Episode 229 – What Glenbrook is Watching in Payments in 2024

Yvette Bohanan

January 3, 2024

POF Podcast

Glenbrook is kicking off the new year with a (lengthy) conversation on what payments industry trends and developments we think are the most interesting, compelling, and controversial at the moment, and what to watch as we move into 2024.

 

Yvette Bohanan:

Hello, I’m Yvette Bohanan, a partner at Glenbrook and your host for Payments On Fire. In this episode we’re sitting down with our Glenbrook partners to discuss what industry trends and developments are the most interesting, compelling and controversial as we look ahead into the new year. Joining me for this episode are Bryan Derman, Cici Northup, Chris Uriarte, Drew Edmond, Elizabeth McQuerry, and Russ Jones. Hello everyone, welcome. I’m just super excited I have all of you in one podcast recording. I think you’ve been literally all over the world in the last few weeks. So, Chris, welcome back from, where were you, Turkey?

Chris Uriarte:

Good to be back. I was in Turkey, I was in the Maldives.

Yvette Bohanan:

Oh my gosh. Oh my gosh. And Elizabeth, you’ve come back from…

Elizabeth McQuerry:

Kenya. Yeah.

Yvette Bohanan:

Kenya recently. So, welcome home. Cici, you’ve been…

Bryan Derman:

I was in Texas.

Yvette Bohanan:

Yeah. Which could be considered its own country by some standards.

Russ Jones:

You can see outside of the United States from there.

Yvette Bohanan:

That’s right. Oh my goodness. I think Russ and I were in the Bay Area. That’s the most exotic we’ve been for a while. All right. So, I’d like to begin by going around the table and hearing what each of you think is the most important development happening in payments in the industry at the moment. Who would like to start?

Drew Edmond:

Okay. I’m thinking about the impact of generative AI on fraud.

Yvette Bohanan:

On fraud. Okay.

Drew Edmond:

Fraud specifically, yeah. I think it’s going to be an interesting challenge that we continue to face. Fraud’s already hard and it’s just going to get harder.

Yvette Bohanan:

Yeah. So, are you thinking fraudsters are getting smarter by using GenAI, or people are getting smarter correcting fraud, or it’s just a new battlefront for everyone?

Drew Edmond:

I think of it simply as there’s so many email messages, text messages, things like that, that previously came through and you could just tell that something was off with the way that it was written, the language that they were using. Being able to use generative AI to construct those messages and A/B test them over time and automate that going forward will just make them a lot more effective when they do things like phishing attacks and things like that.

Yvette Bohanan:

Yeah. Are we seeing any evidence of businesses or consumers getting tricked more often or data around this? Or is it still new?

Chris Uriarte:

Yeah. I think we’re definitely seeing some indicators that phishing is still continuing to be on the rise and there’s a lot of speculation that generative AI is behind this as phishing attacks are getting a little bit smarter, a little bit more well executed let’s say. So, I think we’ll be hearing a lot about the use of generative AI, not just for good by folks on the payment side and the fraud detection side, but also as Drew is elaborating on, fraudsters are absolutely using the technology as well.

Yvette Bohanan:

Yeah.

Cici Northup:

I’d like to add, I think this is an area we’re paying a lot of attention to and we recently saw in a report by The Economist that right now 58% of organizations use AI for fraud detection, and 48% use it for risk detection. This is traditional AI. So, I imagine those organizations who are already using traditional AI capabilities are really actively looking into how do I use these new approaches of AI, GenAI, to expand my capabilities in fraud mitigation. So, I expect to see a lot of interest in this space in the next year.

Yvette Bohanan:

Yeah. It’s interesting because all of this relies on data. We always go back to that, that’s been a continuing theme for the last couple of years. And the companies that are cited as having AI in place already are pretty well positioned to move into the next gen and newer models and all the stuff that’s coming out. But the folks that aren’t and don’t have a handle on their data are really going to struggle here and be even more so on their back foot trying to keep up with what’s been going on. It’s increasingly a data game. That’s going to continue, I think.

Cici Northup:

And I think vendors are stepping in, realizing that not everyone has the in-house capabilities to do this themselves, and how can we as service providers support varying maturities of organizations to help them mitigate fraud using GenAI capabilities. And so, we’re seeing a lot of activity and exploration there.

Bryan Derman:

It’s an interesting point you raise. If it’s a data game then one of the questions to ask about fraud is, who’s going to have more data? The good guys or the bad guys?

Yvette Bohanan:

Right, exactly. And we know the bad guys have been collecting a lot of data since, I don’t know, mid 2000s.

Bryan Derman:

I wonder if that could give some increased impetus to data sharing on the good guy side of things. It’s a place where we’ve made some progress and maybe this will give people the incentive to do the right things. Share a little more.

Yvette Bohanan:

Yeah. There’s a level of collaboration here that would help everyone. I don’t think we’ve gotten there yet. So, kicking things off with fraud.

Russ Jones:

If we were doing a wrap up on 2023 wouldn’t we end the year on fraud?

Yvette Bohanan:

Yeah, we would.

Russ Jones:

Now we’re going to kick off 2024 right where we left off.

Yvette Bohanan:

Where we left off. I think Justin was talking about the last theme for the payments post was scams. And APP fraud and stuff. So, yeah, we’re right on point here.

Russ Jones:

As long as payment systems continue to do what they’re asked though, we’re all okay.

Cici Northup:

Yvette, can I use data sharing as an opportunity to talk about the theme that I’m really watching in 2024?

Yvette Bohanan:

Yeah.

Cici Northup:

Okay, great. There’s so much to pay attention to, but open banking is one thing that I’m following closely. And really the maturity of open banking and its transition to open finance. We’re seeing payments initiation and read capabilities as the entry point for open banking. And then we’re seeing more expansive uses of open banking where it translates to write capabilities and expands far beyond payments initiation from your deposit account into a wide variety of financial services capabilities, and even non-financial service capabilities.

And let’s just use the new CFPB proposed rule as an example here. Clearly it’s anchored in open banking, they support read transaction history and provide the basis for payments initiation. But it also interestingly says that covered data includes service attributes that are associated with an account. So, beyond the money that’s available in the account, things like rewards and credits. And it also has covered products that extend beyond the deposit account including Reg Z credit cards. So, this clearly to me sets a path for open finance.

Russ Jones:

It’s really astounding. I agree with you, Cici. The traditional world of open banking, and I hate to even say traditional here, it’s so radical in some ways, but radical for a couple of years only. It’s all about just harvesting, not harvesting, but looking at and analyzing transaction data to a large extent. And the CFPB is going beyond that into metadata about the products that consumers have with their banks. That’s really remarkable I think.

Yvette Bohanan:

I think that is the real differentiator in what’s been contemplated versus what they came out and said.

Russ Jones:

Yeah.

Yvette Bohanan:

And that really forces not only transparency but forces this idea of creating more competition is I think what they’re after here. Not just transparency.

Russ Jones:

Yeah. I think if this comes to fruition, and it’s still just proposed regulations, but it could be a real big win for consumers and how they think about different products and fintechs and their ability to offer product comparison services. And I can see why the CFPB is doing, because this is extraordinarily pro consumer.

Yvette Bohanan:

Yeah.

Russ Jones:

I didn’t mention I was a consumer, did I?

Elizabeth McQuerry:

If we look at one motivation that we see from regulators around the world, regardless of what type of payment system or policy objective they have, the one common aspiration here is competition, as Yvette just said. They’re constantly thinking about how to make these ecosystems more competitive or more open. And Cici and I were having a conversation in the last couple of weeks about how really open banking, open finance, is really just part of a continuum of these efforts. It may have started in some ways with what we traditionally call financial inclusion. Now it’s financial access, other aspects of competition, lowering cost, and that this is really just the arc. I’m not sure the arc has an end point. It is a continuation to try to make these systems more open to all. And frankly we haven’t gotten there yet.

Cici Northup:

Mm-hmm. And I would add, Elizabeth, I think another thing we realized, or surfaced, is that regulation is not enough here. It’s an enabler, but it on its own will not result in an open flourishing ecosystem. We really need to see the market actors to take this, run with it and bring it to life in a way that’s really meaningful for Russ Jones, the consumer of the group.

Yvette Bohanan:

The one and only.

Cici Northup:

The only one.

Russ Jones:

I’ll be the stand in for the consumer.

Cici Northup:

Yeah. Thanks for being our representative.

Russ Jones:

Yeah.

Chris Uriarte:

Well, I think those are great points and I think if you look at a lot of the global legislation that’s out there, if you look at what’s happening in Europe with the proposed third version now of PSD3, a portion of that is around improving the infrastructure that supports open banking, improving the legislation there. And they are not subtle in saying that a key driver there is around competition, it’s around leveling the playing field between banks and non-bank entities, and allowing non-bank entities to be a lot more competitive and also innovative. Innovation is also a big theme here if they are given a good open banking framework to work with. So, Europe gave it a try years ago, in the UK as well, in getting it started and they’re realizing that, yeah, there were some initial pitfalls I would say that they’ve encountered, but they’re looking to improve that.

Bryan Derman:

Chris, I couldn’t help but be struck by the contrast in regulation here. On the one hand you have the CFPB putting forward all of these pro-competitive things which, as you argue, are probably big positives for innovators like fintechs. On the other hand, there’s a group of bank regulators who’s really having a hard look at the relationship between fintechs and their sponsor banks. And we all know it’s getting tougher to maintain sponsor bank relationships. So, if you’re a fintech, on the one hand you have access to all this new wonderful data, on the other hand you may have trouble finding a bank partner who will help you act on it. We’ll have to see how all that washes out.

Chris Uriarte:

Yeah. That’s absolutely the case. And we’ve seen the tightening of regulations, some of it may be a little bit more overt. We’ve seen front page headlines, a lot of it may be happening quietly in conversations between banks and regulators over the past year, but we know that the regulators are clamping down on the fintech sponsor banking relationships. And as I think we predicted coming into this year, I would say the prediction hasn’t changed, we probably will see some more formal regulation around that area in the coming year for sure.

Cici Northup:

And just to add there, it’s so interesting to see the CFPB’s proposed rule on open banking and then also the CFBP’s role on increased compliance by non-bank providers. And so, competition for non-banks and also, non-banks, you’re going to be subject to some of the same compliance obligations that our traditional banks and credit unions are obligated to. So, we’re seeing this role of competition come to life in a variety of ways and how these regulations come together to shape the industry will be really fascinating.

Yvette Bohanan:

Well, it goes back to Elizabeth’s point about this is a continuum, it’s all on this continuum and where are you on this arc of developments? We haven’t said anything about fast payment systems yet, and we kicked the year off with a huge series on fast payments. What’s the outlook there, US and abroad?

Elizabeth McQuerry:

Well, certainly abroad it’s going gangbusters. And I don’t mean that necessarily in terms of every system being a slam dunk success in terms of volume. These are new payment systems, they take a while to put in place, but we’re seeing, talk about the continuum, the continuum of new systems which are going in place. We’re only maybe 60, 70, I forget the actual account now, but there’s more countries, more to come. Because this is our new payment system alongside the ones that we already have.

And of course, perhaps more along the way for everyone, if we have more central bank digital currencies along the way, that’s probably going to grow a little slower than fast payments. But it’s definitely something that we’re watching and it’s out there. But faster payments in the US, that kind of came with more of a whimper than a bang. Not to say that there’s not fundamental change underway, but it hasn’t expressed itself. And of course we don’t know exactly how it will all shape out, but I’ll make a bold prediction, Yvette.

Yvette Bohanan:

Okay, here we go. Here we go.

Elizabeth McQuerry:

2024 will be the year in which we see if fast payments is going to be a big thing in 2025.

Yvette Bohanan:

Okay.

Russ Jones:

Very bold.

Yvette Bohanan:

I like that. Go out on that limb.

Elizabeth McQuerry:

Yeah. But no, seriously, this is not going to be an overnight sensation here in the United States.

Yvette Bohanan:

Are there other places in the world that, we always talk now about Pix, we talk about UPI quite a bit because they are so notable, do you see other launches, other early stages that are in that noteworthy group that we should be keeping an eye on?

Elizabeth McQuerry:

Yeah. I don’t know that they’re all as new as FedNow, but maybe some of them are at the five year stage, like RTP here in the US. And what a great year RTP has had. Partnering with FedNow has been very positive for them. It’s gotten the market much more focused on having two systems in place. But there are a number of markets that have done very well. Thailand is one of them. We also see, when I read the news from Latin America, the things with fast payments coming out of Argentina, Bolivia, things are also beginning to happen in Peru now. There are success stories. We’re still really trying to figure out what success would look like in the US.

Yvette Bohanan:

Mm-hmm.

Cici Northup:

Yvette, can I add a few things too?

Yvette Bohanan:

Sure.

Cici Northup:

So, I agree with all those things. I think one of the under mentioned systems is Australia’s NPP. They’re doing some really interesting stuff and they’re really building, we see a general orientation towards thicker switches where more services are embedded into the system to expand the volume of use cases that are supported. And NPP is a great example of this with PayTo and their QR codes. So, they have a lot of capabilities they’re building and it’s worth paying attention to what they’re doing.

Elizabeth McQuerry:

Just something on NPP. That’s a great example, because honestly that was a little bit of a whimper from the start and now it’s really gaining steam. Not only with volumes but with overlays on it. And possibly the two are quite connected, but it’s a going proposition now.

Cici Northup:

Mm-hmm. And the other thing I was just going to add to agree with your major 2024 prediction, I think it’s going to be the year of onboarding. We always talk about the importance of ubiquity in order to scale a fast payment system. And we have such a unique context here in the US with the long tail financial institutions that we have. And so, I think I checked last week, there’s I think over 450 institutions connected to RTP. There’s over 330 connected to FedNow. I think I’m right on those numbers, but double check and it’s changing every day.

But of the 10,000 that we have, that’s just a drop in the bucket. There’s a lot of onboarding that needs to be done. And we’ve itched at this and realized that financial institutions need help here. They really don’t have the resources to consider and develop a fast payment strategy, they’re unclear as to how to approach the capabilities assessment that needs to be reviewed and put in place in order to bring fast payments live. Like what requirements does my core need to be able to do in order for this to succeed, what vendors need to supplement or compliment my core to bring this to life? So, there’s a lot of work to be done still to get this to gain traction in the US.

Yvette Bohanan:

That’s a good point. That’s a really good point. I’m going to pick up on what I’m hearing here a little bit and switch gears slightly. When you think about the landscape and you think about all the different stakeholders, first of all, if you look back, you could argue that 10 years ago we had the beginning of the era of the fintechs coming online and it was all about fintechs and payment service providers and the neobanks and that. If you think about all the different stakeholder groups out there right now, as we’re going into the new year, is this the year the regulators coming up, is this the year of the banks? Which stakeholder group are we in right now? Because the fintechs have hit a little bit of a, I don’t want to say they’ve hit the pause button, but it’s been muted with all of the macroeconomic stuff going on. Which stakeholder groups are making the biggest waves out there in payments?

Chris Uriarte:

I will say that regulation, we’ve mentioned that a few times now already and we really haven’t hit it head on regards to what’s happening at a macro level. There is an incredible amount of new or proposed regulation that’s going on right now in the US and globally. And if you look at regulation and really what do we mean by that? It’s rules maybe that are set by regulators themselves, but also we’re seeing some influences coming from legislation, we’re seeing influences coming from rulemaking bodies, sort of quasi-regulator bodies like the CFPB in the US who has rulemaking power. And now we’ve got things like the CCCA that’s pending in the legislature in the US, we’ve got the newly announced PSD3 in payment systems regulation in Europe. We’ve talked about the open banking regulation proposal by the CFPB. We have a recent announcement as well that major digital wallet providers are now going to be regulated.

We have some waves that are being made, and we talked about this at the beginning of this year for regulation in BNPL. We’ve had just the last couple of days several senators raising the issue with the CFPB saying that we need formal regulation in place. And we just talked about some of the potential regulation going on with fintechs and sponsor banks. All of these things, these pending regulations that I just talked about, didn’t exist at the beginning of this year. So, there is a lot of things that are happening on the legislation front, and it’s a good time to be an attorney in the regulation space in the payments world for sure. Because this is going to be a very, very interesting and difficult landscape to navigate I think in the coming year.

Yvette Bohanan:

I think banks, tech companies that are in payments, and merchants are going to have a lot to sort through.

Chris Uriarte:

Yeah, for sure.

Yvette Bohanan:

Those are the three most impacted.

Russ Jones:

I don’t want to quibble too much with Chris, but I don’t know if the businesses that are regulated by the CFPB kind of dismiss it because they’re just quasi-regulators. Not real regulators. Wait, watch out for the real regulators.

Chris Uriarte:

Well, it’s interesting, Russ, because there is sort of a big question that’s looming out there, particularly in the US with payments as to who is actually regulating payments? We’re seeing regulation that’s coming from Capitol Hill, we’re seeing the traditional bank regulators, we’re seeing CFPB, we’re seeing bodies like the FTC, the Federal Trade Commission, come in and setting a lot of rules for what should be going on in payments networks. And I think the answer is it seems like everybody’s your regulator these days in the payments world where if you-

Bryan Derman:

Congratulations you’ve arrived.

Yvette Bohanan:

Yeah, exactly.

Bryan Derman:

You’re so important you’re worth suing.

Russ Jones:

If you think of Alipay in China, they’re now delighted to be regulated by the Chinese government. They’re excited about the opportunity.

Elizabeth McQuerry:

Speaking of going out on limbs and making predictions and regulation, did you guys know that there’s an election next year in the United States?

Bryan Derman:

Yeah.

Elizabeth McQuerry:

Could have consequences for regulation, regulators and the regulated.

Yvette Bohanan:

It always does.

Bryan Derman:

On the legislative side I’ve been mildly obsessed with the CCCA, the Credit Card Competition Act, or sort of Durbin for credit if you like. And we don’t know if this will come to pass or not, but I do like to point out that it’s one of the only issues in Washington, D.C. that has some degree of bipartisan support. So, maybe that means it could come to pass, but I have some predictions about that one. And if we reflect back on the original Durbin amendment targeted at debit cards, I think looking back from 10 years of hindsight, you could roughly say the outcome there was not great for debit card issuers, the big banks who were covered by it, it obviously cost them some money. Probably slightly negative for consumers the way most of the studies come out, bank fees went up a bit. Not much evidence that savings got passed to consumers.

And it seems to have worked out just fine for card networks. They’ve been okay though. They were certainly not in favor of it, but looks like they weathered it. When I look at CCCA applying some of that logic to credit, not the caps on interchange, but the attempt to get network competition, my prediction there is probably, out on a limb here, probably okay for card issuers. I think they will find a way to protect their position. Probably not great for networks. And I would guess probably neutral for consumers as a result of that. So, almost the flip side of Durbin 1 where issuers lost, networks were okay. I think here issuers okay, networks probably under some pressure on their network fees as merchants assert their choice. Maybe slightly positive for merchants, if we go back to Durbin 1, significantly positive for a lot of merchants.

Russ Jones:

Bryan, I would say first off, it should be called a credit card unintended consequences act.

Yvette Bohanan:

You had another one, Russ. It was like credit card consumer confusion act or something like that too.

Russ Jones:

Right. In the card system things are enormously counterintuitive and regulations have a way of, not just regulations but legal rulings and court findings and all that type of stuff has an incredibly uncanny way to have unintended consequences. And it’s hard to predict what the unintended consequences here are, but I think when I read things online, rewards go away. I’ve seen people make cases for rewards, this could be a real boon for people looking for rewards. It is hard to say what the consequences will be. Which makes it so interesting because there’s a lot of different ways the balls can go when you break them up on the table.

Bryan Derman:

And it’s not inconceivable to me that interchange could end up higher.

Russ Jones:

Exactly.

Yvette Bohanan:

That has happened. That has happened in the past.

Russ Jones:

Exactly.

Yvette Bohanan:

And it’s definitely an unintended consequence.

Cici Northup:

I think one of the interesting things to me that we see parallels taking place here in the fast payment system development in the US and the effects of CCCA is that when someone goes to make a payment, if they don’t know what network and what rules this transaction is going through, how do you manage things like disputes and chargeback rules and refunds and irrevocability? It really becomes confusing for the consumer. And I think Bryan pointed this out in our Payments On Fire livestream about fast payments, this is a real opportunity for collaboration because it’s going to be very confusing to end users. And I think an interesting thing here is I would expect the same result if the CCCA was to go live as it relates to card transactions.

Bryan Derman:

Well, somehow that all got worked out in the ACH system. And that’s probably a model for others to think about where there’s multiple interoperable networks and yet outcomes are predictable to, I think, all stakeholders. But I’m not sure how many decades it took to get there on the other hand.

Yvette Bohanan:

Yeah. I was going to say that’s at least a decade in the making from where we stand today.

Drew Edmond:

We’ll cover that when we’re wrapping up 2033.

Yvette Bohanan:

Exactly. I’m going to springboard from this topic into just merchants in general, because we have a lot of folks who listen who are in the merchant community and business community here. What should they be keeping in mind with all of this stuff happening? They’re just trying to use the system. In the infamous words of Alan Weinberg. These folks are just trying to get paid and accept payment methods. So, what should be top of mind for the merchants?

Bryan Derman:

So, they are just trying to use the system, but the best of them are pretty savvy in the way they use the system. And in recent years we’ve clearly moved to a world where merchants use a lot of different payment systems and a lot of different providers to access those systems. And so, in line with that I think we’ve been hearing a lot more about what in some ways is an old topic of payment orchestration. Seems to come back every so often, and the more complexity you introduce by way of multiple networks, multiple channels, multiple processing partners, the greater the need seems to be to coordinate all of that. And companies are springing up with new and more interesting ways of helping merchants to coordinate all that traffic. How do I efficiently connect up to a lot of different networks and make sense of the results that come back from them in particular?

Drew Edmond:

Yeah. I think one piece on the orchestration side that is pretty nascent, but I think will start to grow next year and beyond, is thinking about orchestration for marketplaces and platforms. We’ve talked a lot about it, more through the lens of enterprise merchants that are selling directly to their consumers, collecting those funds. And those enterprise merchants historically may have built orchestration stacks internally in-house. Now there’s opportunities for growing mid-size enterprise companies to think about using an outsourced party to do that. Marketplaces and platforms haven’t really had the same opportunity to do so, and the reason for that is tied to their need to stay out of the flow of funds as it comes to the pay-ins and the pay-outs on whoever’s on those platforms.

So, now we’re starting to see businesses come up that are offering the ability to provide orchestration on the pay-ins, so you can still have a multiprocessor, multi PSP environment, but have that centralized settlement platform that allows them to stay out of the flow of funds, but be able to act as though they are an enterprise merchant and have those same benefits that enterprise merchants have around optionality, redundancy, negotiating leverage, et cetera, et cetera, to improve performance. So, I think that, that will be, as we know the platforms and marketplaces, that continues to grow as a major acquisition channel for smaller and medium-sized businesses. As those platforms become more mature and as they grow, they’re going to want to act as though they are enterprise merchants by taking advantage of these situations. So, I think that’s an area that I’m certainly watching very closely.

Russ Jones:

I’m with you Drew. I see the word orchestration every day used in a very aggressive way. It’s like the new type of peanut butter or something. Everyone who has a software solution that plays some role in payments is now-

Yvette Bohanan:

Orchestrating.

Russ Jones:

Yeah, they’re orchestrating what they’re doing. They used to just manage it.

Yvette Bohanan:

Now they orchestrate it.

Russ Jones:

Now they orchestrate it.

Drew Edmond:

You need a higher degree to orchestrate.

Bryan Derman:

That’s a great point.

Russ Jones:

Yeah. I’m not worried about fast payments in the US, because the orchestrators will figure that out.

Cici Northup:

And what’s next? Orchestration as a service, is that coming soon?

Bryan Derman:

That’s a great point. What exactly do you mean by it and watch this space. We’ll have some more to say about this early in the new year. Try to bring a little clarity to all the claims that Russ is being barraged by.

Russ Jones:

There’s a land grab in orchestration right now.

Yvette Bohanan:

What about buy now pay later, new payment methods? Are we beyond the buy now pay later craze? Are we onto orchestration?

Drew Edmond:

I think buy now pay later, it’s still moving up and to the right. I think if you look at the data around cyber week, the period between Thanksgiving and Cyber Monday, shoppers spent close to around a billion dollars using buy now pay later. Which is a pretty significant jump from the previous year. And year to date consumers are spending around $65 billion using buy now pay later.

Yvette Bohanan:

That’s just in the US, right?

Drew Edmond:

Just the US, yeah. And then the global market itself is, I think, growing from 309 billion in 2023 to 565 in 2026 by some estimates. So, from an outside perspective it looks like it’s just going to continue to really grow. And those are starting to become pretty big numbers. And I think if we wrap that back into the regulatory discussion, I think there are still some eyes looking at this in terms of consumer behavior, consumer health, is this the right thing for consumers to be using adjacent to their existing payment instruments and their existing consumer loans and things like that, can this spiral out of control more quickly than we can put regulations in place to keep consumers safe? So, I think it’s definitely popular, whether or not it’s good for everyone all the time is a different question.

Yvette Bohanan:

Mm-hmm.

Bryan Derman:

Too much of anything is usually bad for you, but it feels to me like it’s increasingly mainstream. It doesn’t apply to every product, but where it applies you usually find it. And somebody forgot to tell consumers that it was just a fad.

Yvette Bohanan:

Yeah.

Russ Jones:

It’s oftentimes useful to separate the investor, the fintech investor phenomena from the usage phenomena. And I think the usage phenomena is doing fine. I don’t know if I would want to start a buy now pay later company right now. And I don’t know if investors are interested in them right now, but boy, I think consumers are. And I think it is doing fine. It reminds me of the great internet bust, which was a real growth period for the internet. Once it was off the radar screen as a startup investment opportunity it was just a pure consumer phenomenon.

Drew Edmond:

That’s a great point. I don’t know if I’d want to manage consumer underwriting in a higher interest rate environment today, but like you said, consumers are using it more and more.

Russ Jones:

Yeah.

Yvette Bohanan:

I think this is really interesting because, I’m going back to Bryan’s bold prediction, and to some degree Elizabeth’s here, but Bryan’s bold prediction of the networks, if this competition act on credit cards in the US comes to being, the networks are going to have some headwinds around that. And then you look at buy now pay later and the volume that’s going to that. The networks are under pressure because they’re losing volume and attractiveness. And they’ve been doing some things to try to regain that. And then we haven’t talked about it yet, so I got to bring it up, network tokenization, the DOJ is after them on token pricing right now, right Russ?

Russ Jones:

It’s like you raise prices you get in trouble, you lower prices you get in trouble. Everybody’s suspicious of everybody’s motives.

Yvette Bohanan:

That’s true.

Russ Jones:

But yeah, tokens are one of the big themes and they have been for a couple of years. And I think the momentum is accelerating as we hear executives from all the major card networks and processors talking about adoption of tokenization. The numbers are just incredible. Visa talks about one out of four transactions on the Visa network being tokenized. That’s a mind-boggling adoption curve I think. And in some ways it’s not surprising because there’s benefits all across the ecosystem. It’s just good for issuers, it’s bad for fraudsters, it’s good for merchants, it’s good for consumers. It’s one of the rare success stories in payments that has a good value proposition for everyone who matters.

Yvette Bohanan:

Yeah. And just to bring this whole thing on merchants full circle, tokenization is a big area for orchestration and the value prop of orchestration it sounds.

Bryan Derman:

For sure.

Russ Jones:

Right.

Yvette Bohanan:

So, a lot on the merchant plates. We talked a little bit, Cici, you mentioned banks and readiness and playbooks around fast payment systems. What else should banks be thinking about right now?

Cici Northup:

I think there’s an opportunity to guide financial institutions here in a really efficient way to get them to a successful go live state. But I know the rest of the group has a lot of other things financial institutions should be paying attention to, so let me hand it off.

Elizabeth McQuerry:

Well, that’s an important point. A little bit of a segue here, but we look at the media and ask ourselves why isn’t faster payments moving more quickly in the United States? And of course not everyone wants to, or has a strategy to, but among the many who do the technology enabler community is not where you would’ve thought it would be with two new payment systems coming online in the last five years.

Not every provider is ready to help their existing or new customers with this. And if you want to move forward, that’s a huge frustration if maybe your particular provider isn’t there. And that’s one of the things we’ve been looking into, how to try to manage that for those who do want to move forward. But the downstream impact for all financial institutions is that it’s going to take longer for faster payments to become ubiquitous in the United States if people can’t move forward in a pretty expeditious manner. It’s a new payment system, it’s not like we’re going to another planet. We should be able to do this now.

Yvette Bohanan:

Mm-hmm. Okay. So, banks have a lot to think about. They’re under some economic pressure. They’re going to have to figure out where they’re spending their resources, complying with regulation. That’s always number one. They got a lot of new stuff to think about there. They have network routing issues and support for potentially credit cards similar to Durbin. They’ve got fast payment systems and they’ve got increasing pressure from more sophisticated fraudsters using generative AI. But other than that, things are just going swimmingly well for our financial institutions. Oh, and the smaller financial institutions that are supporting fintechs out there that have been booming, have new regulatory scrutiny on them too. So, not to be missed. Did I miss anything here? Okay.

Russ Jones:

Buy now pay later. Let’s just say it again.

Yvette Bohanan:

Yeah, there is that.

Chris Uriarte:

Payment fraud.

Yvette Bohanan:

Oh, man. So, what’s going to fix all of this of course is generative AI. So, the brave new world and frontier. Any final thoughts there? Anything you guys are watching on that emerging front before we wrap up?

Russ Jones:

I was being a little tongue in cheek with orchestration. I could just as easily have been tongue in cheek with generative AI. It’s like it’s the new hammer and everything is a nail. I think the transformative thing is going to happen in 2024, as payment professionals, we’re going to start to separate out where it adds value and where it’s marketing collateral. And that will be very interesting because there’s real potential there for it to add value. But a lot of different thoughts about it. It fits everywhere, it does everything. It’s a rug cleaner and a shampooer.

Cici Northup:

It almost reminds me of the discussions around cryptocurrencies five years ago.

Bryan Derman:

A lot of things come back to use cases and the systems are only as good as the data you feed them. So, what problem are you trying to solve and what data does it need to help you do that? Come back to Russ’s point, what’s the use case?

Russ Jones:

Right.

Cici Northup:

And that’s such a good point, Bryan, you reminded me of the stat that I referenced at the beginning of this, which is 58% of institutions use traditional AI for fraud detection. That means 42% do not. That’s a lot that still need help with just using the existing tools that we have available today that are tried and true. There’s a lot of work to be done and opportunity just within the context of solutions that are available now and applying them well, let alone looking at innovative, what’s new, what’s next and trying to figure out the best use case. So, I think there’s still a lot of progress to just be had using tried and true methods.

Yvette Bohanan:

Okay. Fast 30 second wrap up folks. Because this is like the easiest podcast I’ve ever recorded in my brief history of recording podcasts on Payments On Fire. I’m going to invite all of you back again because I can just sit here and let it roll. It’s like being on our internal Slack channel with everybody. This is fun. So, fast-forward here, round-robin, rapid fire, one stakeholder group to watch, the stakeholder group to watch in 2024. And you can repeat if you want from what someone else says. And the number one trend you think we should be watching in payments, not in general in life, in payments. And it doesn’t have to be US only. All right. Are you ready? I’m going to call each name. So, stakeholder group and big trend to watch in 2024. And I’ll start with Bryan.

Bryan Derman:

Okay, let’s see. Stakeholder group, I’ll go to a different place. I think a lot of us are going to say regulators and you can see their impact. I wonder if the stakeholder group to watch this year, this coming year, is the consumer. There’s a lot of choices for consumers, whether BNPL will succeed is a lot about the consumer, whether they use it, how they use it, how responsibly they use it. Open banking, when you peel back all the regs, it’s really about putting the consumer in control. This is your data, you ought to be able to access it when you want it and need it. You ought to be able to give it to people who you want to have it. And maybe take it back from people who you no longer want to have it.

It will be interesting to see. So much of the marketing that happens today is about monetizing our data. And I think if the consumer starts to feel empowered about where their data goes or doesn’t go, that could have some interesting consequences, intended or not, I’m not sure which. So, I’ll lump that in as my trend. Watch the consumer and watch what they do to assert control over their data.

Yvette Bohanan:

Okay. Consumer, open banking. Elizabeth.

Elizabeth McQuerry:

I’ll take a slight turn from what I’m expecting you’re expecting. I’m going to say not the regulator per se, but the policy maker. So, the stakeholder that sets the direction of regulation, where that’s going. And one of the big policy trends we are seeing globally is digital public infrastructure. What is that to payments? It’s not something that is, I think, going to take over the world in 2024, but it has a potential transformative aspect on our industry, both positive and negative. And obviously some of it could be quite good, certainly for consumers, but if you have a digital public infrastructure, how are you going to keep it competitive? That’s an underlying question that does not have an answer at the moment.

Yvette Bohanan:

Okay. That is something that I was not expecting. And maybe we need a new podcast for that one. Okay. Drew.

Drew Edmond:

Okay. I’m going to go with the networks, just to keep it interesting.

Yvette Bohanan:

Okay.

Russ Jones:

And you mean all networks, right?

Drew Edmond:

What’s that?

Russ Jones:

All networks.

Drew Edmond:

All the networks. Well, the card networks specifically is what I was thinking about just with, as we touched on a few of these points, the continued growth of buy now pay later, the continued growth of things like digital wallets globally, regulation like the CCCA. I think there’s a lot of pressures coming from a lot of different angles on the card networks right now that I’m very curious to see how they end up reacting to these pressures.

Yvette Bohanan:

Okay. Cici.

Cici Northup:

I think the stakeholder group to watch is Glenbrook Partners. No, I’m kidding. I couldn’t help myself. In all reality I have to go with networks and I have to add a new topic to the eleventh hour, which is all things cross-border. We’re seeing a lot of energy around transforming cross-border, a lot of remarks from policymakers about the importance of changing how cross-border comes to life and really around time, transparency, fees, et cetera. And we’re seeing a lot of energy and new activity related to cross-border. And so, I’m curious to see how card networks, fast payment networks, come to move forward in cross-border.

Yvette Bohanan:

Great one. Chris.

Chris Uriarte:

I’m going to hold firm on the regulators.

Yvette Bohanan:

Okay.

Chris Uriarte:

I think there’s so many things in play right now, so many unknowns that, I won’t rehash everything we’ve said, but it’s going to be an interesting landscape for sure. As far as things to keep in mind for next year, maybe it’s not number one, but there’s one thing that we didn’t speak about that I think everybody should be paying attention to, and that’s pay by bank and non card payments at checkout. There’s a lot of buzz about this right now. There’s a lot of interesting providers, new providers, newish providers that have been around providing services in this area. Some behemoth incumbents like Stripe for example, starting to play in this space. So, if you are a merchant or if you’re a card network, I would certainly be keeping an eye on this in 2024.

Yvette Bohanan:

And Russ.

Russ Jones:

Well, I’m intrigued by Bryan’s consumers focus. I’m going to stick with regulators. I don’t want to say they’re bad, they’re doing a lot of good things in the marketplace, but they’re right at the door. We’re not wondering if regulators are going to affect the industry in 2024, they are. And we know the path they’re going down. And a lot of the themes we’ve talked about here around creating greater competition in the marketplace, creating more consumer protection, those are great themes and I think a lot of regulators have those at their back, if you will. In terms of what I’m super intrigued by for 2024, something we haven’t even touched on, which is the role of identity and authenticity in the world of payments. And Chris and I are always talking about the rise of pass keys. If we could take the Glenbrook magic wand and do one thing in the global payments industry it would be get rid of username and passwords.

Yvette Bohanan:

Go passwordless.

Russ Jones:

That’s just the bane of everyone in the world. And I’m super intrigued by Amazon One and biometric authentication at the point of sale. God is that a convenient service.

Chris Uriarte:

Yeah. For sure. I think of it, and Russ, this is a topic maybe that’s worthy of a Payments On Fire podcast by itself early next year. We’re doing a lot of research into this space, into biometrics and alternative passwordless checkout technologies and things like that. And there is just some really cool stuff going on here.

Yvette Bohanan:

Duly noted, duly noted.

Cici Northup:

Yvette, I have to give you props because I don’t know if you recall this, but I think a year and change ago when we were revamping our own Glenbrook website and our checkout process, you insisted that we do passwordless login to make sure that we had the most secure approach. And I sort of shrugged, yet another requirement, but here we are today and I’m so glad you did.

Yvette Bohanan:

Yeah. I’m glad you helped me do that. Thank you. Trying to stay out there and use what we promote here is a good idea.

Russ Jones:

So, Yvette, we’re not going to give you a free ride. What do you think on stakeholders and trends? The one trend you’re watching.

Yvette Bohanan:

Well, golly. I think that the big stakeholder group to watch is the regulators. I have to go with that. And everyone else is going to be reacting to a lot of what’s going on there. But I think they are going to be at the tip of the spear of what others decide to do, or need to do, or are required to do. And we’re going to have to get some folks on and talk and go deeper in a lot of the regulation going on. PSD3 alone is a long discussion and there’s so much. In terms of what I think is really interesting to be watching, well, I don’t think anyone in the industry has thought hard enough about generative AI. And I think that’s the thing to really be thinking about, because if people are planning out their roadmaps right now, they need to understand if they’re future proofing their roadmap given the new technology and how fast it’s evolving.

So, those are the two I would go with. Regulators and generative AI. But who knows? But the main point here is we have our thoughts on record now so we can look back and see at the end of 2024 how we did and what curveballs came our way that we weren’t thinking about. Because there’s always curveballs in this industry no matter what. And it’s a big industry out there. So, thank you so much for joining me on this podcast. You made this role as host very, very easy with this conversation. It’s always fun to get together and chat. We don’t get to do it enough. We all get so busy. So, thank you everyone.

Bryan Derman:

Thank you. Good opportunity to say happy holidays to everybody, and to our clients, and workshop attendees, and podcast listeners.

Yvette Bohanan:

Yeah. And happy New Year. So, to all of you listening, welcome to 2024. Thanks for joining us, we appreciate the time you spend listening to the podcast. We hope this has piqued your interest in some trends and developments to watch in the new year. And until next time, keep up the good work. Bye for now.

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