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
The Mexican Fintech Revolution – ¿Qué onda in Open Banking?
Mexico has joined an elite group of nations, being amongst the first to pass open banking regulations. Specifically designed to open up its financial services and technology sector, the so-called ‘Fintech Law’ appears to have taken notes from PSD2, UK Open Banking, Singapore’s ‘organic’ approach, and others – and balances these against Mexico’s unique context and aims.
ACI’s Lu Zurawski, one of the industry's foremost open payments experts, and Sonia Gomez, a Latin America payments authority, discuss this balancing act; including the drivers, the regulation and the potential benefits.
Working Up An Appetite for APIs in Australia
This week ACI hosted the latest installment of our #paymentsforbreakfast forums in Australia, with the early birds catching the open banking worm in both Sydney and Melbourne.
Given the similarities between the Australian and UK open banking movements, we enticed ACI’s UK-based Lu Zurawski (Solutions Practice Lead - Retail Banking) to Australia to share his learnings from being heavily involved in the UK Open Banking working group.
APIs and Cash Management (Harnessing the Hammer, Part 2)
In my last blog post, we talked about the hammer and the nail; the hammer in this case being open APIs, and the nail being the market need to adapt to changes in customer behavior and expectations from our commercial market. We laid out why the US is in a different position when it comes to open APIs—it has to do entirely with the regulatory environment, which is allowing us to start with the largest revenue opportunity first. Finally, we challenged you, the reader, on how you can begin on your journey. And that is where we are going to pick things up. What steps can you take today, and what use cases can you explore as we start getting our hands dirty?
Three Key Takeaways from the Latest Payments Insight Survey
Blinkist is a reading app that summarizes books into 15-20 minute reads; these reads are called “blinks.” It’s helpful for a few reasons – I can scan books before I purchase them, I can get new ideas without having to read the full book, and I can learn to summarize information. It’s safe to say that I (and probably many who are strapped for time) are a little obsessed with Blinkist! So here I present my own summary – in three key takeaways – of the new ‘2018 Global Payments Insight Survey: Retail Banking,’ which finds that 51% of banks are increasing spend on payment technology.
The Hidden Cost of Digital Payments for Retail Payment Players
It is not exactly breaking news that non-cash payments are on the rise globally, with column inches dedicated to the launch of digital financial-inclusion projects. But going cashless is not only a challenge for humanitarian endeavors, or developing countries. We all agree that removing cash from the system will save payments players big bucks in the future, but we must also consider the immediate impact of digital transformation on the legacy infrastructure of the powerhouses of the payments ecosystem.
Why User Engagement Matters, Even for Enterprise Applications
As a User Experience Designer at ACI, I spend a lot of time watching users interact with my designs. I need to make sure our solutions work properly, but lately I’m more interested in how they make my users feel. Engagement is a dominant concept in user interface design right now. It’s important because positive emotional experiences often lead to increased use and loyalty.
Five Payments Trends to Watch in 2018 [Part 1]
2018 is set to be a year of rapid change and new challenges for payments players. The floodgates are opening with PSD2 and UK Open Banking coming into force, bringing an onslaught of new competitors and potential partners. Whether evolution is mandated or market-driven, banks and processors are facing a critical year in their long-term success.
Five Payments Trends to Watch in 2018 [Part 2]
The New Payments Ecosystem Is Here. The floodgates are opening with PSD2 and UK Open Banking coming into force, bringing an onslaught of new competitors and potential partners. Whether evolution is mandated or market-driven, banks and processors are facing a critical year in their long-term success.
Open Banking Goes Live: The Walls Around Traditional ‘Old Style Banking’ Are Crumbling Down
January 13, 2018 may well be remembered as the ‘beginning of the end’ of the traditional retail banking industry.
Thanks to a profound set of new rules by European regulators and the UK government, we may see the start of an era where consumers no longer hesitate to change their bank accounts or make more personalized arrangements with regards to their finances.
The Bank of the Future: 2040 and the Reality of Ar and Vr
Mark, when I envision the bank of the future, I imagine Twiki and Buck Rogers at a casino. Or maybe I once dreamed that—I’m old and my mind is going. So what are we talking about and what can we envision when it comes to the bank of the future? And by future, I’m talking about 2040, before certain cities might be flooded (by water). But I digress, as this isn’t a post about climate change.