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It's Time to Update Your Payments Strategy

Jack Henry Associate
Sep 18, 2023

We asked 118 bank and credit union CEOs if they plan to add any additional payment services over the next two years.

Of those 118 CEOs surveyed, 90% plan to add new payments services, with the FedNow® Service topping the list, followed by contactless cards. The Jack Henry™ 2023 Strategic Priorities Benchmark Study also reveals that 65% of financial institutions plan to include fintechs into their embedded payments strategy.

As banks and credit unions work to extend capital and credit to SMBs, it’s important to focus on removing complexity, integrating real-time options, and analyzing payments flows.

Payments Trends Today

Consumers returned to in-person shopping at physical stores in 2022, slowing e-commerce growth from 40%+ CAGR in 2020 to 10%+ CAGR in 2022.[1]

Meanwhile, debit cards surpassed credit cards as the most preferred payment card driven by double-digit growth in debit card usage among younger generations: Gen Z’s use of debit cards growing 26.8%, Millennials usage growing 18.4%, and Gen Xers growing 18.6%.[2]

Looking to avoid debt amid rising recession concerns?

Preference for debit cards, cash, and BNPL will continue to grow through the end of 2023.

More than 50% of all consumers have used BNPL, with 67% of those consumers believing BNPL will replace traditional credit cards. This comes at a time when net charge-offs and delinquencies are on the rise, as the inflation-fueled cost of living crisis continues to drive growing demand for cheaper, non-revolving forms of credit – especially among Gen Y and Gen Z.

Streamline Your Payments Experience

A continuing economic slowdown in 2023 will further slow payments growth and severely challenge the payments-based business models of direct-to-consumer fintechs and neobanks.

In fact, one out of every four payments fintechs is projected to fail by the end of 2023.[3]

As new payment rails come online, the payments space will continue to fragment and grow in complexity, as consumers and businesses wrangle with different user experiences, multiple settlement times, and varying payment limits.

The challenge will be streamlining your payments experience in ways that reduce complexity and allow your consumer and commercial accountholders to choose whom they want to pay – and how soon.

Your Payments Strategy is Your Deposit Strategy

With the recent launch of the FedNow Service, community and regional financial institutions have an opportunity to implement an alternative (or complementary) instant-payments capability to help streamline payments experiences, enhance their deposit strategy, and compete effectively.

At a minimum, banks and credit unions should elect to receive FedNow payments to bolster their deposit strategy.

As momentum builds for simpler, faster, and cheaper ways to pay, the challenge for financial institutions will be developing a payments strategy for the near- and long-term that keeps pace with innovation and evolving user expectations – especially around digital wallets.

Our study results show, driven by the prospect of new revenue and new sources of deposits, one-third of financial institutions are looking to embed payments capabilities into third-party brands and their customer experiences.

Historically, new payment rails inaugurate new eras of innovation built around new payments use cases and reimagined older use cases. Account-to-account transfers (A2A) will also gain traction as merchants and businesses look for cheaper, faster ways to get paid.

The Future of Payments

Given attractive interest rates on deposits, businesses will ironically use faster payments to slow down accounts payables – making payments at the very last minute to maximize returns on deposits.

While impending BNPL regulations by the CFPB provide a convenient excuse to remain disengaged, banks and credit unions risk further cannibalization of their card franchises if they continue to ignore the rising demand for BNPL.

Finally, collecting and analyzing payments data will play an important role in your payments strategy and strategic planning, as payments data can help you gather competitive intelligence, understand your accountholders’ patterns and preferences for marketing segmentation, and identify/prevent cross-channel fraud in real-time.

With the right technology in place, you can remove complexity, integrate real-time options, analyze your payments strategy, and compete effectively.

Learn how to establish or update your payments strategy with modern technology solutions.

Click here to contact a Jack Henry payments expert.

[1] Steve Cocheo. 5 Payment Trends to Watch in 2023, The Financial Brand, accessed August 24, 2023.

[2] 5 Payment Trends to Watch in 2023.

[3] In 2023, Payments Will once Again Be Top Of Mind For Fintechs, Forbes, accessed August 24, 2023.

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