Planning for Success in New Era of Payments – The Need for a 3600 Vision
The global payments landscape is experiencing its greatest transformation since the dawn of electronic payments. Obvious trends are the decline of cash and cheques, the continuing growth of cards (global forecast to reach 500 billion in volume by 2022) and the rise of instant payments.
And with a global CAGR of 10.9%, the industry is an attractive one, but with many challenges. Regulation, technology and rising customer expectations are reshaping the market, and success requires an integrated view across all payment types and channels. While this is simple in theory, there are many practical considerations. Why?
The payments landscape has evolved along product lines. In the beginning, there was just cash, then cheques arrived, followed by electronic payments, cards and so on. Each has unique support needs, producing a siloed infrastructure with a staggering TCO. Moreover, instant payments and open banking will have a permanent impact on payment business models. While some payment providers may initially perceive this as a threat, it is also an opportunity to do things differently.
BUILD ON TRUST
Banks can build on customer loyalty. In this era of open and instant, they can offer services that deepen customer relationships. Research shows that 52% of people trust banks over technology providers (<5%) for apps that manage their finances.
Many customers feel more confident about choosing third-party apps promoted by their bank offering ‘marketplace’ opportunities to existing institutions. New apps help build customer loyalty and generate new revenues for both banks and their fintech partners.
CAN CARDS KEEP PACE?
On the face of it, the infinite use cases offered by account-to-account payments will easily outshine their older, less flexible card network cousins. However, the cards world is also evolving to a more real-time open experience. Card account opening, fraud management and authorizations are all offered 24/7. Tokenization is liberating the card payment from the constraints of the physical world.
The key strength of card payments lies in the existing customer base, where cards have truly reached ubiquity in many markets through significant investments by banks and merchants in developing POS networks. Cards are known and understood, which is a key strength in an increasingly complex world. Card payments also offer significant consumer protection through the chargeback and disputes rules of the schemes and regulation. These have been built up over many years. The level of trust embodied in the Visa and MasterCard brands will be difficult to replicate.
PAYMENTS - A 2-HORSE RACE
So, for the foreseeable future, we believe there will be two core platforms that participants in the payments industry must support - account to account and cards or enterprise and retail payments, as you prefer. The balance between the two could change dramatically depending on the moves of the larger participants, regulatory pressure, standardization efforts, how machine-to-machine payments develop.
Ultimately, all payment providers will need greater agility to adapt to unpredictable market and customer demands. Success will come with building platforms that have capabilities that can be turned on and off, tuned up and down.
HOLISTIC PAYMENTS BLUEPRINT
Most payment providers need help to boost their business agility. The move to open and instant payment rails is a unique opportunity to review the payments blueprint. Technical partners can help, but they must offer insight and a practical understanding of the payments business.
A technology partner must offer an integrated blue print for payments, such as F IS™ PaymentsOne, which offers a comprehensive suite of payment solutions. Once the overall payments blueprint is understood, the transition to greater integration can be modular.
SOFTWARE OR SERVICE?
Understandably, there is increasing appetite for hosted payments services, whether for real-time payments or card management. These services enable a more consistent customer experience across multiple channels, insulate payment providers from change and remove many integration barriers, making it easier to add in new features.
Payment providers start from different points and should be free to choose payments components as either licensed software, a managed service, fully outsourced, or as a hybrid solution. The key is to ensure smooth integration and world-class service. Furthermore, what’s right for today, may need to adapt tomorrow.
TIME TO ACT
Some banks have a bold vision of their future position; others are adopting a cautious approach. While a ‘wait and see’ attitude is understandable, doing nothing is not a viable option. In theory, a payment is a payment is a payment, but payment providers that can accelerate the move to a holistic blueprint will be able to streamline their operations sooner and release investment for where they can really add value and win customer loyalty.