The one constant across my nearly 20 years in the payments business is that things have never stood still long enough to get boring. Starting with the days when consumers’ only payment options were cash, checks and house credit (okay, that was a lot more than 20 years ago), merchants and financial services innovators have continued to add new payments alternatives at a dizzying pace. And just as importantly, they haven’t retired any.
Most banks and credit unions would be surprised to discover the percentage of their revenue that is payments driven; definitions can vary, but the share is almost certainly over a quarter and can even approach one-half. Interestingly, a recent American Banker survey indicates that 87% of financial institutions lack a formalized payments strategy; roughly half express plans to develop a strategy, but these often amount to little more than plans to “monitor” and “wait and see.”
As I explained in a recent webinar, the stakes are simply too high for even small banks and credit unions to move forward without a well considered and articulated enterprise-level plan to address the rapidly evolving payments landscape.
More Endpoints, More Problems and Opportunities
The Atlanta Fed recently documented at least 15 distinct payment choices available to U.S. consumers, up from 10 in the mid-1990s. Bear in mind, however, that the instrument of payment is only one factor in this multi-dimensional network, and the complexity is increasing on all fronts.
“Form factor” is a fancy term, but consider this: the old-school “knuckle buster” card device gave way to the ubiquitous electronic swipe terminal. With chip cards, “swipe or insert?” has replaced “paper or plastic?” as the most common question at the point of sale. Now add a variety of phone pay options – some requiring the scanning of an on-screen code, others a mere wave – as well as wearable devices, and you’ve got a tangled web. The venues for making payments are likewise expanding, with brick and mortar giving way to e-commerce, phones, texts, your TV, game console, etc. Moreover, consumers have demonstrated a tendency to cross channels, initiating a transaction in one channel and completing it in another, which only serves to up the ante for a seamless experience.
Conceptually, advancements in APIs make it easier for providers to integrate these myriad solutions. It’s still necessary, however, to prioritize these and harmonize them with existing bank infrastructure. After all, every payment is a customer interaction (not to mention a revenue enhancement opportunity) and a chance to delight or disappoint customers – or worse yet, be forgotten by them.
Magic Bands and Beer Money
Two recent examples demonstrate how quickly times change. At a televised 2017 college football game, a student held up a sign imploring “Dear Mom, Send Beer Money,” adding the Venmo logo and his ID. He was picked up on camera, and soon received 3,000 payments. How’s that for free publicity, and free booze? (No word on whether he was of drinking age…)
On a more wholesome note, “magic band” bracelets at Walt Disney’s theme parks serve as friction-free devices to pay for anything on their campuses, while also functioning as hotel room keys, a fast pass for priority line status and a dining reservation tracker. By the way, it also logs your every move to generate a treasure trove of marketing data for Disney and others.
Payment methods and form factors like the above didn’t even exist a few short years ago, but they are fast becoming widely accepted and driving customer expectations of ever more seamless and convenient payment options and experiences.
Out of Date as Soon as Published
The challenge for all but the largest institutions is finding bandwidth to keep tabs on the fast-moving fintech space. Even research firms who make a business of tracking the fintech market issue reports that become outdated virtually the moment they’re published. Such are the challenges of today’s tech world. Consumer expectations for speed and experience are being set by the likes of Apple, Google and Amazon, and financial institutions have little choice but to adapt.
Organizations will have different objectives, but it’s important to determine and communicate those objectives. These include product portfolio management, governance, risk management and operational redundancy, or vendor management decisions (e.g., whether to license software, acquire its maker or invest in the company and share in the upside).
Ideally, banks and credit unions will create funding for a small dedicated team to monitor and engage in the payments space, while driving product development and operational efficiencies as well as mining customer insights. Regardless, the key deliverable is a consensus roadmap and resource prioritization, of course keeping the customer experience central to all of these decisions. Financial institutions risk losing more of the payments business – and their revenue – to Venmo and the like if they don’t act fast to plan now.