We are halfway through 2024, and the year is already shaping up to be a pivotal one for innovation and advancement across both payments and commerce.
But don’t just take it from us — take it from the 18 industry experts PYMNTS sat down with for the “What’s Next In Payments: Halftime Report.”
While true seismic shifts in payments occur over the years, not months, the diverse and inspired conversations shared one overarching theme: there might be some headwinds swirling.
Those headwinds swirl around four key trends: embedded finance, digitization, compliance and technological upgrades.
After all, with many of the technological pieces now in place and growing demand for more efficient processes, the time — these experts say — has come for action and implementation around powerful notions of faster, more secure, and streamlined payments.
Embedded Finance is Transforming the Commerce Experience
Embedded finance, as a concept, has been around for a while — but not in the technologically savvy, user-friendly form it takes in today’s iteration. And it is the opportunities that embedded finance and payments represents today that had the experts PYMNTS sat down with most excited.
“Embedding [payments and financial products] across the value chain and within all of the experiences that a customer is going through in that commerce environment is incredibly important,” Jennifer Marriner, EVP, Global Acceptance Solutions at Mastercard, told PYMNTS.
“Banking, payments and the commerce experience is morphed together through embedding capabilities, it gives a chance for the retailer to create stickier relationships and a closer relationship with their customer,” she said, explaining that “the future of commerce is at the intersection of new technology and digitization.”
“We’re likely to see larger firms take up the embedded finance mantle, and smaller enterprises will follow suit,” Alan Koenigsberg, senior vice president and global head of large, middle market, industry verticals and working capital solutions at Visa, said to PYMNTS.
“We see merchants that are looking for ways to increase conversions,” Sunil Sachdev, senior vice president, head of Embedded Finance at Fiserv, explained, especially over the past year and a half of high inflation. “They don’t want to be financial institutions, and they don’t want to underwrite credit. But at the same time, they want to be able to help their customers buy more stuff.”
“We’re seeing the desire to offer the right financing product for the right purchase at the right time,” Sachdev explained about embedded solutions.
And that desire will translate into marketplace innovation and advancement.
“You’re going to see a flood of companies that look at how and where they can play, ubiquitously, across all devices. You’re going to see more wallets, and you’re going to see more tokens,” said Jim McCarthy, CEO of Thredd.
After all, as Ben Griefer, COO at Maverick Payments, told PYMNTS, “with the advancements of technology and the platforms businesses rely on to run their operations, they are looking to integrate financial products to give their customer base more value.”
There is a role for financial institutions and credit unions to play in this evolving landscape, too.
“We see a lot of opportunities for Durbin-exempt financial institutions to focus on certain aspects of a consumer need and focus on serving that really well,” Brian Scott, chief growth officer at Velera, said, emphasizing that embedded finance is shaping up to be a key offering for Durbin-exempt institutions to differentiate themselves and capture market share from larger competitors.
Jim Colassano, senior vice president, RTP, product development and strategy at The Clearing House, told PYMNTS that the next stop for embedded finance is B2B commerce.
Real-time payments and embedded finance, Colassano said, “eliminate barriers and support…businesses in the ways they need to be supported and not within the strict confines of a five-day work week … the immediacy, the settlement, the timing, the speed, all of these are meaningful today to businesses of every size, but particularly small businesses.”
The Growing Role of Application Programming Interfaces (APIs)
Executives stressed to PYMNTS that as technological advancement takes hold, with modernization initiatives being embraced as a strategic necessity driven by the need to meet the dynamic, emerging expectations of end-customers, the role of application programming interfaces (APIs) will become more widely known and appreciated.
“The benefit of APIs,” said Seth Perlman, global head of product at payment facilitator i2c, “is to break us free from that batch processing architecture that the banking and payment system was founded upon… APIs are absolutely the future for the financial services industry.”
APIs, Perlman said, “are a great tool to facilitate the consumer experience … if you’re developing, let’s say, a personal finance app” or a credit underwriting service. The API allows third parties to pull in information from disparate data sources to show personal finance info on consumers’ screens, while ensuring that the data flows are compliant with ever-changing regulations.
“Obviously, there’s a lot of work to be done on traditional financial institutions’ backends. Their systems need to be upgraded. They need to build these capabilities in, and that’s cost. So, there are challenges, but uptake is increasing exponentially,” Ram Sundaram, COO at TerraPay, said.
“Unifying data views starts with recognizing that banks and merchants are dealing with the same customer, but from different perspectives,” says Banyan Chief Commercial Officer Mike Minelli.
Reducing Paper by Scaling Digitization
Reducing paper in the payments environment represents one of the Holy Grails of payments innovation. And at its heart sits the technological upgrades necessary to evolve business workflows and payments processes at a system-level foundation.
As Dean M. Leavitt, founder and CEO of Boost Payment Solutions, told PYMNTS this shift is part of a broader trend in which technology is redefining traditional business processes, making them more efficient and transparent.
The trend toward digitalization in B2B payments, particularly around the adoption of solutions like virtual cards, is not just a passing phase but a fundamental shift in how businesses operate, Leavitt added. “You’re seeing more players — buyers and suppliers — adopt, understand and want to be involved with these commercial card transactions,” he said.
“B2B transactions have traditionally had a slower approval process, and B2B players have been slower to adopt new technology. But what we’re seeing with a shift to digital is that there is now more data, more controls, stronger authentication coming into that B2B space, all the while bringing down the cost and improving the risk models,” Jennifer Marriner, EVP, Global Acceptance Solutions at Mastercard, told PYMNTS. “We’re definitely seeing on the B2B side a realization that there’s a way they can streamline their business.”
As One Inc CEO Ian Drysdale told PYMNTS, this shift is not just about technology, but about survival in a changing market. “The survivors are going to be with that up-to-date culture and get away from the old.”
“We’re talking to insurers who…are saving $5, $10, $20 million a year because they’re not killing trees, sending out envelopes with checks that get lost or can be defrauded,” he added. “We’re seeing a real shift toward app-based, real-time, less paperwork, kind of embracing a future of immediate results and immediate benefit…and getting away from the olden days of waiting weeks and weeks and weeks for everything.”
And when it comes to B2B payments, the efficiencies to capture by embracing digitization are nearly unbounded and hugely advantageous.
“A lot of fraud is in the checks. If you cut out checks, you cut 60% of fraud right there,” Ernest Rolfson, founder and CEO of Finexio, told PYMNTS.
“It’s crude and manual … but to not send paper checks, you have to have great electronic options to make it easy to not send or receive paper checks,” Rolfson said, noting that Automated Clearing House (ACH) fraud is also a growing problem area as fraudsters get better at exploiting the outdated security features of ACH. “We are laser focused on destroying the check, eliminating fraud risk, and delivering more cards.”
“The interesting thing is there is always a lot of conversation as to whether instant payments will cannibalize other methods of payment — but in fact, it is digitizing cash in those economies and eliminating cash in many cases,” Debo Sen, head of payments at Citi Services, told PYMNTS.
Moving Compliance from Cost Center to Growth Engine
As the banking and payments ecosystem enters the second half of 2024, many executives report that we’re at a pivotal juncture—one that will require a steady hand on the wheel regarding the compliance function.
That’s because, as Jim McCarthy, CEO of Thredd, told PYMNTS, with 2024 giving way to 2025, “the thing to watch out for is the regulatory environment.” The payment networks, he said, are navigating the continuous debate over interchange rates and a scuttled settlement with merchants.
“Regulatory orders and regulatory scrutiny have taken a front seat in the industry,” Ingo Payments CEO Drew Edwards told PYMNTS. “Trust is what’s at stake here in this industry,” he said, underscoring the importance of reliable partnerships in navigating the regulatory landscape. “The cream rises to the top.”
What this means, is that compliance, historically viewed as a cost center, is now increasingly front and center as a way for business to unlock growth.
“In this compliant way, while having a good user experience … I’m going to have a better reputation, I will acquire more consumers and retain them too. And that brings value,” Dr. Adam Lowe, chief product and innovation officer at CompoSecure, told PYMNTS.
“It’s not about a penalty in the background anymore, it’s about ‘Do I get to do business tomorrow?’” Sovos CEO Kevin Akeroyd said, while noting that there are 19,000 taxing jurisdictions making thousands of changes, and many enterprises don’t have the resources to meet the new, 21st-century tax compliance challenges.
And, of course, innovation is a double-sided sword. As the world goes digital, a new security paradigm — and imperative — is emerging.
“Unfortunately, the amount of scams and the prevalence of them has continued to increase, as there are new tools available to scammers … to victimize vulnerable populations,” Dave Excell, founder of fraud prevention company Featurespace, said.
“It definitely continues to be around education because that’s often where scams start,” he added. “And then I think it’s around investing in additional tools and technology, especially as we’re moving to more real-time payments.”
“Scammers aren’t regulated,” Excell explained. “They don’t need to go through aspects of model governance that banks and financial institutions do from a regulatory perspective. So, we need to enable banks and payment companies to continue to innovate to keep us safe without having too much of the burden of some of the other potential regulatory hurdles that they may need to go through.”
