Digital payments in 2022 need parallel data revolution

By Marc McCarthy, SVP Sales & Reconciliations SME, AutoRek

US payments technology lags behind other regions with lengthy settlement delays, limited mobile money penetration and outdated data management processes.

Despite widespread smartphone ownership, just 10% of US consumers use mobile payments. Paper checks are still in widespread use, but 80% of Americans use credit cards for purchases, which can take up to three days to settle payments or even allow customers access to their deposits. By comparison, countries such as the UK shifted to near or real-time payment systems over a decade ago.

Regulators will undoubtedly scrutinize this data gap, given that antiquated payments technology is well known to restrict economic participation and access to finance. What is less well-known is that the looming evolution of payments systems could also threaten fraud prevention, global expansion and compliance with new reporting requirements.

Looming data gap

The US Federal Reserve recently urged banks to create digital, real-time payments systems with equivalent security to legacy systems. Similarly, the new FedNow service will soon enable real-time retail payment settlements.

Yet, despite these developments, beneath America’s archaic payments technology is a legacy infrastructure of outdated processes for recording and reporting transactions. This fragmented, federated approach to the payments process has led to many institutions having equally fragmented, siloed payments data. Worse, if firms do not adopt new financial data management systems at the same rate as new payments technology, they could be left with corresponding gaps in the financial audit trail.

For example, real-time payments without real-time fraud detection capabilities will complicate the process of fraud monitoring. Businesses will also need superior data control to process cross-border payments while complying with regulations that stretch across multiple territories.

Faster payments and standards such as ISO 200222 will provide richer metadata on financial transactions, but this will require intelligent information systems capable of capturing and consolidating granular transactions data.

Meeting more stringent risk reporting requirements will not be possible without sophisticated data management systems that capture more rich, real-time information. Those who still use laborious, error-prone desktop applications to conduct reconciliations manually will be unable to keep up with the high volumes of rich data provided by digital payments and data standards.

Payments data revolution critical for future growth

The revolution in payments technology and transaction speeds requires a parallel revolution in payments data management. New technologies allow the automatic integration, consolidation, validation and deduplication of fragmented real-time data to create a single, golden source of truth on payments.

These new technologies benefit from managing data on everything, whether outbound, inbound or inter-currency transfers, through a centralized framework to ensure full-spectrum visibility and auditability of global payments activity.

Firms are leveraging integrated digital data hubs to access actionable instantly and high-quality data for external auditors and internal reporting, providing comprehensive and current risk oversight across an ever-expanding array of high-speed, digital payments.

Many have also discovered that new platforms come with tailored data dashboards, which allow for instant prioritization and visualization of large volumes of data for rapid risk reporting or real-time fraud detection. These dashboards ensure that digital and real-time payments are also accompanied by intelligent fraud prevention, regulatory reporting and risk mitigation.

There is no doubt that faster digital payments offer a chance to tap into new global markets, widen economic participation, and increase access to capital. The opportunities are vast for those forward-thinking payments firms that simultaneously develop effective data management processes and embrace emerging payments technology.

Marc McCarthy is SVP Sales & Reconciliations SME, AutoRek, a global leader in reconciliations and financial automation software. With 20 years’ experience in the financial services industry, Marc has led a number of high-profile reconciliation programs for leading organizations across the globe, enhancing financial and operational controls and establishing robust control frameworks. Based in London, he previously worked for financial institutions including Credit Suisse, Deutsche Bank, Merrill Lynch, Jefferies, WestPac Bank, and Standard Chartered Bank.