ABA Research on Payments Strategies in Banking
New technologies. Changing customer expectations. New competitors.
Consumer and commercial payments have become one of the most dynamic areas of financial services. And that’s left a lot of banks wondering whether they’re going to be able to keep up.
To assess how the industry is positioned to meet changes in the payments space, the American Bankers Association recently surveyed banks about their payments strategies and the challenges they face in implementing them.
And the survey says…
Many banks are just approaching the starting line when it comes to payments.
Strategy – While there’s an increasing recognition that a payments strategy should be formalized, a whopping 87% of the respondents noted that that they didn’t have such a strategy. And 41% of respondents reveal that no plans exist to develop such a plan at their bank.
“I think that we need to look at this as an opportunity for banks that haven’t crystalized a strategy yet,” said Steve Kenneally, ABA’s vice president of Payments and Cybersecurity Policy. “These banks can review their customer’s needs and match them with a payments plan that makes the most sense.”
Approach – The survey found that just under 40% identify themselves as either a “Fast Follower” or a “First Mover/Experimenter” when it comes to their organization’s approach to evaluating, adopting, executing, and managing payments strategies.
Most banks, however, identify as having a “Wait and See” approach.
The survey shows that larger banks and those that identify themselves as First Movers or Fast Followers, intend to increase their level of investment in payment services in the future. This will give them an edge over banks that fall into the “Wait and See” category in acquiring customers that value digital payments.
Data capture – Marketers in particular should be aware that most banks are missing an important opportunity to leverage payments data to gain insights into customer behavior. These are insights that could be parlayed into significant value, both for the customers and the bank. Only a minority of respondents indicate that their institution employs data analytics to inform sales efforts, provide timely information to customers, or guide marketing efforts. In other words, much of the banking industry is neglecting a key area of competitive differentiation in payments.
What can you do about it?
To address these and other shortfalls identified by the survey, here are some steps that can help you catch up.
- Develop a strategic payments plan. In the field of payments, there are many choices. But resources are limited, so it is imperative that banks have a comprehensive and focused payments strategy. To be truly useful, the plan must establish long-term performance objectives, identify target segments, and identify gaps in operating capabilities. These disciplines will help to prioritize investment decisions as well as create market differentiation. A well formulated payments strategy can also serve as a framework for evaluating other types of emerging products, services, and capabilities.
- Establish an enterprise-level governance structure. To successfully compete in the emerging digital payments field, banks must undertake significant changes in a number of areas—including technology, resource allocation, partner evaluation, and product development. To properly oversee and execute this degree of change requires a more holistic approach to the governance of payments strategy and implementation.
- Evaluate Open Banking Platforms. To provide improved payments solutions, the industry should evaluate leveraging third-party technologies to increase the utility of bank systems on behalf of its customers. Exploring open API strategies to integrate these new technologies into bank operations is a significant undertaking, but may be most responsive to customer needs. Banks must measure the potential benefits of offering improved services with the risk of reducing direct contact with customers. It is important to note that banks also have a risk of losing a customer entirely if they can’t or won’t facilitate a service that the customer wants. Banks should encourage their core service providers to be more innovative in their own product offerings and in integrating other solutions into the core system.
- Collaborate with fintechs. Banks must capitalize on the product innovation, programming expertise, and advanced data analytics that fintechs possess. Banks can best accomplish this by actively searching for and evaluating partners and then structuring alliances under terms that allow the banks to maintain control of their customer relationships. By pursuing a path of collaboration with fintechs, banks minimize the risk of being reduced to utilities, whereby they maintain the basic systems on which others reap the profit from new payments solutions.
- Invest in analytics to support payments. Payments information is being integrated into payments services in order to meet customer expectations and to provide differentiated products and services. Banks must build or acquire analytical capabilities that enable them to access and manipulate payments data in order to provide useful information to their customers.
Download the full survey report.