The pandemic caused many sectors to temporarily be put on pause, but one that had to adapt to the circumstances without reprieve was the payments sector. Ensuring people were still able to make purchases and buy essential goods was of the utmost importance – but how else has the payments sector evolved?
We sat down with Dean Wallace, director of product management at ACI Worldwide, a payment systems company headquartered in Miami, Florida, primarily focused on developing a broad line of software focused on facilitating real-time electronic payments, to understand how the pandemic impacted the company and how it is facing current issues in the payments space.
What problem are you trying to solve?
Globally, both the quantity and quality of payment schemes, overlay services, payments modernisation and compliance are rising exponentially. So too are consumer and corporate expectations. At the same time, costs associated with processing transactions are also increasing, made worse by financial institutions’ (FIs) legacy systems’ overall complexities and inefficiencies.
Banks and intermediaries are all too aware of how the needs of modernisation and compliance pull resources (staff and money) into non-direct revenue generation activities and restrict their ability to strategise on or execute activities that drive customer attraction and retention. They know that if nothing is done, they run the real risk of succumbing to pressures from clearing and settlement rules, falling behind in launching new digital overlay scheme requirements into market and continuing to lose customers in droves to new or existing modernised players. As such, banks and intermediaries are clamouring to simplify and standardise their payments operations.
ACI Worldwide solves this problem by providing the mission-critical, real-time payments software banks and intermediaries need to remain competitive and open new revenue streams – thereby shrinking the gap between traditional and neo-banks. At ACI, we know purpose built real-time, digital and cloud capable solutions are not a nice-to-have. It’s a necessity. Whether on premise or as a managed service.
From digital transformation to fighting financial fraud, our secure and scalable software solutions solve a number of issues facing banks, corporations, financial disrupters and merchants. We enable our customers to process and manage digital payments, power omni-channel payments, present and process bill payments, and manage fraud and risk using powerful incremental machine learning models.
Are there any recent successes you’d like to highlight?
At the height of the pandemic, we announced a major partnership with Mastercard to deliver a one-stop-shop for digital, real-time payments solutions and services for financial institutions around the world. Our combined experience, reach and market implementation ensures we can help central banks across the globe solve the difficult questions they are facing with regards to implementing real-time payments; not least because digital payments have grown exponentially as consumer behaviour changed irrevocably, moving from cash to digital payments.
In November 2021, again with Mastercard, we collaborated with Cámara de Compensación Electrónica (CCE) to modernise Peru’s real-time payments infrastructure which allows for the processing of 24/7 real-time payments using the ISO 20022 standard as a managed service. The partnership has successfully started to implement best-in-class central infrastructure, payments localisation and access solutions to the Central Bank, scheme operators, financial institutions, payment service providers and other organisations launching real-time payments initiatives. This will enable the development of new overlay digital infrastructure, giving rise to new use cases that benefit Peru’s citizens and businesses and ensure they can access payments immediately.
Another big success for us has been supporting banks and financial institutions around the world move to the cloud. In February 2022, New Zealand bank Kiwibank chose ACI’s solutions to take the next step in delivering real-time experiences for its customers. We now provide and run their full capability Payment Hub: a SaaS solution hosted in the Microsoft Azure cloud. The flexibility of our cloud-native payment solution ensures any service Kiwibank requires is available on a secure cloud-based platform. This means they can adapt to changes and develop the right modernisation strategies at pace, while launching new digital overlay services into market that retain and win customers, defend their core revenue streams and create new ones.
What challenges have you faced over the last few years and how have you overcome them?
Pre-pandemic, as a business we used to travel constantly, meeting customers, prospects, regulators and industry bodies around the world to learn, engage and discuss the future of the industry. I spent around 30 per cent of my time on the road. This was pretty full-on, but it did mean that when the global lockdowns came in, we were already set up to be a remote-based organisation. We were prepared, and to an extent used to being productive, despite not seeing each other in the office. However, with no travelling, the time we all spent online working went through the roof. It was a real challenge for me personally to put boundaries in around logging off at the end of the day.
Our main challenge has been supporting our customers through their challenges. We saw many banks slow their operations down while they adjusted to the enforced remote working environments, which in turn required them to ramp up their digital strategy execution.
We also had a new CEO start just before the pandemic. Odilon has streamlined the business and made us much nimbler as a result. We’ve come out as a stronger, buzzing business and our company image and culture has changed significantly, for the better, as a result.
What are the current trends in the payments industry?
We’ve seen 10 years’ worth of digital real-time evolution change the world in ‘just’ two years. With millions of people in lockdowns around the world, consumer and business behaviour changed irrevocably from how we live and work, shop and pay. The pandemic led to a massive boom in global e-commerce sales, an accelerated adoption of digital payments and, as such, an increase in digital transaction volumes.
Today, more than half of consumers globally (52.7 per cent) use mobile wallets to pay for goods. However, as behaviour changes, so does fraud – mobile wallet hacking is on the rise, up from 6.2 per cent in 2020 to 7.3 per cent in 2021. We now expect real-time in every aspect of our lives; from how we interact with friends and family or collaborate with colleagues, to how we buy anything from groceries to houses.
We will see financial institutions and intermediaries continue to increase their pace to provide this real-time experience and meet growing customer expectations. Real-time payments are the next evolution of digital – consumers and businesses now expect to make and receive real-time payments far more safely and at minimal cost, financially as well as with their time and perceived level of effort. They also expect to get something back when they change a habit, in essence a reason to do something. Demand is increasing and is ever more demanding at the same time.
These far-reaching benefits that can be delivered through real-time payments won’t be fully realised unless new overlay infrastructure is built on top of real-time rails and the use of it becomes ubiquitous. Request to Pay (RtP) is one such example that has revolutionised the way Indian consumers shop, pay and handle their financial affairs. India’s Unified Payments Interface (UPI) allows direct transfers to merchants from several bank accounts via a single mobile application. While India remains the benchmark for what’s possible when it comes to the adoption of new digital overlay services enabled by robust real-time payments infrastructure, the big trend we will see in 2022 and beyond is further RtP solutions taking off around the world – Europe has big ambitions to catch-up with India.
2022 also marked the fourth anniversary of open banking in the UK – four years since PSD2 became a regulatory requirement in Europe. We could see PSD3 brought to the consultation table in the coming months. And while it’s undeniable we’ll see open banking become more ubiquitous, the real debate is around how we bridge the gap between open banking today, and the potential of open finance in the future.
How are payments aiding in digital transformation?
We have become a society of payment geeks. Our lives are digital-first. We now expect real-time across every aspect from how we interact with friends and family on social media or collaborate with colleagues over Teams or Zoom, to how we buy anything from groceries to houses.
But in a digital-first world, offering real-time payments is about more than enabling new ways to pay. It’s about embedding payments within experiences to enhance customer journeys, improve their convenience and increase their value. As such, we are seeing digital transformation and innovation accelerate – thanks in part to banks, intermediaries and merchants understanding the need to embed digital banking services within other online activities such as e-commerce to retain and win new business.
This fundamental behavioural shift will outlast the global pandemic, so banks and merchants know they must adapt their business models to meet new consumer expectations for digital real-time experiences in a world reshaped by the pandemic.
What do you predict will be the future for payments?
The future of payments is frictionless. We will see new overlay infrastructure and solutions built on top of real-time rails – such as Amazon Go – that remove friction and provide real value to consumers and businesses. The far-reaching benefits of real-time payments will only truly be realised when this new layer of modernisation is built and use of it becomes ubiquitous.
While the likes of India have become the benchmark for ‘what good looks like’ when it comes to overlay infrastructure, Europe could catch up quickly. EBA Clearing launched its own Request to Pay (RtP) scheme in November 2020. And the European Payments Initiative (EPI), an ambitious project by European banks and politicians to advance the European payments landscape – launched by 31 European banks and credit institutions, and two third-party acquirers – is slated to go live in 2022. It’s expected EPI will leverage ambitious RtP and digital wallet capabilities to run on real-time rails. Ultimately, this could provide European consumers and businesses with frictionless, value-add experiences that revolutionises the way they shop, pay and handle their financial affairs.
Payments are peoples’ livelihoods – if salaries don’t come in on time, groceries can’t be bought and mortgage payments can’t be made. We will see a consolidation of financial technology over the coming years. There has to be a more level playing field with regards to consumer and businesses’ experience with financial technology. We are heading in the right direction – incumbent institutions now offer the vast majority of services new neo-banks provide to the market. We will see a general acceptance of ‘this is how it’s done, this is what customers expect’ across the board when it comes to payments.