Most bankers would agree that, all other things being equal, minimizing the cost of complexity is a key operational goal, which normally means consolidating around a limited number of financial services vendors. The big “gotcha” in the above statement, however, is that all other things are rarely equal, and recent industry trends reveal that other factors are at work.
In a perfect world, core banking service providers would serve as one-stop shops for ancillary products like mobile banking and remote deposit capture as well. In fact, an acquisition spree by the cores over recent years was aimed to round out their portfolios and solidify that single-source status. Recently, however, newer startups have delivered compelling enough innovations to prompt financial institutions (FIs) to expand their horizons.
Interactive ATMs and P2P
The most hype right now in the payments space is about peer-to-peer payments (P2P). FIs are searching for ways to offset Venmo’s magic, while Apple Inc. has entered the fray as well. Apple’s motivation stems from an ongoing drive to make its devices an indispensable part of everyday life. Based on Apple Pay’s middling traction, however, ease of use and consumer confusion issues remain.
The bank-led contender is Zelle, Early Warning System’s rebranded P2P solution. Along with launching a freestanding app and enhancing the user experience, the professed lesson learned from Early Warning’s previous clearXchange foray is the need for common branding. FIs clearly want to reassert control of the P2P process and the ongoing customer engagement it carries. For the dozen or so banks with ownership stakes in Early Warning, uniting under the Zelle banner is a logical approach. The thousands of other credit unions and banks will need to weigh the benefits of the Zelle network against its inherent branding compromises.
ATM innovations face the same critical success factors of user experience and ubiquity. Availability is now a given – the battleground has shifted to delivering a seamless, pleasant and robust service offering. Not only can a next-generation ATM double as a remote branch, but these machines can become central features of the “Branch of the Future,” freeing smaller roving staff to deliver higher value concierge services while basic transactions are automated. The move to XFS standardization has made it easier to deliver additional functionality via ATM modules, whether from existing providers or supplemental players. Given the trend toward omni-channel experience, however, it’s imperative that the ATM retain the look and feel of the brick and mortar model.
Why “Good Enough” Isn’t Good Anymore
Core banking service providers’ toolkits include products that address most of these needs, often attractively priced and offered as bundles. Although working with a sole provider is certainly the path of least resistance, FIs are increasingly looking to niche providers as their source for the latest innovations. This is particularly true for credit unions, which are notably attuned to member needs and desires.
It’ll be interesting to watch the cores’ next move. Perhaps they’ll strike partnerships with these newcomers to streamline the “plug & play” process, or perhaps another round of acquisitions to preserve their one-stop shop status is on the horizon. In either scenario, FIs face the need to manage additional vendor contracts and/or amendments.Reaching out for expertise in these areas is more critical than ever, given the rapidly evolving landscape and need for specialized knowledge. This is particularly true for smaller institutions where vendor contract management tends to be a “moonlighting” role. Rightly, however, FIs are placing customer experience over internal expedience.