Payment Rail Innovations Help Businesses Embrace the Always-On Economy

When it comes to innovation in payments, there’s no more exciting time than right now.

Historically, the U.S. businesses heavily relied on checks, Automated Clearing House (ACH) and wires to make payments. However, this changed significantly in 2015 when the Federal Reserve issued a white paper on payment modernization, “Strategies for Improving the U.S. Payment System.”

“Since then, we’ve seen the emergence of many new rails, but also an accelerated adoption of these new rails,” Anu Somani, senior vice president and head of global payables and embedded payments at U.S. Bank Global Treasury Management, told PYMNTS for the series “What’s Next in Payments: The Current State of Innovation and What’s Next.”

“So much so that there is an entire new category of payments — instant payments,” Somani added.

She said she predicts three main trends driving much of the innovation across today’s payment landscape and building off of the modern payments infrastructure established eight years ago.

They are: an ongoing digital transformation of money movement, the corresponding consumerization of payments and an increased collaboration between network players, including banks and FinTechs.

Shaping Payment Innovations

Each trend highlighted by Somani reflects, in its own way, the demands of a modern, always-on economy.

Accelerated by the COVID-19 pandemic’s disruption of traditional paper-based processes, the digitization of payments has unlocked new opportunities and efficiencies for organizations of various sectors and sizes.

“Different organizations are at a different place in their journey,” Somani said, noting that adopting digital payments is a “non-trivial” transformation for many organizations.

“The simple name and address you use for a check isn’t going to do for a digital payment. Now, organizations need to think about what their vendors’ payment preferences are, whether they’re willing to accept digital payments over checks to begin with, and how to collect and securely store account and routing numbers,” she said. “It is a very nuanced and holistic transformation process.”

And as organizations move deeper into digitization, they often find that the consumerization of payments can pay dividends within a new generation of digital natives.

“We are used to getting what we want, when we want it,” Somani said. “Instant gratification is gaining a lot of importance, and that ties back to 24/7 availability for payments … there is a great discrepancy between what people are experiencing in their personal and professional lives [with convenience] and it is creating a strong demand for seamless, real-time payment experiences.”

Helping drive both digital transformation and the consumerization of payments is a growing collaboration between banks and software providers.

“Regarding the perpetual question of FinTechs versus banks, I think we’ve finally arrived at an answer: it’s a symbiotic relationship between the two that leads to the best outcome for clients, for banks, and for FinTechs,” she said.

She added that U.S. Bank has launched a Connected Partnership Network that aims to bring banks, FinTechs and clients closer together, streamlining the implementation of new payment technologies and creating seamless user experiences.

The Technology Driving Payment Innovations

The number one technological advancement supporting innovations in payments is the emergence of new payment rails.

“The core payment infrastructure has become more modern, but not just that, I think from an enabling technology perspective, APIs are starting to become more and more common … the consumerization of payments and the trends around 24/7 availability created the demand, but the supply side was fulfilled by enabling technologies like new payment rails and the role of APIs in facilitating transactions,” Somani explained.

“All of this, the demand and supply balance, has created a whole bunch of embedded payments. And these embedded payments are really focused on optimizing both the payer and the payee experience,” she said.

But while adoption of modern payment infrastructure is on the rise, several barriers and challenges need to be overcome.

“The transformation is not just turning a switch that’s off, on,” Somani said.

Successful digital transformation requires a holistic approach, addressing issues such as infrastructure upgrades and data security. Selecting the right partners, whether they are banks, FinTechs or technology vendors, is crucial in navigating these challenges.

Enabling Future Payment Innovations

U.S. Bank has been at the forefront of payment innovations, introducing instant payment solutions through RTP® Network, being an early bank adopter of the FedNow® Service and developing products like an intelligent router to simplify payment processes for businesses.

“When you go to FedEx, you don’t tell them ‘I want this package to go on a truck, then a plane, then another truck,’ you just tell them when you want the package to arrive, where, and how much you want to spend … that’s how it should be in the payments space, and as more and more payment rails emerge, clients are becoming agnostic about the routing — as they should be,” Somani said.

As for what the future holds, the U.S. Bank payments leader envisions “A world where payments are completely transparent,” she said. “Where they completely move to the background and you are so focused on the experience you don’t have to think about them at all.”

Somani also said she expects innovations from the consumer payment space to extend into the B2B world, enhancing cost optimization and automation.

“All the innovation that’s happening in the consumer space will move into the B2B world, as well,” she added.

Finally, deeper use of data to drive optimization and automation will also play a significant role in the future of payments, from fraud detection to supplier onboarding and reconciliation.