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ACH Network Executive Briefing

The shift of domestic and international low-value payments from traditional banks to fintech

As the world has been turned upside-down by the Covid-19 outbreak, the payment ecosystem has witnessed dynamic growth and rapid innovations. The ubiquity of smartphones and other connected devices catalysed consumer expectations for immediacy. It becomes imperative to reconcile the existing roadmaps and rationale existing runways to earn profitability.   

Historically, banks are considered to be the backbone of the payment transaction. However, the shift of domestic and international low-value payments from traditional banks to Fintech is noticeably witnessing leading to economic disruption. Consumers desire payment services that offer safety, ubiquity, security, convenience, and value for money, whether money is being transferred P2B (Person-to-business) upon request, invoice receipt, or Person-to-Person (P2P).   

ACH Network Executive Briefing

Even the local taxi driver, vegetable vendors, and pharmacists have started using electronic payments rather than old-aged paper checks. For about three decades now, the current regulatory Fintech and innovative ecosystem have opened up new avenues for businesses and customers. Gone are the days when people used to stand in the long queues, with easy and affordable access to technology at their fingertips. 

The outbreak of COVID-19 has increasingly disturbed the economy and change the demand of customers. Let’s say, economic uncertainty, novel social restrictions, the backdrop of an ongoing public health crisis, and delayed relief efforts increased the technology gap and shifted customer preferences and consumer behaviour. The fintech solutions emerged as critical tools to bridge our physical and virtual activities as people have become increasingly accustomed to digital access. 

Fintech companies work on the payment processes from comfort, unification, cheap transactional costs, and profitability. The traditional bank’s unique DNA can thrive and illuminate the new unnavigable path to financial recovery during these challenging times. Indeed, several developments have been taken into account to reshape the payment processes significantly and changed the entire landscape, especially helping traditional banks use the ACH network globally and domestically.  

In the second quarter of 2021, the ACH network showed robust growth processed approximately 7.3 billion payments, showing an increase of 24.6% from 2020. The B2B segment has been increased 28.7% to 1.3 billion payments enabling fully electronically business-to-business payments.   

Where FinTech is Disrupting Traditional Banking

Traditional banking systems are undergoing a technology-innovative transformation from being based in brick-and-mortar branches to technological environments that focus more on consumers’ needs and simplify their lives. Before this transformation actually began, the markets and banks had become intertwined following a massive proportion of intermediatory market-based activities.  

Banks started to face significant competition from increasingly digital services in their core businesses, such as payment and advisory services. This new change has been unveiling the fruitful consumption of automation technology and innovative information in financial services.  

A significant change is on the way because of the digital disruption in financial services, leaving incumbents with the obsolete legacy system and overextended branch networks. Nowadays, customers expect services in terms of transparency, speed, reliability, and user-friendly interface. The digital disruption offers the hidden opportunity for the traditional banks to enhance supply diversity, improve banking efficiency with innovation.  

To experience a more competitive and customer-centric system, banks should restructure simultaneously with the entry of new competitors. The traditional approach to workflow automation and application integration has resulted in a complex data processing environment over time.  

Retrospectively, data travels in random directions, making multiple hops going from one server to another to accomplish a rather small task in the workflow. The middle back office of traditional banks is defragmented leading to inefficient communication between back and front hand. However, the value-added from each service is found to be significantly small. 

Besides, there are services engaged simply to convert the data format with zero value addition to the processing needs. It decreases the data routing paths and increases batching (bulking), unlatching (debulking), regrouping, and netting. That’s where, a bank’s payment system needs to handle this spurt in volume and develop the capability to monitor and remain available throughout the clock. 

The modern and innovation solution can be leveraged to enhance the transaction account design and payment products; simultaneously, these benefits present certain risks in terms of digital exclusion, operational and cyber resilience, data protection and privacy, and market concentration. If these risks are not managed adequately, it could undermine the financial inclusion outcomes. Accordingly, banks should adopt innovative technology to harness the benefits of Fintech, but it is equally important to address the attendant risks. 

How domestic payment can be better and how NACHA can participate in international by taking help of ECS Fin.

ACH instructions with ECS will now offer many corporates and banks another option for flexibility in assigning specific payment details to desired delivery, driving predictable, accurate liquidity through automated collections runs and eliminating uncertainty on payments’ timing.  

Correspondent banks have always played a crucial role in being a hub between routing international payments and being responsible for due diligence. Now, the payments ecosystem is no longer confined to only correspondent banks; it has further evolved with various FinTech’s that have mushroomed over time with innovations in international payments by taking the role of correspondent banks. ECS Fin holds the pulse to gather   payment requests via ACH and settle via SWIFT or other international desired channels. 

Account information, data routing, and corporate remittance are crucial components to maintaining compliance and reduce risk factors while processing ACH payments. Assessing the accounts payable and the treasury settlement to know how payments are collected, processed, and ultimately transmitted delivers comprehensive data intelligence solutions to manage and control compliance and risk acquisition. 

ECS Fin solution helps traditional banks in reinventing the payment processing procedures without consuming several million dollars. Build Connect with any central bank and do batch process using NACHA, ISO 20022, or proprietary formats. Being able to access sea level of information through user-friendly applications and a handful of applications has truly changed the perspectives and habits of the customers. Our end-to-end processing modules help traditional banks to accelerate their digital transformation and strength technical capabilities. 

ECS Fin Integrated Technology Framework

As it is said, strategy is not a ‘one size fits all’; banks need to understand their current state of technology infrastructure, their business priorities, resource capacity, and capability, and accordingly develop the right strategy. 

It is crucial to have an integrated platform that offers and builds services around B2B transfers, P2P transfers, and fund transfers over the internet and mobile while manoeuvring through the myriad of internal and external systems. Banks and corporates focus on developing a holistic perspective across all payment types with insightful analytics. 

To provide such an integrated view requires a superior integrated technology framework. The ability of the bank to seamlessly transact across all payment types, formats, clearinghouses, and instruments across any channel is crucial for a robust integrated platform.