Financial institutions struggle to meet consumer demand for more payment types, mainly because they lack the proper data science capabilities. This drives suboptimal strategies like layering multiple payment types.

That ad hoc approach slows institutions’ abilities to add the most sought-after payment types. By the time they offer a popular payment method, they could be two trends behind.

A recent Datos Insights analysis prepared for PayNearMe suggests this slapdash strategy hurts institutions and their customers. The Value of Payments Data: How Financial Institutions Can Rethink and Prioritize Data-Based Decision-Making can be downloaded here.

The study is based on interviews with 13 North American financial industry executives. Previous Datos Insights research and public data were also used.

FIs are slow to embrace data

In the digital age, customers expect convenience in all aspects of their lives, but it is especially lacking in finance. Executives believe their existing methods are functional but have little perspective on how customers view them. Some conceded they only learn of customer satisfaction from Google reviews.

It is comforting that they are open to new methods. Most are working on FedNow and real-time payments. Many are working on receiving payments and would proceed to send payments over a real-time network. They acknowledge that customers seek methods like Venmo and PayPal and emerging options like email.

Yet leveraging data brings so many benefits

A clear theme is the many benefits of leveraging data. Respondents use payment data to migrate customers to auto-pay and e-statements. Another uses it to glean insights into collections and portfolio management.

Most realize the benefits of leveraging data in optimizing data to improve payment and lending functions but struggle with access and analysis. They lack infrastructure and skills.

Why FIs struggle to leverage data

Many respondents said they could not use existing data, never mind new data. Most manage multiple platforms. That brings several problems:

• It is harder to collect data;
• It is harder to democratize and visual data for all stakeholders;
• Data breach risk increases with multiple access points;
• Compliance gets more complex;
• Friction is introduced into payments; and
• Interference with introducing AI-based models to hyper-personalize and improve the payment experience.

PayNearMe helps clients integrate traditional and new payment methods like Cash App and Apple Pay. SVP and Chief Marketing Officer Anne Hay said it helps clients reduce payment costs. These capabilities are layered on top of their platform. PayNearMe works with bill payments, consumer lending, gaming and sports betting.

“If you have one payment system handling your agent payments and another handling your web portal, are those talking to each other?” Hay asked. “If a consumer is making payments to you online but then has an issue and needs to call into your call center, if the data is not consistent across the board, the experience that you can provide to your customer can be disjointed and therefore poor. The call center agent doesn’t know that you made a payment last time online or vice versa. 

“Anytime there are multiple systems in play, there are points for having the seams to show for the consumer. We know that personalization of customer experiences is important for everybody, but that becomes harder to manage. And you’re relying on your financial institution to connect the dots and make sure that all of your customer’s interfaces are consistent with knowing about you and what you want and prefer to do or interact.”

Personalization is table stakes

Hay said personalization helps banks compete. If they cannot access and interpret data, offering personalized services their customers enjoy in other areas is challenging.

Senior Director of Product Roger Portela hears of lenders who cannot get data back from providers. That prevents them from understanding how their payment processes fit into their overall strategy.

“Often, they have very sophisticated means of communicating with our customers,” Portela said. “And when you have a fragmented payment experience, where certain providers don’t share data back, it becomes challenging to close the loop. Getting that data back in a way that’s processable by their internal operations is something that’s incredibly lacking.

“Another thing that we’ve noticed is that often, their data internally is focused on acquisition because they do not have these indicators in place or the data being fed back to them about their payments. So it doesn’t allow them to incorporate that into their underwriting or user acquisition strategies.”

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The importance of behavioral data

Portela said banks usually, at a minimum, get top-level KPIs like decline reasons back. What they need to thrive is user behavior data, such as preferred device and transaction times during the day. PayNearMe has opened up a pipeline between their analytics and payment data in their data warehouse that is provided to customers.

More data and better payment-based KPIs provide vital insights. PayNearMe’s analysis shows that offering additional methods increases overall payment rates. Offering Venmo doesn’t decrease the number of people paying by check. What it does lower is the rate of late or missed payments.

“They’re receiving payments where they might have not otherwise,” Portela said.

Why few have embraced AI

While most executives see AI’s benefits, few have dipped their toes in that water. Portela said there are too many unknowns that can have unpredictable side effects.

Hay said many financial institutions prioritize payment functionality over the customer experience. Most don’t monitor customer satisfaction with payments, even though that function is customers’ most common interaction with their bank. Banks are loth to revamp a core system radically.

So they tinker. Or layer atop of existing systems. It’s a safer route than tearing down.

Beware of Gen Z

But as banks inch along with integrating FedNow and RTP, a customer base that knows nothing but immediate satisfaction is gaining more prominence in the marketplace. Few focus on digital wallets and how to incorporate these new technologies into everything from investing to mortgages to auto loans.

“I would argue that it’s important to pay attention to how they’re managing their funds and want to be paying you as well,” Hay said. “I know folks are managing the funds in and out with Venmo and PayPal wallets and increasingly using them as their bank accounts.”

What’s coming next

What is so tantalizing is that we already have the technology to radically improve the institution-customer relationship. What if PayNearMe could help customers reduce delinquencies by a few points by looking at past behaviors that don’t have to come from the payment provider? What if all that was required was a change in the personalized communication patterns?

Portela is excited about the impact of natural language data queries. With access to the correct data, institutions can quickly spot various correlations to improve their and customers’ bottom lines.

Some are learning to present the correct payment type at the right time. That will be optimized with machine learning, large language models and natural experimentation. Better security is also coming.

“Reducing risk is something that AI has been astounding in,” Portela said. “I think the opportunity to reduce risk for our clients by joining our data with other big players out there is a big opportunity to make payments a much safer experience for everyone.”