Payments technology and the ability to facilitate real-time payments is top of mind for many financial institutions as the U.S. government’s real-time payments service FedNow is set to launch in July. 

Consumer adoption of digital payments proves that clients are ready for more advanced payments technology, and financial institutions are investing in tech to catch up with growing demand, according to LexisNexis Risk Solutions’ annual report.  

Here are the top payment trends for 2023, according to the report: 

1. Straight-through processing

Failed payments, which totaled $118.5 billion in 2020, led to lower straight-through processing and more work for banks, Cindy Printer, director of market planning for financial crime compliance and payments solutions at LexisNexis, told Bank Automation News.

Global payments revenue is expected to reach $2.9 trillion by 2030, according to the report, and banks need to be prepared for the surge in payments processing. In June 2022, 72% of the world had a real-time payments structure live or in the process of being developed, with more being launched as the FedNow launch gets nearer, according to LexisNexis. 

“I was surprised by what I consider to be a very low straight-through processing rate that was reported back by our respondents, which was 26%,” Printer said, adding that tasks that must be completed by humans contributes to a bank’s bottom line. 

Smaller financial institutions have become more cognizant of the need for real-time payments and solutions to help streamline this process, such as an API that can plug into an existing application to reduce costs associated with failed payments by verifying banking information before they are processed, Printer said. 

“I do believe awareness is heightened, which is an improvement from where we were at a few years ago,” she said. “We need to link that awareness to a realization that there are some accessible solutions out there for especially the smaller financial institutions that haven’‘t implemented any change yet.” 

2. Digital transformation

Banks with legacy core systems are working to update payments processes to meet demand for real-time payments, especially amid the looming launch of FedNow.  

However, upgrading legacy systems has proven to be a challenge, especially for larger financial institutions, Bob Kaufman, chief executive of payments company ConnexPay, told BAN, noting after spending 18 years at $591 billion U.S. Bank, he has seen the difficulty larger banks face in making changes to legacy systems. 

“The large banks, the pace at which they can make change to legacy systems with millions of customers on them processing transactions, they’re just really slow to adapt,” he said. “The pace that technology is moving at today, it’s really hard for them. It’s like driving the Titanic. A lot of their core systems are 20, 30, 40 years old and they’re doing their best to update them.” 

3. Fraud mitigation

Preventing fraud and money laundering continues to be a focus for banks, but a great deal  of fraud takes place within payments. 

In fact, LexisNexis reports that 38% of global fraud takes place in digital transactions or the distribution of funds, and financial crime compliance costs are expected to reach $274.1 billion in 2023, a 28% increase since 2020. 

Because of the high rate of return on fraudulent activities, cybercriminals are continuing to find new ways to swindle banks and customers, Printer said. 

“As banks continue to look at their processes, there are APIs on the market that will both verify the information in that payments message before it’s sent, verify it and enrich it,” she said. 

Cybersquatting is one example of fraudulent activity targeting consumers in the wake of Silicon Valley Bank and Credit Suisse’s failures as cybercriminals target vulnerable banking customers by using fake domains and screen scraping to access their victim’s accounts. 

4. Digital payments and CX

Banking customers are already heavily leaning into the use of digital payments. A LexisNexis survey of 2,913 consumers from May 2022 showed that: 

• 85% of all monthly bills are paid digitally; 
• 53% of consumers would switch to a service provider that offered improved billing; and 
• 47% of millennials would be willing to pay fees for a frictionless billing experience. 

For community financial institutions, the number of digital payments by customers may seem daunting, but the right fintech partnerships can help facilitate processing and improve overall customer experience, Kaufman said. 

“This whole customer experience is becoming more and more important, because I think we’ve seen a degradation of that over the past decade or so,” he said. “If [community banks] have their own technology because they bring it in house, or they partner with fintechs … I think the smaller community banks can certainly excel [in customer experience].” 

Several banks have worked to improve customer experience — through fintech partnerships such as $1.2 billion Listerhill Credit Union saw with CX platform Glia, and Data analytics software platform KlariVis working with community banks on product and service offerings to customers.