Banking
The new path for payments: How are banks navigating this rapid evolution?
Global Banking and Finance Review
Company
By Louise Coles, Senior Director, Banking, UK & Ireland at Diebold Nixdorf
So much has changed when it comes to the way that we use money and pay for things. It seems a long time since the credit card was touted as a ‘revolution’ in this area – almost 70 years in fact. Nowadays, new technologies, systems and concepts are popping up every day. As innovation in the payments space continues to accelerate, banks are facing increasing pressure to not be seen as lagging behind or missing out on a major opportunity.
Banks, whose main purpose is to provide a service to its customers, are tasked with keeping up with these new ideas, or bringing them to the fore themselves. Whether it’s implementing a seamless backend infrastructure to handle payments more simply, or enabling the latest tap and go payment solutions through digital innovation, it is imperative for banks to stay ahead of the curve in order to satisfy today’s consumer demands.
Payments Now
Payments are inextricably linked to consumer behaviours. Rooted in people’s way of life, payments dictate how people put food on the table or do the things that they enjoy. If customers don’t have the right methods to pay for things they cannot lead their everyday lives, and we are seeing an increasing openness to embracing multiple different payment methods and providers as part of these everyday transactions. In fact, recent research[1] has shown that approximately one-third of financial service consumers reported spreading financial engagement across four or more providers. Beyond their primary banks, most of those additional providers (71%) were digital payments providers, such as PayPal or a digital wallet.
With this in mind, it is not simply rising end-user pressure that is driving a payments shift, but also an increasingly complex competitive marketplace. Therefore payment structures should be a priority for any bank, and they must do their best to make payments as seamless and frictionless as possible. Pressing as it is to make swift changes, taking a more holistic approach is also essential for long term success. Taking the opportunity now to build in flexible foundations for the future – enabling more agile pivots and adaptations – could make all the difference to customer retention and maintaining customer satisfaction scores in the long run.
The Next Steps
As the industry continues to embrace innovation and pushes ahead in many areas, it can sometimes be useful to go back to basics and consider what you are trying to achieve in the payments space. Essentially, the purpose of payments has always remained the same: to offer an ever faster and more fluid user experience to people in how to exchange funds for goods or services.
Thus, it makes sense to improve the efficiency of how a transaction is carried out. To allow customers to do more with their money while taking up less time. But a fundamental element that should not be overlooked is always choice. From cash (still essential in society) cheques and bank cards to contactless mobile payments, and more recently digital and biometric payments, the platform for success is likely to be multi-layered.
Alongside flexibility and choice, trust should also underpin every consumer journey related decision. This is one reason why cash, and access to it, continues to be relevant – it is a vital means of payment for many people. Despite calls for society to go cashless, millions of people and businesses rely on cash to function, and it’s often because cash is tangible, easy to access and maintains a high level of trust for many in today’s society. As with many industries, it takes time for people to adjust to new technologies and concepts and the ‘trust factor’ remains very important across every aspect of the financial services space.
The Challenges of Payment Innovation
Given the complex nature of payments and the ever-evolving industry expectations, it can often be challenging to decide where and when to invest in payments innovation. Indeed, there have been plenty of challenges along the way to get to where we are now, and there will undoubtedly be more to come. History has shown us that the payments industry is inherently adaptable and often fast moving, which often presents banks with the challenge of simply keeping up, let alone proactively developing and embracing the future of payments.
The pressure of finding new technologies and systems that match the wants and needs of society, coupled with industry changes and regulatory requirements, often mean the payments landscape can be complex and convoluted. As a result, industry collaboration is becoming more prevalent as the borders between providers merge and expertise and specialisms are pooled together.
This is becoming increasingly common as traditional banks navigate a huge challenge in the payments ecosystem – burgeoning competition posed by fintechs and ‘challenger banks’. Institutional banks are large and are often seen as ‘old guard’ especially when compared with newer, more nimble fintechs who promise more personalised experiences. This also applies to payments.
Customer services and the hyper personalisation of user experiences are paramount to success in this age. Large banks often struggle to compete with the smaller, almost entirely digitised firms where efficiency and personalisation are part of their DNA. Research conducted by Built for Mars in 2020 into the number of ‘clicks’ it takes to set up a bank account showcased how banks are falling behind fintechs, with some digital account set ups requiring just a quarter of the clicks needed to set up an account in comparison with a high street bank.[2]
Another big challenge on the path to payments success is security and protecting consumer data. For example, the nascence of new types of fraud, or debates over data transparency have accompanied the transition to contactless payments. This in turn has led to debates about biometrics being used as the most secure way to pay, which in turn has led to debates surrounding privacy. Whilst it is becoming easier and faster to pay for things, banks must be vigilant about maintaining security in any new system or platform that is being implemented.
A Future Vision
The payments landscape is tough to navigate but the time to act is now. Offering a broad range of integrated services across numerous channels to maintain the purpose of serving customers, whether for ATM withdrawal, mobile payment or P2P transactions is becoming the only way to effectively compete.
Looking to the future, banks must become flexible processing platforms with operational efficiency and optimised customer experience at the heart of what they do. For now, it is unclear what the payments landscape will look like exactly, but many have hinted at the metaverse becoming central to the banking and payment industry. It is likely that retail banking will be one of the first communities in the metaverse, allowing customers to pay for things in a virtual cyberspace. However, for any new payments system, consumer behaviour and customer journeys will shape its success.
[1] NielsenIQ International Retail Banking & Technology Survey commissioned by Diebold Nixdorf, 2021
[2] https://builtformars.com/case-studies/opening-12-bank-accounts
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