try to take advantage of new systems, so fraud prevention efforts will always be essential. According to Gareth Lodge from Celent, here are some best practices to avoid fraud:

Speed is of the essence

The TCH rules place obligations on the sending bank to be sure that what is being sent is legitimate and that the receiving party is as well. In short, the receiving bank should be able to trust that the funds are good. Given the almost zero downtime that is allowed, that means FI fraud systems need to operate in a 24/7 single message way as well, and at speed—the total end-to-end time is from time of sending of the transaction to receiving, giving the bank very little time to do those checks.

Good practice makes a difference

Lessons from other countries around the world show that when setting up a new payee, banks should validate with the account holder that it is them. Some countries have suffered “man-in-the-browser” attacks that meant a fraudster could access the account details, set themselves as the recipient, and clear the account. By validating account details via text message, it helps ensure that it really was the account holder setting it up!

It’s a new rail

It’s not a card or a wire or an ACH, so don’t be tempted to use models developed for those rails! Instead, focus on building those patterns from scratch—artificial intelligence and machine learning are great tools for doing this. With low volumes at first, it also ensures that every data point adds to the model—again, too often, we have seen banks update their fraud models monthly or even quarterly! Bad actors could easily have emptied accounts in minutes before anyone has ever noticed using that approach!

 It’s new

Customer awareness and education are key. Getting them to understand what is normal and what isn’t makes a difference. It also drives uptake. If it goes wrong (in their eyes!) the first few times, then they won’t adopt it. If you position and productize it correctly though….

Payment system outages are another huge interruption, read Preparing for Payment System Outages.

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

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Biometrics in Payments—Dropping our Collective Masks

This isn’t a discussion on the benefits of masks… but instead, how to look forward in the payments space, particularly as faces start to re-emerge and one no longer needs to pay with their passcode at the POS (and beyond). Let’s talk about the state of the biometrics space and what we can all collectively look forward to as our payment roadmaps kick back into high gear! Here are the top five trends we’re watching: 

Facial Recognition Payments

Probably the easiest and most broadly used biometric payment methods today in the U.S. are Google Pay and Apple Pay. I know there are a lot of added features beyond just the biometric capabilities of FaceID and Google’s facial recognition and fingerprint capabilities. But the value of just being able to pay by scanning your facial features is something we’ve all missed at the point of sale, and now it’s part of the Orbipay platform as well, making the payment as simple as looking at your phone. 

Vein Scanning Payments

Hitachi’s Finger Vein Technology is one that definitely makes you think of a science fiction novel, but it’s actually real life, and it’s been in-market for about as long as the iPad. The vein scanning technology has evolved and became significantly cheaper over time. While banks have been using it in branches in some European and Asian markets for some time, it still hasn’t gained significant traction in the U.S. More to come in this space for sure, especially as the technology hops to mobile devices vs. physical scanners, but for now, we’ll categorize this in the “emerging” category. 

Palm Reading

Amazon One Capabilities – The palm has a whole new meaning in payments… it’s now a secure way of paying at the Amazon Go stores. By leveraging your palm at the point of sale, you’ll be able to pull up the saved payment method and carry on your way. 

Voice Recognition

Much has changed since the “Big Boy” days of voice recognition software and horrible IVR experiences of yesteryear. Today, voice recognition is an extremely secure way to pay, with integration into Amazon Alexa or Google Home. Being able to authenticate oneself via voice recognition and then execute a transaction or complete an order has never been easier. Having a plan to integrate voice recognition in place is certainly a must-have method of payments.

Behavioral Biometrics

Another area that gets a little less focus but is just as important is the behavioral aspect of authentication. Keystroking, or how a consumer enters information on a keyboard, actually has associated identifying markers. Technology can use machine learning to identify the habits of consumers—when they log in, keystrokes, swipe patterns, scroll speed, etc.—and flag discrepancies as possible fraud. How much money consumers regularly move is also on the behavioral spectrum, though maybe just outside our biometric topic. 

At the end of the day, many of these items may still seem foreign to us. But relying on a password and username is no longer enough. As our lives accelerated in the digital space over the course of the pandemic, it’s going to be hard to put that contactless experience back in the box, and biometrics is a key to keeping those experiences secure and safe for all of us. So whether you wink, nod, wave, or smile, expect biometrics to be part of your payment experience. 

More on security in The Swift Approach to Payments Security.

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Alacriti Blog

New Players, New Games

Most never expected that a service as ubiquitous as the taxi would be struggling against external competition. Now we know that ride-sharing apps and other unexpected competitors have appeared and compromised what was once a stable market. This story has played out across many industries, but payment services are of particular interest. Once upon a time, outside of handing over cash, the easiest legitimate way to share money would be via a financial institution. Now, options abound for consumers looking to transfer funds. 

Services like Zelle, Venmo, and CashApp have become the de facto standard for low-to-middle value peer-to-peer (P2P) payments. Actions like splitting bills have been made easier by the development of these applications. Furthermore, they’re seeing increased use as payment solutions for commerce, sidling up against other newer players like Square. All of these services have two key factors in common, powering their rapid growth—accessibility and speed.

Catalyzing these changes are the exciting new payments rails gaining momentum in the U.S. The Clearing House’s RTP® Network is one example in use since 2017. We also have FedNow, releasing in 2023. For FIs willing to capitalize, this is an incredible opportunity to offer transformative services. If an institution’s faster payment options are able to match the accessibility of mobile payments, then they are a no-brainer for those using digital payments for the first time. For the consumers already using a fintech competitor’s service, moving money between their wallet and primary bank account becomes seamless, instant, and often free. Furthermore, if they’re able to instantly transfer money from their primary account directly to any of their peers, they may consider switching over entirely. 

There is still debate over whether fintechs are direct competitors at all or rather parallel systems that improve upon financial services without replacing them. The answer differs based on the individual platform. Walmart, for example, currently offers transfers, check-cashing, as well as prepaid and credit cards, but could, in the near future, position itself as a bank of its own. With a banking charter from the FDIC, Walmart could be a serious competitor. Other services are toeing this line—Venmo now offers debit and credit cards, as well as access to cryptocurrencies. However, they rely on their partner—Bancorp Bank’s FDIC charter—in order to hold the funds that their users deposit. 

Cryptocurrency itself has the potential to change the competitive landscape drastically. Decentralized Finance, or DeFi, is touted by some as the future of banking services. The explicit goal is to create an entirely self-sustaining network of financial services, removing the middle-men and centralized infrastructure entirely and in turn rendering those services cheaper and more accessible, not to mention more democratic. The volatility of crypto, in general, is of concern to some, as well as the saturation of competing DeFi services within the crypto ecosystem. That being said, there is tremendous potential, not to mention marketability in having a financial service operated entirely by those who use it. As such, it is worth keeping an eye on the field if you aren’t already. 

All of these players could easily become a competitor, partner, or defunct in the years to come. The best way to stay ahead is to prioritize your digital transformation across hardware, software, and company culture. Offering ease-of-use and speed to compete with new competition is absolutely necessary and is a natural complement to the security provided by already having an FDIC charter. 

Read more about Payments Transformation in Digital Transformation: More Than Technology and More Important Than Ever.

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Alacriti Blog

Digital Transformation – Your Guidebook Has Arrived

In one way or another, the same question about digital transformation is asked in nearly every panel or presentation I am a part of. Where should I start? It’s a tricky question to answer, as every financial institution finds themselves somewhere different on their digital transformation journey. Looking at the journey in phases may help make a digital transformation more manageable and more focused to help bring customers and members better experiences faster, while minimizing the impact on the day-to-day realities of running a financial institution. So what are those three phases?

Phase 1 – Peripheral Innovations 

When you look at the journey, this is usually the easiest place to start. It’s about working on solutions that would sit next to your existing infrastructure and not require re-working solutions you already have in place. Peripheral innovations involve looking at a single use case or offering, whether that is a P2P product/solution or a new loan payment system. Starting with peripheral innovations at your institution is minimally invasive. As you may guess, they don’t require much more than a simple core API call or light batch-based integration. They may potentially call for an SSO or an embedded experience into your online banking solution, but minimal effort is needed in terms of internal employee training. It will require working with your end-users, but ultimately the new experience and or service will be net positive, and again depending on the use case, minimal in impact. Customer experience is really where this innovation area is focused. Peripheral innovation was once the world of the “garage” or “innovation lab.” Today, cloud-based solutions and platforms are readily accessible for financial institutions of all sizes. These scalable solutions require minimal investment and internal resources as you start your journey. 

Phase 2 – Existing Product Enhancements/Extensions and Co-Existence

In the next phase of the journey, we move into slightly higher impact areas. Switching vendors or solutions live in this realm. The impact levels in this phase are high because you are changing existing experiences and functional items within the FI. Looking at this through the digital transformation journey lens, this step is where you are really tackling your existing product set and trying to enhance/extend your current offerings, moving from an older generation of online banking to a new digital banking offering. This phase is where we really start to build the bridges from older solutions and infrastructure to migrating to volume-based use cases. This phase in the journey is the hardest one to tackle as you are directly impacting experiences. This was also traditionally the domain of “rip and replace”, which gave many in the industry anxiety over the past two to three decades. Similar to the peripheral innovation layer, cloud-based solutions enable financial institutions to maximize their existing investments without sacrificing their digital transformation journey goals. Cloud-solutions designed to scale on demand make running a coexistence strategy to safely and comfortably migrate volume possible.  

Phase 3 – Digitally Transformed 

The promised land…or at least the promised ecosystem. Once you have reached our third phase, you are running an infrastructure that supports open APIs and is driven by microservice-based architecture. The ability for you to quickly add new functionality is now possible due to the easily accessible nature of the microservices within the application layers you have deployed, all tied into a real-time core banking system. Adding new channels of engagement, whether it’s IoT or channels such as voice or augmented reality, your ability to extend services is no longer based on the inability of your infrastructure to support it. It is based on whether the market is ready for your innovative services. You now can be fully proactive, working with your customers to identify areas of need and innovation versus reacting to their needs you haven’t met.  

If you look at the journey holistically, the digitally transformed promised land may seem far-fetched, or at least something that is a decade away. In reality, there are steps your financial institution is likely already taking in phase one to make this reality closer than you think. So break your process down, look at use cases or business models that need help immediately and look for solution providers that have the platforms and tools available to help your institution take the right steps on your journey towards a digital transformation promised land. 

What does digital transformation mean to account holders? Read Payments Modernization: An Account Holder View. 

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments,  digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Alacriti Blog

Fintech Disruption: Creating Opportunities for Financial Institutions

Consumers demand more from their relationships with financial institutions than ever before. They expect these organizations to know them, understand their needs and wants, take a vested interest in their well-being, and provide choices that are personalized just for them.

In recent years, financial institutions have struggled with their ability to adapt to the expectations of today’s customers. Older technologies are being pushed to the max to compensate for the lack of ongoing investment. Add to this the increasing pressure from competitors and regulators, and these factors may leave financial institutions unwilling to explore advanced technologies, emerging payments, and/or open banking solutions.

Digital commerce and payments have been exploding exponentially for some time—and the need to accelerate digitalization has only been exacerbated by the global pandemic. Simultaneously, consumers’ expectations are heightening as they grow accustomed to hyper-personalized commerce experiences and the need for contactless service options. Leveraging the right technology at the right time can help financial institutions meet customers exactly where they are, delivering a better payment experience while encouraging long-term loyalty.

Conversational Touch Points

Consumers now exist in a digitized world as hyper-connected beings, craving technology and the choices it creates. 85 percent of Americans own a smartphone, and 15 percent of Americans use smartphones as their primary means of accessing the Internet. And the amount of screen time Americans spend on their mobile devices has been increasing steadily in recent years—to 5.4 hours daily on average, up from 3.33 hours just three years ago.

Consider, too, that Amazon’s Alexa, along with other virtual assistants, is a relatively new technology. In 2016, there were 130 skills for Alexa; in 2019, there were already over 100,000. And it’s expected that in 2021 the number of smart speaker users in the U.S. will grow by 13.7 percent to 83.1 million. Voice-activated payments are an important part of this skill set. It’s estimated that by 2022, 31% of all payments will be made via voice-response technology.

These statistics show that the way consumers make payments and interact with businesses is evolving at an expeditious rate. Voice-response and conversational commerce further the dimensions of choice and personal preference, elevating the overall level of satisfaction that consumers now expect. This high level of device ownership and mobile engagement presents a powerful opportunity for financial institutions to reframe the impression that “all banks are the same” by leveraging these channels to revolutionize the customer journey.

GAFA Disruption

The “Big Four” tech companies (Google, Apple, Facebook, and Amazon) are also disrupting payments and becoming a threat to traditional financial institutions. These companies drive loyalty by creating real connections to people and their daily lives, meeting their needs with seemingly limitless options. Their huge customer bases supply the data needed to study and understand what motivates consumers. Add to this the economies of scale they create through forward-thinking technology, customer engagement, and lower prices, and financial services are the next natural step in their journey. Done right, the Big Four could have an impact on traditional financial institutions by connecting a single customer’s personal experience to an integrated global payment and financial services ecosystem.

How to Turn the Tide

Start by answering, what has your financial institution done lately to invest in your customers’ expectations? If you’re only offering traditional payment options, are they enough? Are you invested in, or considering investments in, enhancements like digital channels, APIs, open banking, and artificial intelligence (AI) technology? Traditional financial institutions need to start thinking like fintechs, taking risks, and challenging the status quo. This can be done both internally and through partnerships with industry disruptors.

Making payments easier, faster, and with less friction is a key way to simplify the customer journey.  For example, faster payments are a ripe opportunity to get ahead of the curve. Faster payments coupled with real-time data are game-changers for both the customer experience and financial institutions seeking a competitive edge. Customers want instant gratification, so taking hours, or even days, to settle a payment is simply too long. With so much data and information available in seconds, there is no reason for the speed of payments to remain outdated.

Data and analytics are also at the heart of this transformation. By analyzing internal metrics of payments and customer interactions, financial institutions can gain better insight into customers’ likes/dislikes, wants, and needs. This data can extend to AI, machine learning, and other advanced analytical tools. Which can provide opportunities for greater personalization and channel optimization in the future.

The first step in this journey is to evaluate existing digital solutions to determine if upgrades are required. Viable fintech partners can help financial institutions transform legacy systems and create advantages including, scale, stability, and trust. They can also provide deep expertise in navigating compliance and regulatory requirements.

Now more than ever, a personalized customer experience is a MUST. Now is the time for financial institutions to move from a product-focus to a customer-focus by providing cutting-edge technology, building trust, and embracing the power of choice. 

For more on disruption, read the article, Turn and Face the Strange Changes in the Payments Industry. 

*This is an update on an original post published April 2019

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments,  digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences.  To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com. 

Alacriti Blog

Flourish or Flop: How to Follow Through on Your Payments Transformation

When it comes to the digital economy, the United States has been a holdout. Still, there was $895.7 billion worth of U.S. digital transactions in 2020. As most are aware by now, the pandemic accelerated that growth. Still, many institutions find themselves unsure of how to approach the fraught transition out of their legacy infrastructure. For the last few decades, they’ve relied on core processors capable of handling vast amounts of information at once. What they can’t do is process individual transactions, one at a time. They also rely on regular downtime to function properly. Another potential risk to maintaining legacy systems is missing out on the flexibility of the now-popular cloud solutions. AWS boasts a 31% average cost saving on infrastructure, as well as a 69% reduction in unplanned downtime. 

This is not to say cloud migration is a painless process. The banking core is the beating heart of a financial institution, and making any alteration is weighed carefully. The good news is once the transformation is complete, the inherent risks in altering a bank’s systems are cut significantly. Cloud computing allows banks to iterate on their systems and sandbox potential changes as well as keep redundant systems in place. The actual hardware that hosts these systems could be spread out over the country, drastically reducing catastrophic risk. Such services allow a bank to make a safe and steady migration from core banking to cloud computing, providing a unified service in the meantime, so no customer loses service.

Migrating away from an on-premises, batch-based core is a necessity for payments transformation, but other steps can ensure an organization’s success. One such example is going live with the RTP® Network. Real-time payment services are most financial institutions’ best shot at competing with the likes of Venmo and Paypal. We’re edging closer to a world in which payment services allow users to send money from one account to any other account. An “A2A payment” like this would allow users to pay their mortgage directly from a mobile wallet, for example. A student living with roommates could get everyone’s share of utilities and transfer that money to the utility provider in the same app without moving it between accounts manually.

Another consideration, perhaps the most crucial to the success of any transformative effort, is the cultural factor. How are the human beings that work at your company going to adjust to the new normal? It’s estimated that 7 in 10 digital transformation schemes ultimately fail. This is not for lack of financial investment, tech access, or even good system design. What it often comes down to is an assumption that employees will effortlessly adapt to the new normal. However, the post-transformation payments industry has different practices across the board. Great care must be taken to demonstrate that these new practices are not necessarily more difficult or more complex, just different. If you are partnering with a trustworthy software provider, then the well-designed systems provided should sell themselves. Your employees will see the benefits of digital transformation in the time and effort these new systems save.

While other industries in the U.S. have already benefited greatly from the transformation into a digital economy, the spotlight is on payments. Financial institutions are coming to grips with the new rules of competition, one of which is the role of fintech as both competitor and collaborator. If the progressions of digital payments in other countries are any indication, fintech and challenger banks could easily run away with the lion’s share of payments traffic in the coming decade. To ensure their place in the industry of tomorrow, small and mid-sized financial institutions need to compete with the solutions offered by their competitors.

Read more about Payments Transformation in Digital Transformation: More Than Technology and More Important Than Ever.

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.