Payment Hubs Offer Banks a Path to Avert $98.5 Million in Annual Losses

In a digitized financial landscape, traditional banks are facing an imperative to transform their payment infrastructures, driven by customer expectations and competition from digital-first challengers.

The PYMNTS Intelligence report “Payment Hubs Fuel Digital Modernization for Banks,” a collaboration with FIS, revealed that for today’s consumers and businesses, fast, secure and frictionless payment experiences are no longer mere amenities; they have become a foundational expectation guiding decisions on where to bank.

This elevated bar, largely set by FinTechs and digital-native banks, pressures traditional players whose legacy systems, often siloed by payment type, frequently create delays, errors and inconsistent experiences, leading to customer dissatisfaction.

The report found that payment hubs address this challenge. These modern, centralized systems are designed to consolidate all payment processing, offering a straightforward payment experience irrespective of the underlying payment rail — be it real-time networks like the FedNow® Service and RTP® network, or ACH or wire transfers.

By routing payments and streamlining complex flows, payment hubs are not just a means to enhance customer journeys, ensuring faster transactions, instant confirmations, and transparency regarding timing and fees, but also a tool to unlock back-end operational efficiencies for banks themselves.

Key data points from the report include:

• Fifty-seven percent of organizations reported encountering friction in payment processing at least once a week, signaling inefficiency that demands modernization within the financial ecosystem.
• The competitive landscape is stark, as 42% of consumers considered transitioning their financial services to non-traditional providers, such as tech companies, social media platforms and retailers. This figure surged to 63% among 18- to 34-year-olds, highlighting the risk of customer attrition for traditional banks.
• Disruptions and inefficiencies in money movement imposed financial burdens on businesses, leading to average annual losses estimated at $98.5 million, primarily driven by cyber threats, fraud and the complexities of regulatory compliance.

The report also delved into the capabilities of payment hubs. These systems facilitate multi-rail optimization, enabling intelligent routing of payments across diverse channels to enhance efficiency and realize cost savings — for instance, prioritizing real-time rails for urgent payroll transfers while using lower-cost ACH for routine vendor payments.

Modern hubs integrate comprehensive functionalities, encompassing not only payment initiation, processing, reconciliation and settlement, but also using advanced features such as built-in fraud detection with real-time transaction monitoring, robust compliance tools like know your customer (KYC) and anti-money laundering (AML) checks, and sophisticated analytics.

From an operational standpoint, payment hubs boost efficiency through automation, reducing manual intervention and errors, thereby lowering maintenance costs and technical debt. Their modular design, powered by cloud technology and open APIs, allows banks to embrace a pay-as-you-grow model, enabling adaptation to market changes, scaling of payment capabilities and the launch of new services like request-to-pay and cross-border payments without substantial upfront investment.

Ultimately, these efficiencies position banks to break down traditional silos, free up resources and focus on innovation rather than grappling with fragmented, complex legacy systems.

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