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.
Buy vs Build vs Maintain - Buying is creating benefits
Maintenance of old, legacy systems is one of the biggest recipients of IT investment (though I’m reluctant to call it investment as there is little expected return, perhaps sunk cost is a better alternative). This highlights the challenges of legacy systems and the obstacles bank face regarding developing new payment services. It also provides an opportunity to those competitors that are more mature in their payment modernization efforts.
Banks that have the highest usage of off-the-shelf (even customized) payment solutions have seen the largest reductions in payment operating costs, while banks that have seen the biggest increases in costs use a higher proportion of internally developed software. The biggest takeaway from the paper is that those that work with an outside vendor for core applications can reduce their total cost of ownership.
Real-time payments is at the center of the banking world
Going back 3-5 years, real-time payments were viewed as a regulatory mandate in a select few markets across the world. But banks are now starting to see the benefits of real-time payments, and an opportunity to not only revitalize the business, but also generate new revenue streams. 85% of all banks surveyed in 2018 expect real-time payments to generate new revenues, up from 53% last year. One big change has been around the expected benefits to customer service, with 86% of banks now either experiencing or expecting to see improvements, up from 61% in 2017.
The good news is that real-time payments are starting to deliver on promise – 80% of banks with live infrastructure are now seeing benefits. The 20% that are not seeing benefits most likely viewed the implementation as a tactical, compliance issue rather than as an opportunity to deliver new value. They are the ones that risk falling behind.
Open banking will reshape the value chain and competitive landscape
87% of all banks report that they have a clear strategy for developing open APIs, up from 59% in 2017. Alongside real-time payments, this is a clear indicator where payments is headed. What is driving this attitude change is the ability to improve the customer experience, and value proposition, through bank innovation or more strategic partnerships with third-party solution providers. As new partners come into the marketplace, it will disrupt the value chain.
From a strategic and visionary perspective, banks are making progress regarding innovation and open banking, with 73% actively encouraging developers to work with their APIs and customer data. Open banking will become a competitive differentiator in the marketplace as this trend continues. Security, it was noted in this year’s benchmark report, is the biggest area of concern in open banking – and it’s worth bearing in mind that this survey data was collected prior to the latest frenzy over Facebook, and how they and other tech giants use our personal data.
Providing third-party access to customer data runs contrary to the operating model that banks have historically adopted, and, as any large financial institution will freely admit, losing customer data is a far bigger threat to their business than being slow to market with innovation.
In the blink of an eye…
OK, maybe not the blink of an eye, but retail banking is moving forward at pace. If banks want to lower the total cost of operating and provide innovative services, they should buy the technology, rather than maintain those legacy systems that no longer fit for purpose. The move to real-time is unstoppable; those banks that view it only as a compliance issue will get left behind. And finally, open banking will present new challenges, which must be tackled to enable them to capture new opportunities.
Discover what’s driving digital payments innovation, and where banks are prioritizing investment – download the full report 2018 Global Payments Insight Survey: Retail Banking from ACI Worldwide and Ovum: www.aciworldwide.com/retailbankinginsights
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