The payments and banking landscape has changed dramatically since 2008. Gone are the secret society days of banks determining and driving customers to specific mapped out products with zero transparency. There’s also been a clampdown on huge profit margins and fees for many services, with the focus shifting towards greater accountability. Let's take a look at how the future of payments and banking stacks up.
In the last five years alone, banks have had to deal with competition not only ‘eating their lunch’, but coming for their square meals entirely. Once, the high street banks may have scoffed at new entrants, but now fintechs could take the march away from them. This has triggered the stages of the Change Curve in the industry.
• Shock and Denial
• Anger and Depression
• Acceptance and Integration
Whilst the genesis point is often stated as the crisis of 2008, it actually began sometime before and wasn’t driven truly by a single event. It was an accumulation of unforeseen, and at the time unconnected, breakthroughs.
Travelex CFX (later branded Global Business Payments and subsequently acquired by Western Union) was one of the first to challenge the banks’ core business. It offered a transparent, more cost effective and thoroughly more client friendly approach to making cross border payments for both corporates and private individuals.
On the back of this success, other payment service providers suddenly appeared and competition in the space heated up. A key part of this rapid growth was the agility to adapt quickly – free from decades of legacy technology and infrastructure. These agile organisations benefited from the ability to roll out new products quickly, web-based portals (as well as Web services) and the fact that they were unburdened (at the time) by the regulatory framework imposed on the banks.
All this is without even considering the huge impact PayPal and other providers were having in the retail banking space as rapid adoption of alternative methods of payment sprung up. Corporate and retail customers now had a choice; the default option for their need was no longer the bank.
Post-2008, the regulators’ bite cannot truly be quantified unless you’ve worked in a bank and experienced the pain. The compliance demands, investment required and timeframes set by the financial governing bodies around the world were near-impossible tasks as banks also fought to survive the recession, to reduce costs, keep making money and satisfy investors.
What the regulators were trying to achieve within the timeframes, while well intended, was misguided and caused knee-jerk chain reaction across all banks to meet milestone checkpoints – as opposed to being able to look at how things could be done better – because they had to be met. This has led to even greater complexity and instability across the already creaking legacy infrastructure.
The future of banking has been redefined with the advent and advance of technology. The way we interact and expect to be interacted with too has shifted. Where once we willingly followed a process because “that’s the process”, we now challenge it.
If we consider the key challenges that we hear from both banks and corporates today it’s not primarily in the leading-edge cases such as blockchain. While all players recognise the potential of such developments, it’s more basic. They need:
• Provision of a single customer view to deepen relationships and open up cross-sell opportunities
• Customer on-boarding which is both low-cost and provides an excellent user experience
• Agility both in terms of the introduction of new product offerings and the ability to move into new markets. This covers, for example:
- Real-time services and open banking APIs
- Regulatory solutions such as PSD2 compliance when it comes to market penetration
• Optimising the utilisation of both client-side and bank-side liquidity with solutions that look across the traditional silos
• Facilities that value the customer holistically such as relationship-based pricing and deep business insights through advanced analytics
Consumers have the facility to be connected at all times and whatever past lengthy processes were, the current and future generations will not wear it. If you can browse through entire libraries of media, if you can purchase and consume in five clicks or less, why can’t you do that in the working environment…? The maturity of these communication channels means consumers of all generations are embracing new ways to interact with the bank and make payments, whether they are embracing it for the first time, or have grown up in the smartphone era.
The past two years have seen the banks do a full 180 in their approach to engagement and collaboration with clients and competitors. Initially they continued with the traditional approach of building or buying and keeping everything ring-fenced and closed off – no APIs here. But this is now completely reversed as banks expect to interact with other APIs.
Major contributing factors here are maturity in approach from both the regulators and the banks themselves, having realised that old ways were simply going to lead them to be left behind, lose market share and relevance. Collaboration and partnerships have proven key to unlocking future revenue streams, while protecting existing lines. In the current climate, a key challenge for banks is also addressing revenue leakage. Gaining full visibility and control through extensive analytics will help banks meet this goal.
Regulators are now engaging directly with all players across the banking ecosystem. At a conference in Singapore earlier in the year, one of the speakers advised how he regularly communicates with the local regulator via WhatsApp.
With this unprecedented ease and level of informal access, progress will no longer stagnate or take decades to define and implement.
In addition, the creation of sandboxes allows banks and fintechs to help define smart, more easily adoptable regulations, delivering the best balance of consumer protection and realistic integration with the global banking landscape. With investment in this area heating up significantly right now, we have seen a rapid rate of change and the number of breakthroughs continues to grow.
With a genuine desire to move forward and tackle challenges in the truest sense of collaboration, forward thinking technology providers have a real opportunity to put the banks’ needs front and centre. This means that the banks in turn can also put their customers’ requirements and corporates’ customers’ needs at the heart of everything.
By Matthew Williamson, Global Head of Payments, Misys.