As the low-interest rates that enabled many payments products and services to flourish over the last decade end, it's time to look for new ways to expand revenue, according to four banking and payments experts speaking on a panel at Arizent's Payments Forum in San Diego this week.
Certain income streams will likely dry up as routine spending declines and businesses slash costs, but faster payments and innovations can also create new opportunities during this cycle.
"The present value of money is changing in a lower-interest-rate environment, and corporate clients especially can no longer be lax in how they manage cash," said Melissa Tuozzolo, GTS head of international payments for Bank of America.
Corporate treasury departments are putting a magnifying glass on cash-flow forecasting around the cost of goods, higher salary demands amid a "talent squeeze" and maximizing efficiency in business-to-business and business-to-consumer payments, she said.
Tools for moving payments faster and more transparently could be a boon for banks helping customers solve problems, with the Federal Reserve's FedNow real-time payments option poised to launch in the summer and more use cases expanding for The Clearing House's RTP rail, according to Tuozzolo.
"Banks can help with risk management through value-added [payments] services," she suggested, noting that BofA's business-to-consumer service called Recipient Select, launched two years ago, increasingly is in demand enabling end users to decide whether they want to be paid via ACH, RTP, Zelle, PayPal, card or wire in 140 countries, based on price and speed factors.
"Flexibility is becoming a competitive advantage by making it easier to pay, which makes it easier to attract talent," she said.
Banks and payments providers sitting on the sidelines without making a strategic plan to cope with the changing economy could get hurt, suggested Helen Herring, senior vice president, fintech and strategic partnerships at First Century Bank of Commerce, Georgia.
"Now is when you need nimbleness and the ability for your management and leadership team to be able to adjust for things that are changing quickly," Herring said. "Especially on the fintech side, it's important to project where you're seeing growth and revenue, and how that aligns with what's happening in the economy."
For example, programs that were generating revenue during the pandemic may no longer be relevant now that consumers' financial profiles are changing and many government disbursements are ending, she said.
"A credit-builder program that was going well two years ago might not function the same way now that we're going into a recession or a pseudo-recession, where people are more focused on putting food on the table than building credit," Herring said.
Companies that made early, deep investments in real-time payments could see those benefits play out soon, said Brandon Baines, vice president of tech enabled banking at Customers Bank, a West Reading, Pennsylvania, bank with $20.9 billion in assets.
"The increasing velocity from real-time payments has forced [some] companies to get ahead," Baines said, noting that those who have already factored in the risk, compliance burdens and costs associated with supporting real-time payments are well-positioned to weather any coming "storms" from rising interest rates and inflation, if it persists.
Despite a darkening outlook, Baines said he also expects payments innovation to continue during the economic downturn, backed by funding wherever it's warranted.
"The [venture capital] money is still out there, but VC's are being choosier now because money costs more. They're still looking for profitability from betting on winners," Baines said.
Not surprisingly, rising inflation is also increasing demand for earned wage access programs, which expanded over the last five years powered by new instant-payments technology delivered via apps, said Ram Palaniappan, CEO and founder of Palo Alto, California-based Earnin.
"People have the same amount of money but it's not going as far, so we're seeing higher demand for people accessing their wages earlier," Palaniappan said.
In fact, Earnin's data suggests that as inflation began to rise last year, workers who tapped Earnin earned more overall because getting cash earlier powered their ability to work more hours.
"With our app people can download the previous day's earnings to buy gas to get to work and take more shifts, so they were working maybe two or three more hours per week," he said.
Earned wage access can also help cut consumers' expenses by helping them to avoid fees from late bill payments, according to Palaniappan.
Overall, the payments industry's recent movement toward real-time payments and greater transparency around fees and pricing positions it well to survive higher interest rates and inflation, paired with strategic management, Tuozzolo concluded.
"We're going into a more difficult phase from an economic perspective, but we're at an advantage in some ways, when you look at the tools that the industry has developed over the last 10 years," she said.
