I recently sat down with Herman Tönis, Product Owner Cards Development and Innovation at Rabobank, and Réka Schreiber, Head of Operations at ERSTE Bank Hungary, to discuss which levers are going to shape the future of retail banking, issuing and the payments industry as a whole.
The digital evolution has created a culture of immediacy through the ease of apps, mobile-first expectations and ever-faster delivery of goods. The world is going real-time, but the consequences of this proliferation of choice cannot be predicted. Consumers are faced with a massive amount of choice in their personal lives and this now extends to payments as well. Considering these customer expectations, what is it going to take for a bank to remain front of (digital) wallet with its customers?
Herman Tönis: This is a topic that we’ve been talking about internally over the last couple of years. Banks still want to be the primary financial services provider for their customers, but we are aware that if you can’t support new payment features, customers can quickly move from “old banks” to emerging payment companies and fintech competitors. At Rabobank, we’ve been working very hard to accomplish this new approach of being a bank that doesn’t only support end-to-end transactions. We’ve realized that for a bank to remain front of digital wallet with its customers, banks have to support and embrace changes related to new kinds of payments. You have to keep in mind that other players will come into the game if you’re too late.
Réka Schreiber: From the back-office perspective, it is also very similar. We used to see other banks as competitors, however we now have the “card world”—that used to be a separate world to the payments one—colliding with us. On the one hand, we have banks and fintechs picking up the bits and pieces (usually not the entire process), and on the other hand, the card networks getting into the payments world and combining the two. Adding the digital layer, you have a combination that is very beneficial for customers, but it gives us the speed challenge. Changes have to be made very quickly; you can’t wait for a new product to launch. Speed here is going to be the differentiator for your company and will also increase consumer satisfaction.
Increasingly, big business is under pressure to save costs on IT infrastructure, while accommodating “Moore’s Law,” where processing power doubles and price halves, roughly every two years. So, how can banks build their payments issuing solution to enable speed to enter new markets and capitalize on new opportunities? How do you think it can best be done—an overall infrastructure or partnering with other companies?
RS: I think it’s going to be a combination of these two approaches. There are too many things happening right now for a bank to do it on their own. Obviously, there are things that the bank likes to do independently for security reasons. However, we need the knowledge of service providers, such as ACI, to leverage and help deliver the best service. I also think that banks need to rethink and find a balance between what the customers truly want, versus what they have successfully implemented in the past and know is a strength.
Public policy and government action
The world of banking is changing as regulators try to include more players in the digital economy—not only are they opening up financial services through the likes of PSD2 and open banking initiatives, as seen in the U.K., they continue to enforce trading regulations, including ensuring fintechs and neo-banks are governed by the same rules as traditional players.
Cloud providers are a key player nowadays, as the global cloud trend gathers pace in the payments industry. This innovation, plus the need to be compliant, might lead banks to wonder if implementing a cloud strategy will prove to benefit the bank.
HT: We can see the benefits of the cloud as part of the standardization of services. In that respect, it is similar to using a packaged solution, where multiple users are enjoying the same development and maintenance power of one provider. This way, the wheel does not need to be invented multiple times, which is also very good from a cost perspective.
Interconnectivity and the movement towards the Payment of Things (PoT) and Internet of Things (IoT)
This is not just relevant for traditional P2P payments, but also B2P with the advent of machine-to-machine payments—the consequences of which are not yet fully understood. There are still a lot of questions around how preferences, rules and settings will be defined by humans in order for the machines to know how to behave on an individual’s behalf.
While these matters are still being discussed in the race for speed to market, I asked the experts what single thing banks can least afford to compromise when defining retail payments future.
RS: Quality of service and customer service.
HT: Consumer trust.
With these levers accelerating and shaping the future of retail payments, vendors and suppliers of services cannot yet place bets on what the end solution will be—right now there is no end in sight—but they should be using building blocks to create a sustainable end result.
To learn how issuers can remain front of digital wallet and increase wallet share across all channels, watch the on-demand webinar: “Need for Speed to Market: The Next Generation of Issuing.”