Payments Post #13: At the Intersection of Tech, Regs, and Business Partnership

Payments Views

May 7, 2024

By Justin Pituch & Cici Northup

Glenbrook is full of self-proclaimed “payments geeks.” We’re drawn to the industry because of its constant evolution, characterized by tensions between emerging innovations, shifting regulation, and novel commercial arrangements. This month Cici Northup joins regular contributor Justin Pituch to dive into some headlines that exemplify this dynamic in three specific areas: fast payments, fraud mitigation, and cross-border payments. If you’re not already a payments geek yourself, you might be by the end of this.

The dynamic nature of the payments space is often fuelled by the interplay of new technology and new regulation. Fast payment systems are a wonderful example of this, as private enterprises and government organizations both compete and collaborate to bring accelerated transaction processing to new markets. The U.S. provides a good example of this growth: The Clearing House’s RTP just announced that it set a new record in the first quarter of 2024, handling 76 million transactions worth $42 billion, and that “both transaction volume and value on the network are growing at an average of 15% per quarter.” Meanwhile, other fast payment systems around the world continue to add features and expand into new use cases.

But with growth comes fraud, requiring more mature fraud mitigation efforts. This month we saw two notable partnerships aimed at reducing fast payments-related fraud vectors, a very real problem that we’ve discussed in the past, particularly in relation to rising authorized push payment (APP) fraud and (you guessed it!) regulator responses. Global IT leader Cognizant and data analytics company FICO (yes that FICO, of the consumer credit risk scores) are pairing up to offer banks a solution that takes aim at APP fraud by providing “real-time fraud prevention with a seamless integration of the real-time payments rails.” APP fraud has attracted outsized regulatory attention in the UK, where Form3 and Feedzai are collaborating to combat risk in account-to-account payments. Against the backdrop of new UK regulations that require banks – on both the sending and receiving sides – to reimburse customers for APP fraud losses, the collaborative effort is timely, and shows how changing rules shape the commercial environment of payments.

Let’s pivot over to cross-border payments. Historically, this space has been slow-moving, perhaps due to the fact that change has (at least in the past) required coordination across many jurisdictions. However, the cross-border payments space may be speeding up, though, thanks to novel partnerships and new technology. Mastercard announced two partnerships to increase their efficacy and reach in cross-border use cases, including a new partnership with Equity Bank to better facilitate cross border transfers between Kenya and 30 other countries, as well as a partnership with Onafriq (previously MFSAfrica) to expand continental cross-border payments. If you’re curious about cross-border, keep your eyes on Africa and Asia–there is a lot of work underway. In Cameroon, for example, some of our Glenbrook colleagues facilitated a recent GIMAC convening where they helped identify opportunities for more inclusive cross-border payments. It’s exciting, timely, and impactful work.  

Cutting edge tech is helping improve cross-border payments, too. Cross-border transactions have long been considered a strong and likely candidate for the application of digital currencies (remember Libra?). We’ve seen this explored for many years, and this month came with a particularly interesting example, as PayPal’s PYUSD stablecoin became available for Xoom transfers. PYUSD dramatically lowers the cost of international transfers, with savings that are passed on to the end user. It’s sort of like the promise of the Libra coming to fruition. We hope that its impact is meaningful; fees on remittance payments have long been painful for workers sending money home to their families. On the B2B side, costly and opaque payment processes have proved difficult for international supplier payments as well.

To recap, we’re seeing positive news in the form of fast payments growth, new fraud mitigation strategies, and evolution in cross-border transfers. All reflect, to varying degrees, the unique dynamic in the payments industry created by the intersection of technology, regulation, and new business partnerships. That’s what makes the space so exciting to us. Whether you’re a technologist, a regulator, a business professional, or a curious onlooker, we’re here to talk payments.

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