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  • Writer's pictureW.B. King

Cornerstone Advisors’ New Report Highlights Trends Including Open Banking and Real-Time Payments

By W.B. King

A preview of Cornerstone Advisors’ 2022 “What’s Going On In Banking” study suggests that credit union executives should expect modernization of real-time payments and a continued increase of partnerships with fintechs, among other trends.

“These fintech and banking trends should be on financial institutions’ radar in the year ahead,” noted the report’s author Ron Shevlin, who serves as managing director of Fintech Research at Cornerstone Advisors.

With the goal of improving the strategies, technologies and operations of its clients, the Scottsdale, Ariz.-based firm has worked with hundreds of national and international financial institutions.

“This list of top banking and fintech trends for 2022 won’t tell anyone anything they haven’t already heard about,” Shelvin noted. “It’s meant to help financial institutions plan for 2022 — i.e., what trends should be on their strategic priority list for the coming year.”

Real-Time Payments is Real This Time

Faster or real-time payments are not a new concept Shelvin noted pointing to The Clearing House (TCH) 2017 launch of the RTP® network. At the time, the company’s website read: “RTP network’s real-time payment capabilities are accessible to financial institutions that hold 73% of U.S. demand deposit accounts (DDAs), and the network currently reaches 60% of U.S. DDAs.”

And while many large U.S. financial institutions are currently in the TCH’s RTP network, Shelvin said the majority of small and mid-size banks and credit unions are not yet on the platform.

“The percentage of payments in the United States that are ‘faster payment’ transactions is probably in the single digits,” Shelvin noted. “2022 will find many of them [financial institutions] launching a real-time payments strategy.”

According to “What’s Going On In Banking,” 15% of mid-size financial institutions have already deployed real-time payments, with 28% expecting to launch in 2022, and another 26% planning to launch in 2023,” Shelvin reported, adding that many of these institutions are waiting for FedNow clearance.

According to The Federal Reserve website, FedNow, developed by Federal Reserve Banks and scheduled for launch in 2023, will enable financial institutions of "every size, and in every community across the U.S., to provide safe and efficient instant payment services in real time," no matter the time or day.

“Faster payments are just one aspect of a broader trend for 2022: payments modernization, which is fundamentally about generating more (non-interest) revenue for banks,” he continued. “And that’s going to be a huge focus for financial institutions in 2022.”

A Misleading Name

While proponents of the open banking movement are signaling greater adoption rates in 2022, Cornerstone Advisors Director of Fintech Research Alex Johnson wrote the following in his “Fintech Takes” newsletter.

“The trouble with open banking is that it has a great name. After all, who doesn’t want banking to be more open? Banking shouldn’t be closed! It shouldn’t be cumbersome or challenging to navigate,” he noted. “Customers should own their data and they should be able to take it with them wherever they want!”

Agreeing with his colleague, Shelvin said that open banking will benefit from new market realities, including President Joe Biden’s 2021 executive order that encourages the Consumer Financial Protection Bureau to “prioritize” Dodd-Frank regulations. This would making it easier for consumers to access data and transfer it to banks, credit unions and fintechs of their choosing.

Shelvin also noted that the percentage of banks and credit unions investing in or developing APIs has grown from 35% in 2019 to 47% in 2021. Additionally, another 25% said they plan to invest in or develop APIs in 2022.

But not all open banking initiatives have the same goal. Plaid’s October 2021 announcement regarding a new payments partner ecosystem will “attempt” to make ACH bank transfers a “more attractive alternative” to credit card transactions,” Shelvin noted.

“This is not a bank-friendly move. MX and Akoya will leverage their financial institution-friendlier business models to escalate the open banking war,” he said. “Don’t buy what the open banking sycophants are selling — everything isn’t all rosy in open banking land.”

The “elephant on the table that nobody wants to address,” he offered is that the “value equation” in open banking is unbalanced. “Fintechs capture the lion’s share of the benefit while incumbent institutions get the short end of the stick.”

Regardless of who ultimately wins or loses in what Shelvin refers to an impending brewing battle over open banking, he said, “Open banking will be a headline trend in 2022 — without any regulatory imperatives.”

On January 19, 2022 at 12:00 p.m. CT, Shelvin will be joined on a webcast by Cornerstone Advisors Co-Founder Steve Williams, Coastal Community Bank’s Eric Sprink and Quontic Bank’s Steve Schnall. The panel will discuss findings in the 2022 “What’s Going on In Banking” report, including embedded finance and the “cryptofication of banks.”

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