Payment Hubs are one of those things that's both a concept and a technology. The technology is designed to centralize payment-related activity in order to normalize processes, data layers and business rules for example. You can download a good explanation of this from Fiserv here. As a concept, a payment hub operates by breaking down the traditional payment type silos in financial institutions in order to drive better financial outcomes for all parties by leveraging data across a customer's journey.
Payment hubs have been around for at least ten years now, but they have been far from an easy sell. Implementing this kind of technology takes a real organizational commitment since it's touchpoints are broad and deep. It's one of those changes that most people agree with, like eating better and getting more sleep, but takes a real commitment to execute against. After a few days at the NACHA Payments 2019 conference, I feel mildly optimistic that the U.S. market is finally entering a period of real investment in these technologies. Not on a broad scale yet, but next level institutions are making initial investments (meaning banks that are below the top ten) and payment hub developers have stronger case studies to talk about.
Why is that? I believe the market is ready for this kind of shift for two big reasons:
1. Not unlocking the value inherent in all this payment and account behavioral data will eventually doom any competitive institution to the back of the line. Consumers and commercial account owners today have high expectations of their financial services providers. They are looking for services that "get them" and have a positive impact on their bottom line. This is the demand that fintech companies directly address - offering customers a far better experience in accessing and using their own data. I'm not convinced that this is true when it comes to promotions and personalization, but let's admit everyone is trying to get there.
2. The opportunity for monetizing this kind of technology is present in the commercial account market. This is where banks can offer corporates broader access to deeper tranches of data via dashboards and reports. They can offer much better risk controls and help companies make better decisions on payment routing for example. All these features boost the value of the institution's services and tighten the relationship between a bank and its customers.
I also believe you can thank faster payments for a lot of this. For the first time in many years, our U.S. market is standing up new kinds of payment rails that have the potential for exciting new applications for banks and financial services companies. In addition, schemes like NACHA are making good headway with same day ACH adoption. I noted that a large majority of particpants at the conference this year are offering and receiving payments in some kind of same day environment. However, the danger in all this is that institutions will try to incorporate faster payments as another silo instead of seeing it as an accretive payment type to all their other payment types. If this happens, they'll be faced with the challenge of helping their customers make sense of this as a singular, ew opportunity. Instead, as many presenters noted throughout the conference, institutions need to be thinking of payment types as fit for purpose, in an environment where they co-exist, not compete.
These are the market dynamics that motivate banks to evaluate and invest in new technologies, like payment hubs, in order to enable more competitive solutions and accelerate speed-to-market of new payment types (like faster payments) once implemented. This in turn, is forcing financial institutions to take a long, hard look at their payments management environments and begin the process of restructuring their distributed payment franchises into centralized organizations. Once these strategic changes begin to take hold, instiutions will find it much easier to in turn, to help their customers understand how to fit this new payment type into their own workflows.
In follow-up posts, I'll consider how payment hub technology providers are responding to these new opportunities. In the meantime, let's just agree - it's happening.