Payments are being forced to evolve at the speed of change, and that rate of change is increasing. The digital transformation of global business has hit the payments industry, and digital goes hand-in-hand with real-time. This means banks are feeling the pressure from their customers and the competition to provide immediate payments.
- 51% expect to be able to send real-time payments globally within 5 years
- 82% believe real-time payments will displace existing payment types
These pressures are well understood and acknowledged at the board level. But as the payments executive tasked with bringing immediate payments to your financial institution, how do you build the necessary business case?
Banks cannot create a business case in their standard format when it comes to immediate payments, as the value lies in innovation.
Business cases generally lie in potential gains, as well as stemming losses. Regaining revenue that is draining to challengers and FinTechs is not enough to achieve sign-off—it has to include winning new customers and developing new revenue streams. It’s about beating the competition at their own game and improving the banking customer experience. This requires banks to adopt some of the organisational traits of those challengers. The challenge for many banks that have started this journey toward agility is; how do you transform an established organisation to behave in a nimble, innovative way? The major stumbling-block is not a technical issue, but this organisational hurdle is proving difficult to pass for some banks.
Some financial institutions in Europe have been wary of new regulation, specifically PSD2, viewing it as another hurdle to overcome. Others recognise the possibilities that this mandate offers. PSD2 was partly created to increase competition – and competition breeds innovation. We all perform well under a little pressure, and banks are feeling the pressure to stay competitive and maintain their most valuable asset—customer relationships. Without a strong customer relationship, any financial services provider can go the way of the utilities giants and become just a commodity. Innovation can help banks to combat the FinTech encroachment on their traditional customer base.
Historically, innovation hasn’t been part of the banking vernacular. That’s because innovation includes failure as a critical step on the path to success. This mentality can be difficult to explain to a banking board if it doesn’t include representation from a digital transformation and innovation point of view. This can mean that the first stumble is viewed as a failed project – and no one wants to be part of a failed project. It’s imperative that failure be reframed as a measuring point for success. Success will come when banks develop a process for quickly identifying what isn’t working in an innovation project, taking a step back, and attacking the problem again with a new idea.
Ideas are going to be the game changer for banks when it comes to extracting the maximum value from an immediate payments investment. It’s not just the speed of payment that is valuable to the customer, and therefore the bank—the services that you provide on top of the immediate payments, that’s where the real value lies. In the future, these services will include relevant products targeted at customer groups based on transaction history, geo-location, remittance data, and any other data that can be gleaned from transactional and non-transactional data. Finding innovative ways to mine and make sense of this big data will be essential to banking success.
The demand for immediate payments also partly stems from the demand for improved customer experience from a bank’s entire customer base, not just consumers. SMEs want immediate payments to better manage cash flow, and a bank that can better service this sector has an opportunity to grow significant market share. A survey of UK SMEs found that 95% think immediate payments would be useful to their business. More importantly, many highlighted issues where poor customer service from their bank was impacting their business:
- 33% of respondents say late payments affect their ability to meet financial obligations on time
- 17% feel late payments have a negative impact on staff up-keep including salaries, expense reimbursement and recruitment
- 10% note access to finance is limited for business requirements such as equipment, product development and research
Immediate payments have to be reliable in order to provide this excellent customer experience. It’s imperative that banks partner with a vendor that can provide a robust, reliable and secure solution; a partner with a proven track record of supporting all kinds of financial institutions and intermediaries in achieving immediate payments in a range of locations.
Most banks have already accepted that they need to be thinking about immediate payments, but they need the support to start the thinking and decision-making internally. Financial institutions looking to take their first steps on the road to developing their immediate payments business case should look for a partner, not just a supplier, because immediate payments themselves, and the process around creating that business case, are complex. You have to think about liquidity, settlement, notifications, fraud… the list goes on.
Immediate payments are here, and there are happening, so banks, processors and FinTechs really need to start planning how they are going to take advantage of this great opportunity to grow their customer base, increase revenues and stay ahead of the game.
Regardless of where you are on your journey to immediate payments, get in contact with me if you want to know more!