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The Rise of Instant Payments

The Federal Reserve Launches FedNow® Service

By Hannah Flanders

In 2022, research by the Pew Research Center found that over 75% of U.S. adults have utilized PayPal, Venmo, Zelle, or Cash App at least once to send and receive payments. Of these users, ease is cited as the main reason for their adoption.

As banks look to further engage their customers, remain competitive in a quickly advancing society, and provide a safe and trusted alternative to popular payment apps, the Federal Reserve has launched its long-awaited FedNow instant payment service.

What is FedNow?

Launched in July 2023, FedNow allows financial institutions of all sizes to provide safe and efficient instant payment services to customers nationwide. Already, over 100 financial institutions across the U.S. have begun offering FedNow to customers. Of these institutions, First Citizens State Bank in Whitewater is currently one of the few in Wisconsin.

“As early adopters of the service, our team believes that FedNow, and other real-time payment systems, are the future of payments,” states Nate Parrish, First Citizens State Bank president. “We want to ensure our bank is on the cutting edge and not left behind when this technology really takes off.”

The release of the FedNow Service includes baseline functionality including core clearing and settlement capabilities. Currently, FedNow not only facilitates the peerto- peer (P2P) functionalities many customers are familiar with, but also has the capabilities to facilitate payments between businesses or between businesses and consumers. Further developments are expected to launch in phases as industry demand evolves.

FedNow, however, is not the first service to provide real-time payments to banks. In 2017, The Clearing House launched its Real Time Payments® (RTP) service to all federally insured U.S. depository institutions. As of mid-2023, over 350 banks and credit unions were listed as participants in RTP.

With several banks in Wisconsin signed on as RTP participants, the most significant difference bankers will notice with FedNow is the development of a new rail. The rail, which runs concurrent to already existing credit card and Automated Clearing House (ACH) payment rails, is overseen by the Federal Reserve Bank. Additionally, beginning in 2024, certified institutions will pay a monthly participation fee of $25. On the customer end, varying transaction limits (only $500,000 for Fed- Now) and clearing times occurring in just a matter of seconds may be the most obvious difference.

“‘Instant’ is the next modernization of ‘faster’ in the payments landscape,” says Julie Redfern, chief banking officer at Lake Ridge Bank in Monona. “Services such as Fedwire and FedACH, which are only available during certain windows, will always have a place. Fed- Now is the next step in remaining competitive and providing our customers the services they expect.”

For banks in deposit-gathering mode, the implementation of Fed- Now will help increase cash flow by allowing customers to move funds directly from one bank account to another, rather than storing funds within third-party apps. These capabilities to move money instantly can be found on the certified bank’s website or mobile app.

Getting Started

Unlike previous real-time systems, FedNow is generally seen as more accessible to mid-size and smaller banks. In this, smaller banks utilizing FedNow will now have the ability to access real-time payments without having to pay their larger competitors for the service.

Both First Citizens State Bank and Lake Ridge Bank, which is currently in the implementation process, are connecting to FedNow’s receiving rail (i.e., the bank cannot initiate customer payments) via integration of their core system. However, participation in the FedNow service is flexible, meaning that banks may opt to both send and receive payments, support liquidity management transfers, or access settlement services between correspondents and respondents. Additionally, banks may also choose to connect to the rail network through partnership with a FinTech company.

“FedNow has been slow out of the gate mainly due to bottlenecking on the core’s end,” says Redfern. “If an institution is considering going through a Fin- Tech, it’s important to make sure that they are already Fed approved rather than having to face additional delays.”

Parrish also emphasized the importance of getting ahead of the instant payment movement. “Especially with core providers being slow to adopt the idea of instantaneous movement, it may take several years for interested institutions to get on the rail. Even if 900 institutions are able to join in the next year, it could still take another nine or 10 years before FedNow is fully implemented across the country.”

To begin the process of implementation, banks are encouraged to consider their overarching payments plan and examine their operating processes to determine if the institution has the capabilities to support real-time payments. This process may require meeting with third party service providers or enhancing in-house technology.

From there, banks must undergo onboarding and testing. Certification, according to the Fed, is the final stage which entails the completion of an operational readiness test and network experience checklist. The Independent Community Bankers of America (ICBA) has emphasized that this process is not meant to be difficult, but rather to ensure that institutions are prepared to support instant payments.

The Future of FedNow

With just over 100 providers across the U.S. connected to FedNow’s rail as of October 2023, the main issue currently certified institutions are facing is the lack of transactions.

“Aside from conducting P2P payments, many customers are not entirely aware of the possibilities of FedNow,” says Parrish. “As bankers, it is our role to help inform our customers and small business clients of the possibilities of instant payments. From payroll to recurring bill payments or emergency disbursements, the ability to immediately move money will impact the way many operate.”

Though the Fed expects usage to increase as more institutions go live, banks that have incorporated FedNow into their payment offerings play an important role in emphasizing the key use cases and sharing with customers the possibilities of real-time payments.

Parrish also adds that the prospect of conducting Government-to- Consumer (G2C), Customer-to-Government (C2G), and Business-to-Government (B2G) payments on FedNow to be a significant factor as to why banks should become participants. Already, the U.S. Department of the Treasury’s Bureau of the Fiscal Service is ready with instant payment capabilities via FedNow.

Of course, as fraud continues to evolve, especially as increasingly more services become digitalized, risk mitigation and security is a significant consideration for many banks. While many theorize that the use of FedNow’s instant payment service will significantly cut down the number of uninsured, fraudulent payments that occur on third party apps as well as reduce check fraud scams across the country, it is vital that participating institutions have up-to-date strategies and procedures to mitigate risk.

Through FedNow, key risk management and information security solutions, such as accepting payments without posting, the ability to request more information from the sending or receiving institution, data encryption and tokenization, as well as several authentication and authorization measures, are available to participants. These tools, too, are expected to evolve and expand as the service grows. However, as the first line of defense against fraud, the Fed emphasizes that all participating institutions ensure that their overall fraud management strategy is consistent with the evolving payments landscape, communicated with vendors and customers, and regularly reviewed.

As ‘instant’ becomes the status quo for payments, FedNow can help drive commerce in new sectors, increase cash flow throughout communities, and offer financial institutions of all sizes innovative solutions to meeting the ever-evolving expectations of customers. To learn more about FedNow, and what its services may offer your bank and its customers, please visit frbservices.org/financial-services/fednow.

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Executive Letter: Protecting Your Bank from a Cyberattack

By Rose Oswald Poels

Cyberattacks are becoming an increasingly alarming trend and it is vital that bankers in Wisconsin remain vigilant in safeguarding their institutions and the personal financial information of their customers. In 2022, global cyberattacks increased by 38% when compared to the year prior, notes a study conducted by Check Point Research. These attacks, which target both individuals and businesses worldwide, include phishing, ransomware, breaches, and vulnerability exploitation. Each year, cybercrime costs the U.S. economy billions of dollars.

Despite this, there are many ways in which banks are able to mitigate these risks if an attack occurs.

Continually monitoring, updating, and testing your systems are all key to ensuring that your people and environments are not vulnerable. In an ever-changing digital and banking world, it may be difficult to know what areas need to be addressed, but it does not have to be. As always, WBA and its subsidiaries — FIPCO and Midwest Bankers Insurance Services (MBIS) — offer many different resources for banks to help educate your employees, protect your systems, and partner with you during a cyber event.

To proactively identify vulnerabilities of critical aspects of business operation, FIPCO offers an IT Audit & Security service. This service, which includes various tests, audits, and resources, keeps your institution one step ahead to mitigate high-risk areas before it is too late.

Right behind robust firewalls, up-to-date antivirus software, and other initiatives to mitigate cyberthreats, are your employees. Ensuring all team members feel empowered to assist in cyber risk reduction efforts should be a significant aspect of an institution’s risk mitigation strategy. Annually, WBA offers a number of security and IT-focused educational opportunities, a best practices library featuring an extensive list of security and financial crimes resources, as well as a technology and operations peer group to help in facilitating discussion and idea sharing.

Ensuring that all team members are set up with strong, unique passwords may also be the difference between a secure organization and a vulnerable one. These passwords, according to the National Institute of Standards and Technology (NIST), should be more than 12 characters long and include mixed casing and numbers. Multifactor Authentication (MFA) is also strongly recommended for bank leaders and administrators, if not every member of the team.

Having comprehensive insurance coverage is also crucial in the event of an attack. MBIS offers an extensive list of insurance coverages, including cyber liability. This policy is designed to protect directors, officers, employees, and entities from losses arising out of electronic theft of customer information, including cyber extortion, forensic expense, security breach notification, e-commerce activity, and electronic publishing. The insurance carriers for cyber liability policies also provide extensive resources that MBIS recommends be immediately engaged in the event of any cyberattack, including phishing incidents and ransomware attacks. Additionally, FIPCO’s Loan Processing Central service provides a resource you can retain ahead of time to immediately step in if a bank experiences a disaster, including a cyberattack, or an unplanned employee absence, to help continue the processing of your loan documentation.

Whether your bank is recovering from a cyber incident or mitigating the chances of one, our team is here to ensure your bank is well-prepared and equipped to navigate the complex and stressful landscape of cybersecurity challenges. If you are interested in learning more about the protections WBA can help you implement at your bank, please contact Rob Foxx (FIPCO) at rfoxx@fipco.com or Jeff Otteson (MBIS) at jeffo@mbisllc.com.

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AI Reshapes the Workforce

Organizations use AI to recruit, retain talent

By Hannah Flanders

When asked if artificial intelligence (AI) would replace the workforce, experts agreed that most jobs require a human connection. However, some economists assert that automation by platforms like ChatGPT — an AI program with capabilities to understand and generate human-like text — may lead to displacement in some areas.

Although human resources and talent acquisition-related positions continue to be among the fastest growing user role on LinkedIn, according to World Economic Forum’s 2023 ‘Future of Jobs’ report, many agree that AI will only augment the abilities of human professionals, rather than replace them entirely.

“If the staff are not robots, the process shouldn’t be either,” says Renée Peterson, vice president – talent acquisition and development manager at Horicon Bank. “Being a community bank, it is important that we don’t lose the community feel.”

While the World Economic Forum predicts that AI will help create nearly 70 million jobs in the next five years, another 83 million are expected to be eliminated. Human resources professionals and bankers in Wisconsin, however, should not let this staggering number deter them from embracing AI’s potential.

Oliver Buechse, owner of Advancing Digital, explains that incorporating AI into an organization allows employers to empower their team. “AI allows individuals to do. By providing the opportunity for those that are interested to explore AI and its capabilities in their job function, employers will not only be fostering a culture of innovation but also assisting their organization in remaining ahead of a world increasingly reliant on technology.”

Recruiting, Retaining Talent

According to the Society of Human Resource Management (SHRM), it takes, on average, 36 days to fill an open position. During this time, HR professionals are occupied preparing a recruitment plan; sourcing, screening, and selecting candidates; making offers; and onboarding.

While AI cannot completely automate the recruiting process, some experts say that it may help streamline processes.

“AI is great at processing and analyzing massive amounts of data,” highlights Beth Ziesenis, a popular speaker known professionally as ‘Beth Z, Your Nerdy Best Friend.’ “By using generative AI (such as ChatGPT), hiring managers have the ability to analyze what people are looking for and consider feedback from current and former employees to develop a job description that may better communicate the benefits and responsibilities.”

Experts noted that HR professionals may also utilize AI to quickly screen public social media profiles, brainstorm relevant interview questions, and even personalize regret letters.

“In addition to saving time that would otherwise be spent researching or writing, HR teams will greatly benefit from the perspective AI can provide during the recruiting process,” Peterson emphasized.

Despite the large amount of data AI has the ability to process, Horicon Bank’s Senior Vice President – Chief Information Officer Cyrene Wilke states that staff needs to ensure that they are correctly leveraging the tools available to them.

“AI has existed in some capacity for many years, but its abilities only continue to expand,” says Wilke. “While AI at this current moment may allow us to identify top candidates for the position, it is important to recognize that not every qualified candidate makes their information public on LinkedIn or other social media and that sometimes, trained AI bias may still disqualify candidates with differing experience. For this reason, it is important that AI doesn’t entirely replace your staff — just helps enhance their abilities.”

In addition to helping HR professionals recruit for open positions, AI may also be beneficial in assisting and analyzing current employee retention efforts.

During the onboarding process, employers may utilize AI to automate training programs efficiently and inexpensively. As well as tracking employee progress, automating certain aspects of the onboarding process may help provide a more comprehensive training environment for individuals with varying skills or learning styles. Day to day, AI may also prove a powerful tool in assisting employees to understand how their role impacts the organization as a whole or to uncover new career paths within the organization.

“Companies that embrace the transparency AI provides will find a greater sense of belonging among their team members,” notes Buechse.

“With the ability to make predictions based on trends and patterns, AI can provide new perspectives,” says Wilke. “Of course, trained professionals would notice an unengaged employee through details such as excessive and unplanned paid time off. AI, however, would augment and complement the work HR professionals already do to help assist in recognizing trends or insights that are not always apparent at a surface level.”

As such, companies have begun deploying AI to assist in the process of gathering feedback from current and departing employees. Programs such as CultureAmp utilize AI to track employee engagement, measure employee satisfaction and company culture, as well as gather insight into the employee lifecycle. While many organizations already routinely connect with their employees for feedback and provide exit surveys to those leaving the organization, AI provides managers with a systematic and detailed analysis of employee sentiment.

“By taking the time to collect comments from team members, and understand what this feedback signifies, employers will stand apart in a huge way,” emphasizes Wilke. “AI has the potential to not just enhance the efficiency of multiple processes, but also aid in comprehending the employee experience and implementing necessary adaptations.”

Embracing Change

According to research by the Pew Research Center, 45% of Americans are equally concerned and excited about the growing use of AI.

“In order to curb the discomfort some may feel towards AI, it is critical that organizations have a written policy related to its use in human resources, and generally,” says Ziesenis. “Whether your team is waiting for more information or using it all the time — now’s the time to define your bank’s approach and protocol.”

Buechse agreed, “The U.K. has already released information related to its approach to harness the powers of artificial intelligence. In order to remain a step ahead, bankers should familiarize themselves with regulatory frameworks that are beginning to be published around the world. While regulation in the U.S. hasn’t quite caught up yet, that doesn’t mean it isn’t coming.”

As of this writing, bipartisan legislators have introduced a bill aimed at establishing an artificial intelligence commission to review, recommend, and develop frameworks for AI in the U.S. However, for those in the banking industry, it is important to consider the utilization of disclaimers, programs that have been tested for safety and effectiveness, as well as what protections are necessary to ensure privacy prior to launching new systems.

Given the ongoing expansion of AI throughout our lives, experts underscore the need to reframe how technology will amplify the abilities of humans.

“While AI may automate certain aspects of the profession, human resource teams may find that they have a greater ability to focus their energy and efforts on the most impactful aspects of the hiring and retention processes,” says Peterson. “AI will ultimately allow us to spend more time on fine-tuning the outcome.”

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Executive Letter: The Federal Reserve’s FedNow® Service Offers New Payment Options

By Rose Oswald Poels

As you have likely seen, the Federal Reserve’s FedNow® Service is now live, having initially launched in late July with baseline functionality to support account-to-account transfers and bill pay. Through the service, financial institutions are able to instantly transfer money for customers any time of the day and any day of the year, adding greater flexibility for customers.

For those who are not yet familiar with the new service, FedNow Service is the Federal Reserve’s new instant payment infrastructure that allows financial institutions of any size to provide safe and efficient payment services. Customers can send and receive instant payments; recipients have full access to funds immediately. The following is a standard payment flow example from the FedNow Service:

  1. A sender (i.e., an individual or business) initiates a payment by sending a payment message to its Financial Institution (FI) through an end-user interface outside the FedNow Service. The sender’s FI is responsible for screening the payment according to its internal processes and requirements.
  2. The sender’s FI, or its service provider, submits a payment message to the FedNow Service.
  3. The FedNow Service validates the payment message, for example, by verifying that it meets message format specifications.
  4. The FedNow Service sends the contents of the payment message to the receiver’s FI to seek confirmation that it intends to accept the payment message. At this point, the receiver’s FI has the opportunity to confirm, among other things, that it maintains the specified account.
  5. The receiver’s FI sends a positive response to the FedNow Service, confirming that it intends to accept the payment message. Steps 4 and 5 are intended to reduce the number of misdirected payments and resulting exception cases that can occur in high-volume systems.
  6. The FedNow Service debits and credits the designated master accounts of the sender’s and receiver’s FI (or those of their correspondents), respectively.
  7. The FedNow Service sends a payment message forward to the receiver’s FI with an advice of credit and sends an acknowledgement to the sender’s FI that settlement is complete.
  8. Outside of the FedNow Service, the receiver’s FI credits the receiver’s account.* The receiver’s FI makes funds available to the receiver immediately after step 7. This crediting to the receiver’s account as well as the debiting of the sender’s account by their respective financial institutions happens outside the FedNow Service.*

*The FedNow Service processes payments around the clock, every day of the year. However, for accounting and reporting purposes, the FedNow cycle date differs from the calendar date for a period of time (from close until midnight) because it aligns with the Fedwire® Funds Service business day, which generally has a closing time of 7:00:59 p.m. ET. If the Fedwire Funds Service business day is extended, the FedNow cycle date extends along with it. For consistency, the FedNow Service aligns to the same timeframe for weekends and holidays.

For financial institutions that elect to be a receive-only participant, the institution is able to receive customer payments, but may not initiate customer payments, except to return payments using the service. Alternatively, a financial institution may elect to be able to send and receive customer transfers. A financial institution could also elect to participate in the FedNow Service to receive requests for payment via the FedNow Service.

The FedNow Service will also support transfers between participating financial institutions, either on behalf of their respondents or for their own internal purposes. This type of transfer includes settlement services.

In trying to identify future educational offerings and other resources for the WBA membership, I ask that bankers please complete the following short survey regarding use or non-use of the new service. Results will be kept confidential.

Take the Survey

Additional FedNow® Service Resources

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The Rise of Artificial Intelligence in Banking

Banks in Wisconsin explore the use of AI

By Hannah Flanders

Just five years ago, the idea that AI, or artificial intelligence, could be incorporated into nearly every aspect of the human experience seemed like a topic for future generations. However, the further we wade into the 2020s, the more each of us comes to encounter aspects of AI in our daily lives, even without realizing it. As the capabilities of AI multiply and the number of individuals utilizing this unique technology expands, professionals in many sectors of the U.S. economy — including the financial services — are considering the ways in which AI impacts their business and the surrounding communities.

What is AI?

Despite what many think, AI is not a new phenomenon. Shortly after the creation of the first digital computer, scientists in the 1950s birthed the concept of AI as they explored the possibility of creating an artificial brain. Today, AI has molded into the creation of technology that has the potential to add efficiencies to our daily lives.

In its current state, AI is a computer system with the capability to sense, think, learn, and take action. Throughout the day, we may encounter AI technology by way of recommendations on our favorite streaming platforms, the anti-virus software that scans our emails for spam, or timed traffic signals. However, the Pew Research Center recently found in its study “Public Awareness of Artificial Intelligence in Everyday Activities” that only around 50% of individuals believed that they interacted with some form of AI more than twice a week.

As technology continues to become more widely available, the development of AI and its integration into day-today life has greatly increased. The New York Times states that in 2022, nearly $1.4 billion was invested into various generative AI companies worldwide. By 2030, PwC expects that AI will contribute over $15 trillion to the global economy by increasing productivity and allowing products and services to be more personalized and readily available.

AI in the Banking Industry

Already, banks around the country have employed AI in various areas of their daily operations. In 2020, McKinsey & Company reported that around 60% of financial institutions had already embedded at least one AI capability into their organization. In utilizing systems that have the potential to conduct research, translate languages, create messages, and write job descriptions — among so many other possibilities — banks are able to quickly detect fraud, streamline specific services, and interact with customers at any time of the day.

However, there are many more possibilities, as noted in a Forbes article “The Future of AI in Banking.” In addition to automating routine tasks, AI is great at tracking patterns, targeting product recommendations, providing more accurate customer support, and serving as a single point of contact for banking operations.

Despite these opportunities, many banks are concerned with the challenges embracing AI may impose. Among the top concerns of Americans, reports the Pew Research Center, are digital privacy and the lack of human connection.

Hello, ChatGPT

In November 2022, ChatGPT was released by OpenAI, a San Francisco-based AI research lab. The chatbot, unlike many others, offers detailed responses in many domains of knowledge. In early 2023, Reuters reported that the chatbot had reached 100 million monthly users.

GPT, which stands for Generative Pre-trained Transformer, is a type of Large Language Model (LLM). The UK’s National Cyber Security Centre describes an LLM as a type of algorithm that has been trained using a significant amount of text-based data, which can typically be found on the open internet. ChatGPT then utilizes “deep learning,” or the process of imitating human learning, to formulate humanlike responses.

The Benefits and Challenges of AI

Because ChatGPT is trained using free, unfiltered data sourced from across the internet, many are skeptical of its reliability and validity. However, it is important for users to acknowledge that many systems are programmed, using the desired or relevant algorithms and data, by humans. As many begin to harness the capabilities of AI, the benefits (and challenges) are becoming evident.

  • Logic and Creativity

Rather than be influenced by emotion, most AI models only have the aptitude to make logical decisions. This capability, which may be beneficial in removing some forms of bias, may not consider the full picture of the data presented. In addition, the lack of emotion may result in less creative solutions.

  • Human Connection

Unlike humans, AI is constantly available. While ensuring customers have around-the-clock access to the organization and its services is key in combating competition, many are concerned that AI may result in less human interaction or replace humans in the workforce.

  • Privacy and Risk

American Banker stated that nearly 80 U.S. financial institutions reported a data breach in 2022. As increasingly more banks look to incorporate AI to analyze large swaths of data, the risk of personal information falling into the wrong hands rises. Because the security measures of ChatGPT, and other models, are determined by the organization or platform hosting the software, businesses should ensure that their risk management practices are up to date and monitored regularly.

  • Implementation/Adaption

Although AI can minimize repetitive and time-consuming tasks, banks should first consider how employing new AI programs may interact with existing software. Additionally, if the adaption process requires extensive effort for both employees and customers, AI may not be the right solution.

  • Regulation

As of this writing, financial regulators have not yet published a comprehensive set of AI-related rules. However, banks are reminded that existing regulation may apply. Several agencies — including the Financial Crimes Enforcement Network (FinCEN) and the Office of the Comptroller of the Currency (OCC) — are encouraging banks to engage with AI to determine its usefulness within their organization.

As more individuals throughout the country become aware of AI, it is important that bankers in Wisconsin closely follow its advancements and challenges as wells as continually explore the ways in which systems, such as ChatGPT, may impact their business, staff members, and customers, While ChatGPT may be just the latest trend, there is no doubt that AI has already left a lasting effect on the power of technology.

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Embracing a Culture of Cybersecurity

All staff needed to help mitigate risk

By Hannah Flanders

Cyberattacks are ranked as one of the top threats to banks across the country. As these threats continue to become increasingly sophisticated and prevalent throughout our communities, bankers are looking to mitigate the risk for the safety of both their institution and all customers served. As such, administrators — including members of the human resources (HR) department — have been tapped to take on a new role alongside the information technology (IT) department to protect the bank from falling victim.

Prioritizing Cybersecurity

According to Proofpoint’s State of the Phish survey, approximately 79% of U.S. organizations reported at least one successful phishing attack in 2021. As cybercrime continues to rise — costing over $1 trillion a year worldwide, as highlighted in a report by McAfee Center for Strategic and International Studies — it is critical for the success of banks across the country that they establish a culture of cybersecurity.

In the American Bankers Association’s (ABA) Banking Risk and Compliance Management Outlook for 2023, surveyed bankers identified cybersecurity and IT risk to be, overwhelmingly, the top risk priority for the 18 months ahead. With the use of online banking and digital payments skyrocketing, and employee negligence being cited as one of the top reasons banks are put at risk — Proofpoint’s survey highlights that around 27% of employees believe that their organization/IT department will take care of any mistakes. However, as the cost of cybercrime continues to become more expensive for impacted organizations each year, finding ways to educate both consumers and employees of the cyber risks they face will not only help protect information from being compromised, but save banks from contributing to the astounding losses reported by financial institutions each year.

The Federal Bureau of Investigation’s (FBI) Internet Crime Report highlights that in 2021, Wisconsin totaled over $51,800,000 in victim losses. By taking proactive steps in both their cybersecurity protocols and training, banks throughout the state will have the opportunity to save the organization, and their customers, from substantial loss.

While banks make strides to incorporate risk mitigation — such as integrating multifactor authentication (MFA), a bare minimum in preventing bad actors from gaining access to accounts with greater privileges, and following regularly updated guidance from the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (FRB), and the Office of the Comptroller of the Currency (OCC) — into their procedures, those seeking to optimize their efforts are looking beyond their IT staff for assistance.

Team Effort

Establishing a culture that embraces cybersecurity begins from the top and requires uniting members throughout various departments. According to Marsh McLennan, a leading professional services firm in risk, strategy, and people, “a robust cybersecurity culture starts from the top of the organization and involves continuous communication and training for leaders across all key functions.” The firm highlights that, as of 2019, nearly 90% of all organizations only included InfoSec/IT, C-suite, risk management, legal, and finance professionals in the management of cyber risk.

“Cyber defense is a team endeavor, not just an IT or a management one,” emphasizes Rob Foxx, director – InfoSec and IT audit services at FIPCO. “Threats apply to all parts of an enterprise, as should defense.”

The Cybersecurity and Infrastructure Security Agency (CISA) highlights that HR professionals play an integral role in detecting, deterring, and mitigating threats by screening candidates prior to employment, managing secure information, and regularly communicating policies.

When HR professionals have a seat at the cyber risk management table, banks not only gain a risk-conscious ally, but also ensure that HR professionals throughout their organization have a strong understanding of the cyber risk policy they utilize in their own day-to-day operations. Additionally, ensuring that the HR team is abreast of the latest cyber risks and mitigation procedures is critical so that said information can be communicated with all staff members.

Playing a Part in Protection

As the U.S. financial sector continues to prioritize cybersecurity — regularly spending up to $3,000 per employee on ongoing cybersecurity education, according to the McAfee report — ensuring that every employee is making the most of their training, testing, or coaching and remains vigilant against all threats to the organization is critical for the safety and security the institution and its customers.

  • The Employee Lifecycle

Of course, HR plays a substantial role in the onboarding and offboarding process to evaluate the quality of incoming employees and ensure that all former staff are no longer granted access to confidential company data upon their departure. Furthermore, given the close ties to all staff members, HR can play an important role in clarifying policy, providing resources, and working behind the scenes to recognize and anticipate the potential information security issues, highlights the Society for Human Resource Management (SHRM).

  • Training

Although cyberattacks continue to cause headaches for businesses across the country, only 64% utilize organization-wide training, according to Proofpoint’s 2022 survey. Training, which is usually administered by the IT department or virtually, has the potential to be strengthened by HR’s involvement. In taking a human-centric approach that emphasizes how all staff members — administrative through executive leadership — play a role in the security of the institution, employee morale is heightened.

Additionally, HR can emphasize and enforce the importance of practicing good cyber habits and encouraging training from the start because of the department’s close connection to all bank staff. HR staff will also notice if staff don’t attend training, regularly fail simulated tests, or display non-compliance with cyber protocols. From there, action can be elevated beyond coaching from IT staff or managers.

“A significant amount of malware is file-less and exists only in the active memory of a computer,” highlights Foxx. “While the next generation of antivirus has the ability to detect more activity than older versions, file-less attacks are just the beginning, and these tools can now detect abnormal user, host, and network activity. Ensuring your team is on the same page is a critical component in mitigating these attacks.”

  • Coordinating Cybersecurity Requirements

In partnership with the IT department, HR should ensure that there are well-documented policies, standards, and best practices for not only averting attacks or breaches, but also for reporting attempted or successful cybercrimes. Throughout their day-to-day tasks, HR professionals are expected to adhere to the organization’s procedures and guidelines as well as communicate this information with staff. Understanding the various protocols, exploits, tools, and resources fraudsters utilize can help members of HR in assisting their staff to build confidence in mitigating a cyber risk. At the very least, Foxx adds, bankers should adhere to cyber security frameworks such as the NIST Cybersecurity Framework or ISO 27001 certifications, which assist organizations in gaining direction and highlighting areas of need.

As more aspects of our daily lives digitalize, and cybercrime and attacks become a regular and unfortunate normality across the banking industry, the need to secure sensitive data has become a widespread effort. It is critical that leaders look throughout their staff for unique perspectives and opportunities to educate. Establishing a culture of cybersecurity could be the difference between a secure and a compromised institution.

Ready to take your cybersecurity to the next step? Visit fipco.com/solutions/it-audit-security to ensure your bank is secure!

FIPCO is WBA subsidiary and Gold Associate Member.

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FinTech Helps Reshape the Banking Industry

Banks engage in embedded FinTech to meet consumer expectations

By Hannah Flanders

As competition throughout the banking industry continues to rise and digitalization takes the world by storm, many banks are turning to new opportunities with FinTech providers.

Today, consumers throughout the U.S. seek immediate, safe, and easy solutions in every aspect of their day-to-day lives — from transportation and grocery shopping to banking.

As banks throughout Wisconsin look to best serve consumers, their ability to create innovative, flexible offerings is one of the most important factors to consider in remaining relevant and competitive in their communities.

The Growth of Technology

In 2021, nearly half of all households across the country utilized nonbank online payment services, including peer-to-peer payments (P2P), according to the Federal Deposit Insurance Corporation’s (FDIC) 2021 Survey of Unbanked and Underbanked Households. P2P payment solutions — such as PayPal and Zelle — and other technology innovations, including Uber, DoorDash, and Zoom, have deeply engrained themselves into households across America and become especially important for younger generations to make transactions.

Already, over 1,200 banks around the country, including over 50 in Wisconsin, have begun integrating Zelle — a digital payments service offered by the FinTech provider Early Warning Services, LLC — to help meet the expectations of their customers. However, as banks continue to compete for deposits and new loans, innovation beyond incorporating P2P payments into their online services may become a necessity.

What is Embedded FinTech?

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Virginia Heyburn

Virginia Heyburn, director – research, insights, & advocacy at Engage fi and recent keynote speaker at the Wisconsin Bankers Association’s (WBA) 2023 Bank Executives Conference, describes embedded FinTech as a strategy by which traditional banks own the experience and work to build FinTech functionality into their own digital banking experiences. This is comparable to the Banking as a Platform, or BaaP, model that banks may utilize to integrate FinTech solutions into their existing offerings.

Embedded FinTech emphasizes the bank’s possession of the brand, by way of providing the service on their own platform, and the augmentation of FinTech functionality behind the scenes. This process allows banks to strengthen their own offerings, increase customer engagement, and build loyalty rather than provide services to outside users, as is the case with embedded finance or Banking as a Service (BaaS).

What Embedded Fintech Means for Banks

Although 95.5% of all U.S. households were banked in 2021, according to the FDIC’s survey, Heyburn states that it is important that banks continue to deepen their relationships with their retail and commercial customers and offer features that are valuable to them.

By integrating property management capabilities into digital portals for landlords, disbursements for commercial clients, or intelligent budgeting and savings tools for retail customers — banks have the ability, through a partnership with a FinTech servicer, to provide an even greater number of tools and resources for consumers.

As the banking industry evolves faster than ever before, embedding FinTech into their online services will not only allow banks greater flexibility in the products offered, but provide the opportunity for banks to increase their technological capabilities. Early Warning Services, LLC, the FinTech provider of Zelle, highlights that these valuable partnerships permit banks to
utilize technology to consider new ways to attract and engage customers, including cross-selling and engagement with the banking app, as well as reduce costs in other areas such as cash and check management.

“I expect nearly every bank to pursue embedded FinTech strategies within five years,” Heyburn states.

The Challenges

While embracing FinTech solutions may be the next step for a bank, Heyburn says that legacy technology has always made the interoperability of systems challenging. Between delays, a strong reliance on core vendors, and inconsistencies, there are a number of factors to consider when strategizing a frictionless exchange of any internal or external system.

With mobile and online banking being the primary way many consumers interact with their bank, it is critical that banks not only have the personalized products individuals expect, but also can deliver information efficiently.

“Customers are no longer willing to tolerate delays and defects in the FinTech era — they are voting with their fingertips as they choose online banks that offer the speed, ease, and convenience they want,” states Heyburn. “The cost of doing nothing has never exceeded the cost of making a change — until now.”

As Forbes published in a recent article entitled Digital Transformation in Banking, in order to rapidly and cost-effectively design, create, plug in, and deploy new digital products and services, the bank’s digital product platform must be component-based, API-driven, and cloud native.

The Benefits

While less than 60% of all financial institutions currently deploy APIs or cloud computing, according to Forbes, many understand this conversion as a solution to meeting customer needs and expectations. In addition to allowing consumers the ability to connect their accounts across platforms,
engaging with FinTech servicers will provide many banks with the ability to simplify their technology — which in many cases, may be limiting an institution’s ability to roll out new competitive features or service offerings — as well as save on maintenance costs that limit the ability to compete on service price, according to PwC.

By incorporating an open banking system into their digital offerings, banks are able to balance safety and security with the expectations of all consumers. As the industry continues to evolve, and greater emphasis is placed on increasing competition in the marketplace, driving financial inclusion, and creating more consumer choice, partnerships between banks and FinTech providers have the potential to assist banks in not only improving their technological capabilities, but also more effectively serving their customers.

Interested in developing a partnership with a FinTech provider? Learn more about WBA’s upcoming FinTech Showcase at wisbank.com/FinTech.

Engage fi is a WBA Associate Member.

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