Payments Innovation: 3 Banks with Winning Strategies
There is no debate about the fact that the banking industry is experiencing a period of significant if not unprecedented change with most of the change occurring in just the last just 15 years. This chart from Financial Brand illustrates the payments revolution timeline.
Banks tell us there are many reasons they are challenged not only by ‘digital disruptors’ like PayPal, Square, and Apple Pay (the most recent entrant with the September 9, 2014 Apple Pay launch announcement), but by the following conditions:
- Burdensome regulation
- Regulatory uncertainty
- Compliance costs and risk of non-compliance
- Slow or fragmented consumer adoption
- Legacy payment environments
- Late to market or late to scale new payment methods
While the above may seem insurmountable, banks may actually be poised to turn these disadvantages into winning strategies.
Banks can play to their strengths as an established financial institution – FIs are entrenched players who know how to make profits even in an over-regulated environment and that comes with the ability to reduce risk associated with regulatory non-compliance. Unregulated new entrants who are unfamiliar with regulatory and compliance issues will face the same challenges at some point which can make or break them.
For example, in 2013, Square was fined over $500,000 in Florida for operating a mobile payment service without a money transmitter license. This is one example of how start-up payments companies can run into costly obstacles.
Respond to obvious customer demand — Santander Bank, according to a 2014 Forbes article, wanted to add value – not just pay lip service — to bank customer relationships. So they launched an extensive consumer research initiative to find out what their customers really wanted which resulted in the introduction of new products and services like Extra20 checking that pays customers for checking accounts (as long as they meet certain criteria such as linking accounts, direct deposit and utilizing online bill pay).
Use technologies that satisfy that need – Lost in the glare of media attention afforded alternative payments, banks are still viewed by analysts as having technological advantages in core payments competencies around interoperability, connectivity, and payments network platform experience. And, when under cost pressures, they can turn to third-party payment providers to leverage economies of scale in their favor.
Research shows that “Banks will spend 4.2% more on technology in 2014 than they did in 2013,” according to IDC analysts as reported September 17, 2014 in the American Banker, with the overall spend in global financial services exceeding $430 billion.
However, bank trust – always historically high — has been eroded due to the 2008 banking crisis and at least one bank is using investment in technology to fight back.
An Information Age article (26 August 2014) by Ben Rossi, titled, “How Barclays is restoring banking trust with innovation” heralds CEO Antony Jenkins ‘industry-wide charm offensive’ using technology investment to bring about cultural change in a drastic overhaul of its business. The article highlights these Barclays initiatives:
- Branchless banking – Barclays customer mobile banking app is reaching critical mass therefore Barclays is shifting 6,500 cashiers from branches and training them as ‘community bankers’ who will assist customers with tech-based apps and machines.
- bPay –a wearable wristband that customers can use for contactless payments, it’s free of charge and available to any Barclays Bank customer.
- Cyber security certification – Barclays is the first bank to gain a U.K. government cyber security certificate for digital banking.
Make decisions based on a clear business case – Banks can seize the opportunity to innovate by adopting any number of winning strategies provided they define a clear strategy and invest accordingly.
Wells Fargo, for example, announced last month that it would invest up to $500,000 in “select startups as a six-month ‘boot camp’ for tech startups based in the areas of payments, deposits, fraud, operations and other financial services,” as reported by Jennifer Booton at Market Watch.
Santander, Barclays and Wells Fargo are just three examples of how banks and their payments partners are using innovation to compete in a changing market where disruption now rules the day.
3 Point Alliance
Founded in 1990, 3 Point Alliance has been a leading provider of end-to-end remittance processing solutions that exceed industry quality standards and reduce processing costs by streamlining payment operations.