Many years ago, some would have answer that a payment is “moving funds from an economic agent to another”. This was a fully-fledged and time-consuming act that a payer had to manage upon his economic activity.
If you ask the same question today, the answer would be drastically different. Payment is still about moving funds but not only. The payment act is being fully revamp in many aspects:
– Data and Information that a payment can bear are as much important as funds transfer
– Even if the processing of a payment becomes more and more complex for the banks, the trend is toward simplification for users, natural fit and sometimes transparency with the user purchase experience.
Hence, payments cannot be seen anymore as specific funds transfer process. This is something users don’t want to manage anymore. They want the payment act to become fully bundled in their day-to-day activities, in a smooth and consistent customer experience, being as simple as clicking a button, using payee proxy-identifier that are meaningful for them.
Internet, Smartphones, wearable and IoT have revolutionized the consumer behavior, leading to a digital transformation of the economy where services are provided everywhere, 24/7. Payments being part of this economy are also impacted by this transformation. In a world where goods can move swiftly and be delivered at home in a couple of hours, it is not acceptable that money cannot move in less than a day.
Internet and technology are also challenging the “old fashion” business models. Disintermediation triggers the requirements of a new generation of consumers. The biggest retailer does not have any stocks (Alibaba), the biggest taxi company does not have cars (Uber), the biggest property rentals business does not have any property (AirBnb). Hence, this looks obvious payments could be serviced by non-financial entities.
Payment Activity is at an inflexion point. What are the challenges the banks will have to face?
Many significant investments have been done in the last decade to comply with the many regulatory changes and enhance payment information systems accordingly. Looking at the payment journey since the beginning of the 21stcentury is quite impressive: introduction of euro, pan-european clearing systems introduction with TARGET and EBA, AML control strengthening and Economic Sanction filtering, SEPA implementation … All of those investments had a huge impact on the Payment PNL for the banks, hence leading to some strategic discussions for a couple of them to decide if Payments are still part of their Core Business.
Payments NextGen is not a new chapter of the transformation, it is a new transformation story where tactical enhancement of legacy system is not an acceptable solution for Key Players. Bank of the future will have to convert challenges into opportunities, defining concrete and consistent answers to many concerns:
Advent of Borderless Commerce Economytriggering the need of much transparent and efficient payment methods across borders.
Real time paymentsavailable 24/7 eliciting the end of any legacy batch processes and the generalization of messaging logics.
Identity security, fraud and threats enhancementas process becomes more automated and real-time. Artificial Intelligence appears as must-have enabler to provide adaptive STP solutions.
Leveraging the real power of databrought by payment activity to design new valuable services for internal (customer insights, security) and external purpose (reconciliation, cash forecast, scoring). Monetization of data will then provide a new revenue in the payment activity.
Performance and reliability to ensure proper continuity of the business where IoT and wearable will trigger the substantial growth of micro-payments.
In this new context, banking stakeholders have to adopt a brand new mind set to see regulation not as a mandatory requirement to comply with, in the less restrictive way, but as a foundation for innovation. The second Payment Service Directive (PSD2) introduces new obligations for the banks to open an access to data to Third Party Providers. Instead of complying with this requirement in a defensive attitude, limiting the service and information as much as possible to potential competitors, why not looking at this opportunity to redefine the core business and embrace a “platform as a business” strategy? Focusing on their financial competencies, they would benefit from a monetization of core competencies and resources through Open APIs in order to leverage new platforms and provide accelerators to any innovative marketplace. Saying that, collaboration with new actors like Fintech becomes key to benefit from each other’s competencies and create value eco-systems driven by customer experience.
Rationalization of payment means needs also to be triggered by bank to decommission inefficient, complex and expensive instruments, principally cheques and cash, and better balance their costs. The recent introduction of instant payment, enhanced with request to pay and proxy identifiers, provide a promising framework to replace then in a near futures. Even the card activity, so rooted in our habits could be removed from this landscape.
As Winston Churchill said: “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning”. The revolution Payments will live in the forthcoming years is probably the biggest one we have ever seen since 30 years, opening an exciting horizon.
With a long lasting experience in Payment and Cash Management and transformation projects, SKAIZen Associates can provide an external insight and support the many payment stakeholders in the definition and delivery of their transformation journey.