With the Sibos 2012 trade show starting up today in Osaka, Japan, which will be covered by a daily bobsguide show blog at the end of each day, Nitin Sirohi, solution head for TCS BaNCS’ Wholesale Banking unit discusses one of the expected hot topics. He examines how banks that are challenged by new non-traditional players, from supermarket groups to technology companies, can fight back and retain their leading role in a rapidly changing payments landscape.
Payments is an area of the financial services (FS) industry where innovation is taking the market place to the next level. A large number of non-bank organisations, such as Tesco Bank or tech companies such as Google with its mobile wallet or PayPal, are becoming payment service providers (PSPs) themselves and threatening what was once a steady, reliable and bank-based revenue stream. So far only a part of retail-oriented payments have been the ones to move to alternative channels, such as PayPal, Google and others, but banks need to prepare for more competition, as it is only a matter of time before business-to-business (B2B) payments do so too.
Banking infrastructure has traditionally been silo-heavy and overbearing, which has been felt in client onboarding and banks’ transaction initiation and reporting facilities. More nimble competitors, new to the market, are now taking advantage of this and leapfrogging traditional banks when it comes to technology. Yet, when it comes to the servicing of the end-to-end payment process, banks provide a more secure environment with the underlying regulatory compliance and security rules. Banks have invested in capital-intensive infrastructures to ensure security, compliance and delivery for payments, but what they now need to address is their accessibility and the ease of initiating and tracking of payment transactions. This will allow banks to retain the value-add business.
No one doubts that rigorous regulatory conditions and compliance have been weighing banks down. Opening up their IT landscape to modern platforms and engaging with flexible solutions such as rule-based processing or data warehousing can provide responses to the challenge of remaining compliant, while still moving ahead with business.
Meeting the challenge of new entrants
How do the banks respond to new PSPs and banking entrants? They are at a crossroads where they can either hope that regulation and a lack of global payments standards will eventually drive the new entrants out of the market, or they can recognise the huge opportunity that is in front of them and embrace this new payments paradigm, getting into mobile payments and other developing areas before others do.
Banks need to take advantage of converging technologies. Banking can now take place online, on a mobile device or in person and taking advantage of these different channels is key to growing market share. Customers expect a seamless multi-channel experience and continuity of information.
I believe that the future of payments will be mobile apps. Embracing newer technologies, like mobile and social media, will revitalise the banks’ place within the payments ecosystem. Banks are going to be key stakeholders in this as regulatory issues catch up with non-bank payment processors and eventually a secured framework will be created. The winners in this environment are going to be those who provide better accessibility for initiating payments. To ensure they’re on the winning side, banks need to pay attention to their channel and distribution framework.
Mobile payments initiation today is firmly focused on the consumer, but adoption of mobile by merchants for cost effective acquisition and by corporates may facilitate faster, easier and better client on-boarding and integration. This will potentially open up new opportunities for the banks to continue on a growth curve to gain more market share. To service the increased customer base they must look at flexible, extensible platforms, possibly tapping into trends like cloud.
In conclusion, this is a time of great changes and equally great opportunity. Banks can realise their full potential not only by leveraging their core competence and proven experience in payments-related operations but also by embracing the new technologies and mechanisms to deliver better service to their customers. Surely that is the true vision of any service provider. I expect the issue to be much discussed on the exhibition floor at Sibos 2012 this week.