Immediate Payments Require New Business Models First, IT Solutions Can Come Later
Hungary is probably not the first country that comes to mind when talking about fintech hotspots and innovation hubs. However, the country is very much at the forefront when it comes to banking innovation in Europe. In late 2017, I had the privilege to speak at the annual Fintech Innovation Conference in Budapest. Organized by Privatbanker.hu, this was a great opportunity to meet not only Hungarian experts, but finance professionals and industry stakeholders from across the continent.
Immediate Payments was, unsurprisingly, one of the hot topics in payments last year. In 2019, Hungary will launch its own domestic IP scheme. Participation is mandatory for all banks in Hungary; therefore, preparing for the launch of this scheme is on top of the agenda for most financial institutions, and the topic dominated many of the event presentations and individual discussions I had.
One of the main takeaways for me was the importance of explaining and highlighting the business case for Instant Payments (IP).
A key leader from one of the most important Banks in Central and Eastern Europe communicated his views in a refreshingly frank way when he asked me: “Dome, we are about to launch IP in our country. We know it is a Central Bank decision, but we still don’t see business opportunities in relation to the new services. Where is the business case? Are we sure our clients are interested in Instant Payments?”
His question made me realize that some banks seem to be missing a crucial part of the project. While much of the debate focused around the best IT solutions, it is important to point out that IP is a business and organizational model first. The IT solutions come later, and should be tailored to meet the new dynamic IP business model.
I have worked in the banking sector for close to 25 years, including serving as Head of International Payment Applications at one of the key EU banking groups. As such, I understand that developing an in-house solution based purely on IT, without taking into consideration all aspects of the proposition that are necessary for a new evolution in payments, is tantamount to committing to failure almost straight ‘out of the gate.’ Just to give you an example, 15 of the 40 initial banks involved in the first window of the EBA RT1 IP service decided to step away and defer their ‘go live date.’ It is important to understand why these banks felt the need to postpone the project. The answer to this question is simple - a partial or complete underestimation of the cash and liquidity aspects, ignoring the fact that IP is not just a new payment typology, but, as noted, an organizational model of the bank that should evolve as a bank evolves too.
At ACI, we are investing a lot of time and energy into research aimed at understanding customer demand for IP from consumers, small and medium-sized businesses (SMEs), corporates and even governments. This year, we conducted surveys among consumers and SMEs in the US and Europe into the demand for real-time payments and the results are conclusive globally: many consumers are ready to switch banks if their existing provider does not offer Instant Payments. In Hungary, for example, 69 percent of consumers will consider switching banks for the offer of real-time payments.1
Sharing and analyzing data that supports the business case for Instant Payments is a key part of our commitment to partners, clients and prospects.
The message delivered during the conference by the Deputy State Secretary for Financial Policy at the Ministry for National Economy, Mr. László Balogh, was probably the most interesting and open: “Banks should invest in technology and innovative services to meet consumers’ expectations, in compliance with new regulations around data protection and money laundering. This should lead to significant cost efficiency; however, this benefit should be shared between service providers and consumers.”
Going forward, I hope that banks will start looking at the business case and understand that real-time payments are not just an IT investment. In Hungary, several PSPs are already active and will soon be able to offer competitive services. They are poised to take clients from more traditional financial service providers and we expect to see similar developments in other countries where IP is already firmly established. Without a dynamic solution that allows a financial institution to offer new services quickly, tailored for specific client typologies and using an Open API approach, traditional banks will experience difficulties. Judging by the lack of awareness I saw at this event, the list of banks could be long. However, the good news is that it isn’t too late to turn things around. If banks start looking at IP as more than just an IT project, and develop long-term business cases now, they will be able to rise to the challenge and compete in this brave new payments world.
Learn more about real-time consumer demand and market drivers in both the U.S. and Europe.
1 All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 1,000 adults. Fieldwork was undertaken between May 31st - June 5th, 2017. The survey was carried out online.
Related Blog Posts
All I Want For Christmas (Or Any Holiday) Is… Instant Payments Gratification
Mark, some of us are fast approaching the end of the holiday shopping season, some of us are fast approaching that time of year when we consume too much egg nog, and some of us are fast approaching too many viewings of Die Hard or It’s a Wonderful Life or Love Actually or Christmas in Connecticut (I’ve disclosed too much about myself). To segue slightly more than slightly, I was at Target over the weekend, braving the holiday shopping crowds, to buy toilet paper, paper towels and tissues… and I took advantage of the 5% off that I get from using my Red Card. I surveyed the throngs of other consumers in the nearby checkout lines and not once did I see another store card. During this, the biggest shopping season of the year, why wouldn’t consumers use loyalty/rewards cards when making purchases?
Fraudsters Don’t Wait for Peak, So Neither Should You: 2019 Fraud Strategy Starts Now!
In existence for barely two decades, eCommerce has transformed not only the way we shop, but also how retailers plan and execute their marketing strategies around the peak shopping season. Now that we’re deep into this period, retailers will have prepared for changes in buyer behaviors, relaxed their strategies to be within the limits of manageable review rate, and most important of all, put strategies in place for increased fraud attempts.
Women in Payments Australia: 8 Insights for Success
Women in Payments continues to go from strength to strength, expanding its footprint globally and running events from Canada (where it was born) and the U.S., to Australia and now the UK. ACI has been a proud global sponsor of Women in Payments since 2014, which has allowed me personally – along with a number of colleagues around the world – to be a part of the growing calendar of Women in Payments events that take place around the globe.
Cybersecurity: Risks, Controls and What to Expect in 2019
The world of Cybersecurity has brought about several subtle changes in 2018. For example, malware and targeted 'Spear Phishing' were on the rise, while the focus on protecting the perimeter has begun to take a back seat to hardening internal controls. As we enter 2019, the changing threat landscape is certain to result in a barrage of additional considerations in how we protect data and systems.
‘Soup To Nuts’ – A Multi-Layered Fraud Menu for the Holiday Season
The holiday shopping season is well underway, with Black Friday now behind us and many retailers around the world braced for higher levels of eCommerce fraud, from Cyber Monday all the way though until Christmas.
Success Speaks: Exploring the Future of Payments Collections in Auto-Finance with SAFCO
When it comes to improving collections, there’s one simple question your organization should ask before embarking on any type of payments project: what does “customer service” mean to our customers?
How Merchants and Consumers Can Fight Fraud This 2018 Holiday Shopping Season
For International Fraud Awareness Week, I want to bring special focus to the upcoming holiday season around the world. Here in the U.S., the holiday season kicks off with Thanksgiving, which is now only a week away. But as consumers and merchants around the world gear up for peak holiday shopping season, fraudsters are also preparing to triumph.
19 for 2019 (Payments Predictions Galore!)
Can you believe it! Snowflakes in the Northeast, which means getting the skis tuned up to race down (steep) hills. And speaking of racing, businesses are racing to complete their 2019 plans and put the finishing touches on remaining 2018 campaigns, which I hope are resounding successes. It also means (delicious or disgusting egg nog… #judgementfree), office holiday parties and prognostications galore!
A Postcard from Money20/20
Greetings from Las Vegas. By the time this note finds you, I will be back at my desk pouring over my follow-up notes from another crazy, wonderful, insightful and totally exhausting Money20/20. The event itself has grown to become the annual ‘must-attend’ on the financial technology schedule, and this year’s event didn’t disappoint with new attendees, old friends and an agenda that kept you on your feet for 4 days (and nights).
Preparing for Peak: Tactical Recommendations for Stopping Holiday Season Fraud
Business might be booming for eCommerce merchants, who see increases in holiday spending climbing steadily upwards each year, but with fraud growing nearly twice as fast as sales, merchants need to have their fraud strategy fine-tuned to ensure that peak retail season is a success. I spoke to Erika Dietrich, ACI’s Leader of Risk Services, to find out how merchants can best prepare their fraud management strategies for the holiday season, ensuring risk strategies are effective – with low friction for genuine customers and high accuracy in detecting fraud.