November 17, 2022

The next phase of bank payments – safer, smarter, faster

John Anderson. Head of Payments at Plaid

I joined Plaid because we are building a durable company with valuable, innovative products that has a mission that my grandkids will be proud of.  My first months here have reaffirmed that view, and we wanted to share a bit more about what we’re working on to accelerate the future of bank payments.

Together with a network of nearly 50 leading payment partners, Plaid is making account-to-account money movement safer, smarter and faster by innovating on both existing and emerging bank payment rails. Our APIs help power nearly a billion ACH-based transfers every year across thousands of apps, making it easier for people to fund new accounts and digital wallets, make investments, and send and receive payments.  

Bank payments – the future starts now

The future of bank payments is clear: richer connectivity will allow payments to innovate and further unlock financial freedom for consumers. I’ve seen this transformation firsthand during my career in countries like India, where UPI’s accessibility opened up new economic opportunities for its people. Similar transformations are currently happening in Brazil (Pix) and in Europe (PIS). We also see a similar trend happening in the United States.

Bank payments in the US have grown steadily, but are still relatively nascent across the digital economy. According to Nacha, volume on the ACH network has increased for seven straight years and, in 2021, reached 29 billion payments valued at $72 trillion. Same-day ACH also grew by nearly 75% in 2021, illustrating how consumers and businesses now expect faster bank payments. However, we are about to enter a new phase where bank payments will become a seamless part of more payment experiences, whether you are funding a newly opened account, paying bills, or buying goods and services online.

Consumer demand for bank payments is increasing 

The combination of rising debit card payments, the use of digital wallets, and the growth in ACH payments shows an increasing consumer preference to pay using funds from their bank accounts. According to Plaid’s own user research of debit and credit card users, consumers have used, or are interested in using bank payments in several key areas: 85% said recurring payments (rent, bills, loan payments), 51% said large transactions (cars, furniture, bikes), and 68% said digital wallet funding (Venmo, PayPal, Starbucks). As fintech becomes the primary way people manage their finances using multiple apps, the need for digitally native bank payment experiences continues to increase. 

Better user experiences are making bank payments fast and convenient

Our team constantly looks for opportunities to make our best-in-class Link experience even better. In 2022, we meaningfully increased Link conversion, translating to millions more users connecting to the thousands of apps and services that rely on our open banking platform. As the consumer experience improves, the application of bank payments on new use cases increases, creating an ever-evolving consumer demand curve. Already bank payments are becoming more seamlessly embedded into payment and money-movement workflows, whether that is recurring payments, receiving loan disbursements, or even buying a car online like with Carvana

At Plaid, we are making major investments in supporting this consumer trend. This includes collaborating with our data partners on increased adoption of biometrics for increased safety and security, consumer privacy controls to ensure transparency and control over how data is accessed and used, and expanding API connectivity throughout the industry to build an infrastructure that effectively scales with consumer demand. 

Smarter networks are making bank payments safer

Another crucial trend is technologies that allow bank payments to move faster and more safely by mitigating risk and fraud. While ACH use has increased, the scope of use cases has been limited by slow settlement time, which creates risk of return and potential fraud. This is now changing. Through products like Plaid Signal, we are working to safely expand the use of ACH for applications that require faster access to funds without an impact to their bottom line.

Launched today, Signal is a machine learning risk engine that helps companies unlock faster, safer payment experiences by improving their payment risk models to better assess the return and fraud risk for ACH transactions. Similar to how card networks and financial institutions use network insights to mitigate risk and fraud, Signal brings unique insights from the consumer-permissioned Plaid network to protect consumers and companies across the digital finance ecosystem. 

Signal now protects nearly $1.5 billion in transactions each month among early customers, which have seen significant reductions in return-related losses and improved the precision of their payment risk models. For example, Signal helped a popular investment platform provide up to 96% of their new users with accelerated access to funds (vs. 0% previously), with nearly no increase to its ACH return rate. This means their new users were able to start investing almost immediately, instead of waiting up to five days for funds to settle, which improves conversion rates and user engagement.

Real-time rails will make bank payments more attractive for merchants and customers

Finally, while ACH will continue to play a big role in bank payments, we are very enthusiastic about the emerging bank rails of RTP and FedNow. We are actively building and partnering on these platforms because the speed and certainty of settlement will unlock broader innovation in this next phase of bank payments.  

We believe the new real-time methods are more than just new rails.  Even though they will arrive in pockets, for instance, RTP and payouts have obvious synergy, they are catalysts that will pull the industry and more importantly consumers to expect even more from the potential of bank payments. We are excited to help accelerate the adoption of real-time payments in the US through our payment partners and customers. This is the next step in our mission to unlock financial freedom. 

Come develop and build with us for this journey

Reach out if you have ideas and want to collaborate with us for this next phase. We are excited to build the future together to ensure bank payments are safer, smarter, and faster.