Editor's note:Carl Slabicki is the head of strategic payments for BNY Mellon's Treasury Services business. The views expressed in this article are solely those of the author and do not necessarily reflect the views of BNY Mellon. This article does not constitute treasury services advice or any other business or legal advice and should not be relied upon as a basis for action.

A digital revolution is driving deep evolution in U.S. banks' payment solutions. The industry is undergoing a shift from paper-based to digital processes, characterized by the emergence of new real-time payment systems, the rise of innovative overlay services, and the modernization of traditional payment infrastructure to meet evolving customer needs.

In today's environment, the value of digitalization is clear: businesses increasingly expect faster, more streamlined, and more efficient transaction options—a trend that has been further reinforced over the past few months. Meanwhile, the prevalence of remote work has highlighted the urgency of digital processes more than ever.

Banks must keep pace with change and continue to invest in digital capabilities to ensure they can support customers' digital transformation journeys while maintaining the operation of traditional payment types and workflows. Beyond providing technological tools, banks also play a key role in customer education—many customers' internal processes are still built around legacy systems—and must offer guidance to help individual customers transition smoothly from paper to electronic solutions.

The payment ecosystem continues to evolve

The ACH network, as the U.S. batch settlement system, has driven industry growth and innovation for nearly 50 years. Operated by NACHA, its ongoing modernization has led to transaction volume growing annually over the past five years bymore than 1 billion transactions. A key factor in the ACH network's recent success is the Same-Day ACH (SDA) capability, which was implemented against the backdrop of growing demand for faster payments. By continuously enhancing payment convenience, the ACH network is thriving.

Across the industry, banks are implementing digital improvements to payment systems to enhance traditional payment infrastructure. The use of virtual cards continues to rise, and contactless payments are becoming the norm.

At the same time, banks are introducing new payment rails. The RTP network, launched by The Clearing House in 2017, is reshaping the customer experience by streamlining the entire process from transaction initiation to reconciliation—settlement and messaging are completed in seconds. As the 24/7/365 economy becomes the norm, RTP combines the speed, convenience, and transparency that modern businesses require. Another major market change will be the Federal Reserve's FedNow service, expected tolaunch in 2023 or 2024—which will further support the growth of faster payments.

The path to digitalization

Alongside the growth of payment rails themselves, a wide range of overlay services aimed at enhancing customer experience are entering the market. For many businesses, the migration from checks to electronic payments remains difficult due to a lack of account information needed to complete digital transactions.

To address this issue, payment processing networks are being established that allow payees to register their details and create trusted profiles, enabling convenient electronic receipt and payment of funds. For example, Zelle, jointly owned by several banks,Zelle, registers users via identifiers such as email addresses or phone numbers (so-called "tokens"), allowing users to make electronic payments without exposing sensitive banking information.

Such networks, when integrated by banks, represent an effective way to securely send electronic payments and avoid the costs and challenges of paper processing. As a result, they are helping small businesses and consumers modernize their payment processes and move further toward digitalization.

Security: an essential element

As digital solutions improve, criminals are also leveraging technology to devise more sophisticated fraud schemes. A recent study found that 82% of institutions experiencedattempted or actual payment fraudin 2018. Moreover, due to the current challenging environment, fraud cases have surged sharply—the FBI reported that the number offraud complaintsreceived in the first five months of 2020 already exceeded the total for all of 2019.

Providing effective risk mitigation tools for the digital environment is crucial. Regardless of the payment channel used—ACH, wire, real-time, or others—a key question remains: how to verify whether an individual is authorized to transact on a given account?

New technologies enable leading banks to introduce cutting-edge capabilities based on pre-validation. By leveraging trusted, secure databases such as the Early Warning national shared database, banks can offer customers real-time account verification services—using front-end verification tools like application programming interfaces (APIs) and applying intelligent routing logic—to confirm account status and ownership. Importantly, this enables banks to achieve effective, enhanced risk and fraud prevention before payments are sent.

Driving change

New technological capabilities are driving the shift from paper payments to efficient, effective digital payments. The pandemic is reinforcing this trend, as paper processes become increasingly impractical, forcing customers to turn to digital solutions and further propelling the payment industry toward long-term digital growth.

In an environment of rapid change where fast adaptation is increasingly critical, many banks are considering outsourcing digital solutions to trusted partners with proven technology. In doing so, banks must balance the breadth of customer needs—finding a balance between using new capabilities to support customers' digital transformation and continuing to support legacy services.

This is an exciting time for the payments industry. With the emergence of real-time payment options, overlay services, and modernized legacy systems, the opportunity for banks to provide customers with safer, more convenient, and more efficient digital services has arrived.