Tracking a fast-expanding universe: 2022 Payments Dive outlook

As the COVID-19 pandemic has cut a deadly path across the globe, killing too many people in countries far and wide, it unexpectedly set off a revolution in digital payments to cope with its impact.

In 2022, the demand for contactless, online, digital, frictionless and speedier payments will only increase as the pandemic continues to drive innovation in the industry. That means upstart fintechs, such as digital payments company Stripe and buy now-pay later provider Affirm, will keep offering new ways to make payments as they suck up billions in investor dollars aimed at creating faster, easier and cheaper worldwide payment tools.

From offering services to migrant workers desperate to send wages home to giving retailers new ways to provide installment financing to arming businesses with new cybersecurity tools, the field of payments will keep growing in 2022.

Consumers have been the target of many new payment services as they flooded online markets, but businesses are an even bigger bulls-eye for payments purveyors building new markets. 

As new entrants tout their services and products, they're driving more competition and partnerships with major incumbents like card giant Visa and digital payments pioneer PayPal. The most adventurous among them are wading into cryptocurrencies and other digital asset services.

These dynamics are at the core of trends below that will keep the payments industry ablaze in 2022, with government regulators and lawmakers trying to keep the fire under control.

Prepare for battle

A spat between Amazon and Visa over merchant transaction fees is bringing a long-simmering dispute to a boil, and could spill over into more fights between card issuers and their retail partners. 

The National Retail Federation (NRF) estimates swipe fees have skyrocketed from $20 billion a year in 2001, when the trade group began tracking them, to $110.3 billion as of 2020, and show no signs of slowing.

“The issue has been exacerbated by the increase in online shopping during the Covid-19 pandemic because virtually all e-commerce purchases are paid for with credit or debit cards,” the NRF has said. “Swipe fees are higher for online purchases than in-store purchases, and most buy online, pick up in-store and curbside delivery purchases are subject to online rates as well.”

As part of the spat, Amazon announced in November that it would no longer honor United Kingdom-issued Visa credit cards come Jan. 19. The e-commerce giant also is reportedly considering dropping its card co-branding deal with Visa and replacing it with rival Mastercard.

Wall Street analysts described Amazon’s move as a negotiating tactic. Indeed, Visa Chief Financial Officer Vasant Prabhu told Reuters in November that the company expects to resolve its differences with Amazon.

Of course, that’s easier said than done.

Amid the rise in e-commerce, there will be more disputes between payment networks and retailers “as both look to adapt to the new digital marketplace,” said Marwan Forzley, CEO of digital payments provider Veem. “On a larger scale, organizations and credit card networks will need to address this trend in the coming months,” he said in a statement.

It’s not just Visa that is dependent on swipe fee income, its rivals Mastercard, American Express and Discover Financial also rely on the interchange fees. According to the Nilson Report, total U.S. swipe fees jumped 70% over the past decade to $110.3 billion in 2020, from $64.6 billion in 2010.

Mushrooming BNPL will add B2B in 2022

Spurring the fee wars are challengers providing new payment tools. Buy now-pay later installment financing is one of them that hooked consumers last year and is expected to gain widespread adoption in 2022.

Amid growing interest in BNPL, which allows consumers to spread out payments over a defined period of time, the space has gotten crowded. BNPL players such as Affirm, Klarna, Afterpay and Sezzle are competing with digial payments behemoth PayPal, card giants and large and mid-tier banks.

BNPL has benefited from massive e-commerce growth during the Covid-19 pandemic. Menda Sims, chief payments officer at digital payments provider Stax, expects current inflation levels could nudge even more consumers toward the installments route.

“To me, I think the big headline is, it’s not just with the small minority," said Nilesh Vaidya, global industry head of retail banking and wealth management for Capgemini Financial Services. "It’s getting more and more mainstream."

BNPL transactions are projected to reach $995 billion by 2026, according to a Forrester report, and installments startups say they gain tens of thousands of new customers weekly.

“What I would expect really going into 2022 is an acceleration of adoption,” said Experian Senior Vice President David Bernard. “Double-digit adoption on the consumer side, and on the merchant side.”

Once BNPL providers establish a relationship with consumers, Vaidya expects they’ll delve deeper into financial services and broaden their services, offering loans, brokerage accounts or crypto. Affirm, Afterpay and Klarna have already introduced new products like debit and rewards programs.

The financing approach may also being to win over businesses. It’s exploded on the consumer side, but “we’ve hardly scratched the surface when it comes to businesses,” Bernard said.

That shift from consumers to commercial contracts could have major implications for other industry players, “because it’s a bigger chunk of money that will move away from the card networks into the loans,” Vaidya said.

Still, BNPL practices may also face more regulatory scrutiny as consumers fall behind on payments. Mizuho Americas analysts point to delinquencies and charge-offs rising across BNPL operators, and the frequency of consumers missing payments or borrowing through multiple apps.

Mobile wallets bulge with services

BNPL tools are one of the many apps bulging in the increasingly ubiquitous mobile wallets packed in Americans’ purses and pockets. Using their phones for payments is likely to become a bigger part of daily habits in 2022.

The deadly COVID-19 pandemic enticed consumers to try contactless apps, and now they’re spurring others on. Watching someone in the morning coffee line pay with a phone makes others want to get on board with the latest tech. 

Mega payments processor Fiserv documented the growing U.S. affinity for mobile wallets. In an August survey of 3,000 U.S. adults, 68% had used a digital wallet in the past year, compared to 58% in 2020 and only about half in 2019, the company said.

The U.S. has lagged other parts of the world when it comes to adoption of mobile wallets, and it’s becoming a bigger opportunity cost as companies like PayPal and Square pack more finance functions into their “super apps.”

Gr4vy CEO John Lunn predicted 2022 will be the year that mobile wallets “rise to prominence,” he said by email. The shift will be driven by merchants moving away from card “swipe” fees and younger consumers opting for alternatives, said Lunn, whose San Mateo, California company provides cloud-based payment services for businesses.

“It’s generational,” said Daniela Hawkins, a consultant in the field at the firm Capco. Municipalities and businesses will drive changes in consumer behavior with payment possibilities they offer, Hawkins said, citing city transit systems and the retailer Walmart experimenting with new approaches.

As the pandemic arrived in March 2020, Walmart announced a contactless payment option in which customers could pay for goods using a Walmart payment app on their phones to scan a QR code at checkout.

Increasingly, merchants and organizations will consider data they can collect from payment tools as valuable, said Tappit CEO Jason Thomas, whose company aids pro sports teams in collecting fan information. “The organizations are realizing for the first time that they don’t want to give the data away,” he said.

Cross-border payments climb

In a completely different arena, demand to send money across borders is on the rise, despite a hiccup in 2020, and companies that make it easier and cheaper to do so are benefiting.  

Most such remittances are used by migrant workers to cover the essential needs of loved ones back home. In a November survey by money transfer company Moneygram International, 81% of respondents said they plan to send at least as much money in 2022 as they did in 2021. And 83% said their family and friends’ needs increased in 2021–as they also did the year before.

Sending money from one country to another through banks can be a costly and lengthy process, as checks and money orders are processed and currencies are exchanged. While incumbents in the money transfer business, like Moneygram, are expanding services, upstart providers such as Wise, formerly TransferWise, market themselves as speedier, digital-based alternatives. 

The money sent across borders provides support for food needs, healthcare and housing, especially as people continue to grapple with the coronavirus pandemic. 

"The pandemic helped accelerate a major digital shift in 2020, and that momentum has clearly continued throughout this year," Moneygram Chief Executive Alex Holmes said in a press release. “In the coming year, you will see us go deeper and wider in our direct-to-consumer digital offerings." 

About 200 million workers send such payments, and about one in nine people globally may be supported by them, Visa said in a December report, citing data from the United Nations.  

While the pandemic reduced cross-border transfers generally last year because of lower employment in wealthy countries and due to stay-at-home orders, new lower-cost digital transfer services are taking a bigger share of the business, Visa said.

“Even as overall remittances declined in 2020, digital remittances grew strongly and are offering important benefits to those able to take advantage of them,” Visa said. 

CBDCs take center stage

When it comes to digital assets, 2022 will likely be the year that talk of a U.S. central bank digital currency overtakes crypto banter.

Cryptocurrencies from Bitcoin to Dogecoin are only slowly gaining much traction as a form of payment, even as crypto’s worldwide value soared this year to $2 trillion. 

“It is really hard for anybody to see cryptocurrency actually becoming a fiat currency that is accepted as a medium of exchange,” American Express CEO Steve Squeri said at a December webcast event. “You cannot have a value of something on a Friday, when you get your paycheck, be $48,000, and then on Monday, it’s worth $36,000, and then Tuesday, it’s worth $60,000. I don’t know how people can live like that.”

More consequential to Americans is the potential need for a central bank digital currency, or “digital dollar” stablecoin.

There are nine countries that have launched a CBDC, and another 30 are in the process of developing one, according to the Atlantic Council, plus 40 are researching the possibility, including the U.S.

The U.S. Federal Reserve is overdue on delivering a “white paper” report regarding a CBDC, but it’s still mulling the idea. The Federal Reserve Bank of New York announced this month that it’s partnering with the Bank of International Settlements to create a research center that will explore such innovations. 

“There will be (a U.S.) centralized bank digital currency. Why? It actually becomes a national security issue,” Squeri said at the event. “China is really moving very, very quickly from a centralized digital currency, and they’d like nothing better [than] to have everything traded in the Chinese RMB. Right? I mean that’s the big one.”

While cryptocurrencies can be dismissed as volatile assets beholden to celebrity tweets, the blockchain technology that undergirds digital assets and delivers value on a fast, shared international ledger is less easily cast aside.

“The technology is extraordinarily useful,” said James Angel, an associate professor at Georgetown University’s McDonough School of Business, also a former member of the Fed’s Faster Payment Task Force. “It can be transferred person-to-person, 24-7 around the world.” Such digital stablecoins are much more useful than some funny coin someone created that’s being traded like “crypto beanie babies,” he said.

Urgent role for cybersecurity

While consumers have become more comfortable than ever making payments online, fraudsters have geared up to exploit their growing complacency.

That's why 2022 will be the year that cybersecurity companies usher in more advanced technologies designed to stop digital criminals.

The rise of e-commerce, the growth of non-cash payments and a jump in cyber threats will keep fueling a heightened focus on cybersecurity in payments, according to a Capgemini 2022 payments trends report.

Payment scams and fraud have plagued businesses as mobile payments have become more popular, and federal officials have warned of ransomware risks.

Fraud is expected to cost the debit and credit card industry more than $400 billion in losses over the next decade, according to industry research firm Nilson Report, which cites chargebacks as a growing problem.

Meanwhile, cryptocurrencies are also attracting cybercriminals’ attention as the value of digital assets balloons.

Overall, cybersecurity damages could climb to $10.5 trillion by 2025, according to an Argus Research report.

To tackle the issue, regulators and financial institutions are turning to artificial intelligence and machine learning, data analytics, cloud technology, Capgemini said. Strengthening government regulations on cybersecurity and digital identity is also in the offing. 

The private sector is on top of the problem too. Nearly two-thirds of businesses plan to boost their fraud detection budget, consumer credit bureau Experian said in a fall report. 

Behavioral biometrics, like tracking consumers’ swiping, typing or phone-holding patterns, will be embraced in 2022, said Experian's Bernard. He also expects more use of artificial intelligence to throw up hurdles, like authentication prompts, if something is amiss, he said. 

“It’s an arms race,” said Bernard, whose Experian purview is strategy, marketing and digital. “You need several layers, because there’s not a single tool or single data set to combat fraud.”

Frictionless experiences are crucial, unless there’s a risk of fraud, he noted during an interview. Security is a top priority for consumers, credit bureau Experian’s recent Global Insights report revealed.

Validating consumer identity with digital IDs also could be pivotal for payment security, said Capgemini's Vaidya.“It could change the game on how the transactions are processed and the information is shared, and, hence, how it is safely managed,” he said.

Regulators zero in on payments

Heading into 2022, creating safety in the payments sphere means no shortage of regulatory challenges from the Consumer Financial Protection Bureau (CFPB), and it’s being egged on by Congress.

In October, CFPB Director Rohit Chopra demanded Google, Apple, Facebook, Amazon, Block (formerly Square) and PayPal provide the agency with detailed information about their payments practices, saying “little is known publicly about how Big Tech companies will exploit their payments platforms.”

The agency is acting as banks and consumer groups complain that emerging fintechs have an unfair advantage because they aren’t subject to the same regulations, such as securing confidential consumer information from hackers.

The bureau’s data request is the start of this story, said Isaac Boltansky, director of policy research at the New York-based investment bank BTIG. “My sense is that the next mile marker will be the release of an aggregated report with takeaways from the data,” he said by email. 

The CFPB’s investigation will influence its rulemaking efforts, specifically with respect to consumer access to information about the financial services provided, he added. “This rulemaking, which is expected to progress next year, is vitally important in the context of data portability and open banking,” Boltansky said.

In December, a group of U.S. senators urged the CFPB to take action on buy now-pay later (BNPL) services, and the agency complied, issuing a separate demand for information from five of the biggest BNPL providers. In a Dec. 15 letter to the agency, the Democratic senators said BNPL services “have the potential to cause consumer harm,” and lack consumer protections that credit cards offer.

On another front, the burgeoning earned wage access industry could face speed bumps too. EWA providers include a slew of fintechs providing workers with early access to their pay. A consumer advocate coalition in October urged the CFPB to reconsider 2020 actions that smoothed the way for some industry’s services and fees.

It’s not just the fintechs that are in regulators’ sights. The Visa-Mastercard duopoly has been under increasing scrutiny too. Indeed, Visa is grappling with two federal investigations, by the Federal Trade Commission and the Justice Department, that could have broader implications for the industry.

Long before Rohit Chopra began riling up the payments industry and Republicans, the 39-year-old native of New Jersey was shaking up student government at Harvard University.

Lessons learned in those undergraduate years are serving him well now in his new role as President Joe Biden's choice to lead the Consumer Financial Protection Bureau.

Chopra was elected president of the Harvard Undergraduate Council (HUC) in 2002, beating his opponent in what the Harvard Crimson described then as a "hard-fought campaign" fueled by a record turnout.

The following year, the student newspaper quoted Chopra saying he was "fighting" for the interests of his fellow students, with "no advantage to being a pushover." Indeed, Chopra and then Harvard College Dean Harry R. Lewis would regularly yell at one another in heated arguments. Lewis, for his part, holds no ill will toward Chopra.

"There is a certain amount of built-in tension between college deans and student body presidents, but my relationship with Rohit was always honest, respectful, and professional," Lewis said in a recent email when asked about his past relationship with Chopra. "He was a mature leader even then."

For his part, Chopra told the Harvard Crimson that Lewis was a "worthy adversary."

Now, as director of the CFPB, Chopra remains as combative as ever. Just months after his confirmation in September, he has ordered two high-profile investigations into the payments industry, taking on tech titans Google, Apple and Amazon in a new examination of their payment products and separately demanding information from major buy now-pay later players, including PayPal, Affirm and Block's Afterpay. He's also reviewing policies related to earned wage access and increased financial institution data sharing.

Chopra is positioning himself to have significant influence in setting policy on a wide range of payments fronts as the financial services industry is caught up in a fast-changing environment. Industry executives and consumer advocate activists alike are tracking his statements closely to understand how his agency's moves may affect their interests. 

At the CFPB from its start

Chopra first got a taste of the public spotlight when he helped a then little-known Harvard Law School Professor named Elizabeth Warren establish the Consumer Financial Protection Bureau (CFPB) in 2010.

Warren, now a U.S. senator and former Democratic presidential candidate, adopted Chopra as a protege in a battle to create the agency and the two remain close allies, according to media reports.

"Rohit hasn't wasted any time in getting to work," said Warren, a Massachusetts Democrat, in a statement. "Under his leadership, the CFPB is returning to its core mission of protecting Americans from big banks and financial institutions."

Chopra joined the CFPB in 2010 after the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act created the agency. He was an assistant director and in 2011 was named the agency’s student loan ombudsman, overseeing the agency’s crackdown on abusive debt collection practices by loan servicers. 

Under Chopra's leadership, the CFPB uncovered widespread mistreatment of borrowers and found more than seven million in default on their debt. In a 2013 speech to the Federal Reserve Bank of St. Louis, Chopra noted that outstanding student loan debt had doubled since 2007. He worked with then-President Barack Obama to establish the Student Aid Bill of Rights that stresses the right of Americans to an affordable college education.

After leaving government service in 2015, Chopra worked for a variety of non-profits and political organizations between 2016 and 2018 on a part-time basis, including the Consumer Federation of America, the Roosevelt Institution, the Ford Foundation, the Colorado attorney general's office, and Hillary Clinton's presidential campaign, according to a 2018 financial disclosure form.

Chopra returned to government work in 2018 when he was appointed by former President Donald Trump as a member of the Federal Trade Commission, which is split between Democrats and Republicans.

While at the FTC, Chopra lobbied hard against the agency’s use of no-money, no-fault settlements in fraud cases and "led efforts to revitalize dormant authorities, such as those to protect the Made in USA label and to promote competition," according to Chopra's official CFPB biography.

Chopra draws pushback

In digging into the payments business practices of big tech companies, Chopra has asked Google, Apple, Facebook, Amazon, Square and PayPal for information on their operations. Not surprisingly, the CFPB is getting pushback from their trade group defenders in Washington, along with buy now, pay later services. 

Critics of Chopra have noted the CFPB could have asked big tech and buy now-pay later businesses to provide the information the agency is seeking on a voluntary basis, but chose not to. That's an approach Joel Griffith, a research fellow at the conservative think tank The Heritage Foundation, called "heavy-handed."  

The investigations "go after businesses for operations that aren't necessarily in violation of the law," Griffith said, stifling innovation "even if these investigations ultimately find nothing amiss."

Still, the Electronic Transactions Association (ETA), which represents the tech and BNPL companies, has said companies will cooperate with the CFPB's investigations. "He brings more passion to the position than the average regulator," Scott Talbott, an ETA spokesman, said in an interview, adding that his statement was meant as a compliment.

Chopra also tangled with banks, credit cards, and other lenders over what he calls "junk fees" consumers are forced to pay. 

According to the CFPB, businesses are "increasingly charging inflated and back-end fees" to consumers which "distorts our free market system by concealing the true price of products from the competitive process." Among the fees in the agency's crosshairs are the $14 billion credit card companies collect annually in late fees and the more than $15 billion in revenue banks collect from non-sufficient funds and overdrafts. Those estimates were as of 2019.  

"He knows all the pressure that Senator Warren and Rich Cordray (the CFPB’s first director) were under back in the beginning days of the CFPB," said Ed Mierzwinski, senior director of the Federal Consumer Program at the U.S. Public Interest Research Group. "The CFPB is still under tremendous pressure from banking interests," he said in an interview.

Chopra critics aren't holding back

His approach hasn't been well-received by some in Washington. Chopra has been in hot water with Republicans and their allies on Capitol Hill over what they consider his aggressive style and lack of respect for regulatory norms. And some of them are still smarting over the CFPB even being created. Not a single Republican in the Senate voted for confirmation of his nomination.

While Chopra's hard-charging style may have its detractors, he's getting their attention.

"He is interested in big ideas and taking novel approaches and doing things that other financial regulators have not really done in the past such as holding individuals accountable, and to demand fines that are not merely slaps on the wrist," Allen Denson, a partner with law firm Stroock & Stroock & Lavan in Washington, D.C., said in an interview. "In a pretty short time, he has already made his mark on the bureau and I think that that's only going to become more apparent, as it gets longer into his term," said Denson, who represents fintech and payment processors, among others.

Chopra has also stoked Republican hostility in his service on the board of the Federal Deposit Insurance Corp. Last year, he presented FDIC Chair Jelena McWilliams with a request for information (RFI) about bank mergers. After McWilliams told Chopra that such requests would need to be reviewed by the FDIC staff, Chopra issued the RFI through the CFPB, a move that outraged conservatives such as Sen. Pat Toomey (R-PA), the ranking member on the Senate Banking Committee. McWilliams is resigning this week.

"Notwithstanding the damage inflicted to his own reputation, Rohit Chopra’s hostile takeover of an independent government agency has done lasting damage to the longstanding idea that financial regulators should be insulated from partisan politics," Toomey said in a statement to Payments Dive. "The fact that the Biden administration stood idly by during Chopra’s lawless overreach speaks volumes about their disinterest in preserving institutional norms and it foreshadows dark days ahead for other multi-member financial regulatory bodies."

Weighing in when he's ready

Chopra didn't respond to repeated requests for comment left with the CFPB's Office of Public Affairs. He and the agency have also been reticent on some policy questions, like the implementation of a provision under the Dodd-Frank Act that could force financial institutions to share more data with upstart fintech rivals.

Nonetheless, the CFPB is clearly tracking key policy conversations and weighing in when needed. For instance, when the New Jersey legislature was advancing a bill that would have given more leeway to earned-wage access providers in that state, despite protests from consumer advocates, the CFPB shot off a letter making clear it's forging a federal position on the issue.

Chopra worked hard to become a savvy political operator at Harvard, said Matt Mahan, who served with Chopra on the Harvard Undergraduate Council and succeeded him as president. The aspiring policymaker honed skills then that are likely to serve him well as a government regulator, Mahan pointed out during an interview.

"I did not come across anyone else in student government who was as interested in the policy nuances as Rohit," said Mahan, now a former tech executive turned San Jose, California city council member vying to become mayor. "(He) was good at figuring out who all the different stakeholders were, understanding what they needed and wanted and was generally quite adept at bringing those people together to find a viable path forward to get something done."

For all of the payments innovation that’s occurred on the consumer side, advancements within the business-to-business payments space have been far slower to arrive.

Enter the COVID-19 pandemic. Certain pain points have persisted for years, but recognition of how to address them "dramatically increased during the pandemic," said Steve Murphy, director of consulting firm Mercator Advisory Group’s commercial and enterprise payments advisory service.

The pandemic "created this fast-forward motion," forcing greater reliance on technology when businesses found themselves without access to their mail during lockdowns, or workforces became distributed, said Erika Baumann, director of commercial banking and payments at research firm Aite-Novarica Group.

What’s become expected in business-to-consumer payments has driven changes in B2B payments. The biggest focus is speed, Baumann said. Businesses crave faster payments – through payment innovations like RTP, the real-time payment system offered by the bank-owned Clearing House, and the federal government's yet-to-be-launched FedNow system, she said. Faster data is key too, she noted.

"We have become programmed, as individuals and consumers, to know that payments can happen faster and more efficiently, and so now we desire that in the business world as well," Baumann said.

How payments will change post-COVID

Companies may look beyond ACH (Automated Clearing House) payments, wire transfers and checks to consider newer alternatives like digital wallets or cryptocurrencies.

"The five-year plan of digitizing your business became six months," said Bar Geron, cofounder and CEO of Balance, an international B2B firm that aims to simplify and scale payment processing. His business operates from offices in San Francisco and Tel Aviv.

Automation is another area of B2B payments technology expected to take off this year.

Estimates of the worldwide B2B market opportunity stretch to $200 trillion in payments volume, according to Balance. Investment bank Goldman Sachs forecast it could reach that lofty level by 2028.

Major players like Stripe, BillPay and Square as well as up-and-coming competitors, such as Veem, Melio and Paymerang, are seeking to digitize that B2B payments traffic.

Many B2B payments are still made by check and the broader landscape is "stuck in technology from 20, 30, 40 years ago, in a lot of ways," said Danny Martucci, president of Atlanta-based Corpay One, a digital bill pay platform for small businesses.

Banks have automated and digitized some of their services, Martucci noted, but there’s also a new crop of software solutions offering all-in-one platforms that can unify and automate a number of different payment functions. "That’s kind of the new frontier here," he said. 

Accounts payable, receivable 

On both the send and receive side of business payments, "it all comes down to automation," Baumann said, because it’s more cost-efficient and less prone to error.

On the accounts payable side, the market is moving more toward intelligence payables, Baumann said, meaning a business would have a single file with information for all payments, and the financial institution or payments provider handling routing would assess when and through what forms those payments need to be made.

That ability is highly appealing to businesses but not yet widely available, she said, adding that she expects the B2B space will see "a rash of these solutions in 2022" from banks and fintech providers.

On the receivable side, businesses face the headache of sifting through incoming payments and information related to them – which can arrive via email, mail or even fax – and inputting data. An integrated receivables solution takes all payments that have come in, automatically pulls invoices and matches them. That automation is crucial, Baumann said.

"Reconciliation should be automated completely," Balance's Geron said. "How can you scale accounts receivable when everything is so manual?" The future will revolve around the "ability to automatically reconcile, and to manage payment terms in a better way."

Large companies, rather than looking at point solutions for AP or AR, are considering, "How do I connect everything and make it more efficient end-to-end?" Mercator's Murphy said. The more they can digitize processes, the more information is at their disposal for better payment decisions. 

More are adopting application programming interfaces, enabling visibility across all of their financial operations, Murphy added, and using tools like supply chain finance marketplaces, where funders can use a single platform and bid on receivables or invoice financing.

Improving cross-border payments

Cross-border payments, which have long been extensive and lacking in transparency, are another pain point for businesses, Murphy said.

Swift's enhanced gpi service as well as blockchain networks like Ripple are trying to reduce friction and increase efficiency in cross-border payments by using technology that makes the transactions "feel more like domestic payments," Baumann explained. That means removing the unknown settlement time, removing the unknown fees and mimicking the domestic payments experience.

Tools that are integrated into payments systems have better visibility with regard to data and can guide decisions, which "is a really important" advantage, Baumann said.

Corpay One currently offers a basic cross-border payment, but Martucci noted there’s not a lot of information about the exchange rate or whether the receiving bank has gotten the funds. "It’s kind of like, you throw it over the fence," he said, knocking the reliability of the service.

Corpay, owned by Atlanta payment cards and services company FleetCor Technologies, is integrating capabilities of its 2017 Cambridge Global Payments acquisition to enable more robust foreign exchange payments and solve for some of those reliability issues.

As companies digitize and automate, one of the biggest benefits, relative to older manual processes, is the ability to filter the data and use it for more accurate forecasting. Many elements of legacy processes lack visibility, Martucci said, and the shift to these modern payment platforms provides businesses with valuable data and insights.

U.S. payments and fintech executives have witnessed how open banking regulations in Europe unleashed sharing of data for third-party companies and consumers. Now, many are eager to see more of that in the U.S.

We interviewed three CEOs with experience across the global payments spectrum to understand their views of what open banking looks like in the U.S. and whether U.S. policymakers and regulators should take action to push it beyond market-driven moves, such as bilateral agreements between companies. 

A new approach to the concept is being egged on by the Biden Administration, which in July encouraged the Consumer Financial Protection Bureau to implement a provision (1033) of the Dodd-Frank Wall Street Reform and Consumer Protection Act that would advance the kind of data sharing envisioned by open banking. Specifically, Biden's executive order suggested Dodd-Frank could "facilitate the portability of consumer financial transaction data so consumers can more easily switch financial institutions and use new, innovative financial products."

As the industry heads into 2022, we asked three CEOs for their views on the state of open banking and related regulation in the U.S. Here are insights from: Charlie Youakim, CEO of buy now-pay later firm Sezzle, a Minneapolis company that landed a $30 million investment from Discover Financial Services last year; Steven Smith, cofounder and former CEO of Finicity, a Salt Lake City business acquired by Mastercard in 2020 for $825 million (he's also now Mastercard's chief engagement officer for global open banking); and Eric Chen, CEO and cofounder of crypto services company Injective Labs, which has attracted investments from hedge fund manager Mark Cuban and the world’s largest crypto exchange, Binance. (The remarks were edited for brevity and clarity.)

What is the state of open banking in the U.S. with respect to payments innovation?

Youakim: It feels like it's moved from closed to open by force, not by acquiescence of the banks. They've been forced into it a little bit, which is not the way I'd like to see it. They've kind of kicked and screamed along the way, not wanting to do it. I think it's a great thing for consumers because if you can, basically through open banking APIs (application programming interfaces) and connectivity into existing accounts, extend the functionalities into other financial services for the consumers, by having that open data, it's a win for the consumer. But of course, the banks are protective of that data because they like to keep the customer. 

Smith: The technology surrounding open banking actually got its start in the U.S. and has been a growing phenomenon for the last two decades. If you look across the U.S., most fintech services and solutions are powered by an open banking platform. The difference is that it's been very much an industry-led grassroots initiative and technology advancement in the U.S., whereas in Europe, it was very much a regulator-first approach.

Chen: There's a lot of legacy infrastructure within the United States and it's rightfully there because it worked for the history of the U.S. and so there's not a lot of motivation for the existing infrastructure to be improved upon … The belief in individualism and privacy is very deeply rooted within the American public so that's why I speculate that there might be some resistance to open banking because it almost feels like their privacy is being exposed, which is not the case. It just takes education for the public to fully adopt it.

Does the U.S. need new regulations to drive open banking and data sharing in the U.S.?

Youakim: In Europe, it has come down from the top. The governments have required banks to do X, Y and Z on open banking, to improve the systems. And, in the United States, I wish that was the case. I think there's a lot of areas of banking that could be improved. For instance, ACH (Automated Clearing House) is archaic. We should be at the point of doing real-time payments and there's, in my mind, no excuse as to why we're not there yet. And other countries have gotten there. The United States is not there. We should be leaders, not laggards … The banks don't want to force it because they make such unbelievable amounts of money from interchange fees. And once you can have real-time bank-to-bank payments you have less of a reason to use a debit card or credit card, because you're going to get the same benefit for free, or for a very low cost.

Smith: We have been very much an industry-led grassroots approach to open banking here in the US, but there are certain friction points that regulation to provide some guide rails on in the U.S. would be helpful in advancing the framework around open banking …There's not a government mandate that says to the banks, "You must open up your data store, and you must do it in the following way." And as a result, we are constantly in a negotiation with financial institutions as to what data elements are provided, and how they’re provided, and what are the KPIs (key performance indicators) around those data elements. So, getting to a framework that's got some regulatory mandate, and guide rails around it, would actually remove some of the friction that industry struggles to solve … In order for us to maintain that kind of innovation leadership and framework in the U.S., we're going to have to get assistance from regulators.

Chen: In terms of the regulatory front, it's like a legacy barrier — if it works, why change it, why fix it, but this won’t be the case soon because this country is always deeply rooted in innovation. With international pressure from (other countries) really improving their banking infrastructures and leaving America behind, the U.S. will have pressure to really change from a regulatory perspective.

Will the banks be so strong in their opposition to open banking that it won’t happen in the U.S.?

Youakim: We still have like 10 to 15 major banks, which is relatively fragmented. Australia did this initiative and they have four major banks — that's much more consolidated, much more powerful. We're more fragmented in the United States. So, I don't think the power of the banks should stop us here.

Smith: We expect that the CFPB will continue to move forward and pursue a policy under 1033. The Biden administration has, in essence, asked the agency to make that a priority, under the executive order. We expect that 1033 rulemaking will be a priority and that we'll see something in the coming months ... Are incumbents too strong to allow something like that? No, I think that 1033 is law, and that we’ll get rulemaking under 1033. It's going to be a very market-focused approach from regulators, a very steady hand at ensuring both open competition and access as well as safety and soundness in financial services.

Chen: These legacy financial institutions, at the end of the day, are still profit-driven. They still have survival and shareholder responsibility as their top priorities. So, (there will be) pressure from regulators, (and) pressure from consumers that force a change of behavior. And if they don't respond to this, then what's simply going to happen is that they’ll just fade out of irrelevance. There's a deep-rooted assumption that (for a) general consumer, there's an extreme stickiness when it comes to using your bank, but that doesn't mean that this assumption will not be broken ... (The banks') previous assumptions, in terms of how they can retain their user or their sense of security that the users will still stay, is a dangerous assumption to make, and I would assume that they're smart enough to know that they need to respond to the times.