Each year, SRM interviews a subset of bank and credit union clients to get their perspective on key industry trends rising to the top of their strategic to-do lists. With another decade having drawn to a close, January 2020 serves as a nice vantage point to take things in through a wider lens.
Financial institutions hardly need to be reminded of the massive disruption of the past 10 years, driven largely by the financial crisis and the new regulatory mandates that came about in the aftermath. While banks and credit unions were retooling their systems to accommodate these additional requirements, new players made significant inroads to their core business via emerging digital channels. On top of that, the number of U.S. banks and credit unions shrank at a faster rate than in any other decade.
To get the year started with broader industry perspective, here are a few trends SRM sees shaping financial services in 2020 and beyond.
The Amazing Vanishing Payment
The most recent Federal Reserve Payments Study reveals that the volume of non-cash payments is increasing at a much faster rate than the economy itself. Many of these payments are becoming “embedded,” – i.e., discreetly woven into the fabric of the commerce experience – think Uber and Amazon. Though this trend adds to consumer convenience, it threatens a bank or credit union’s role in the equation if it is not the default card, while also setting the stage for a potential surge in consumer debt.
This is yet another example of how Big Tech is shifting the economic landscape, and how banks and credit unions must continually rethink their roles by seeking new ways to serve the consumer’s financial needs. Otherwise someone else will…better in some ways, and worse in others.
Everywhere You Want to Be
Consumers are increasingly using debit and credit cards for small-dollar payments – yet another driver for the rapid growth in card volumes. Indeed, our experts forecast card payments will grow another 9-12% in 2020. Moreover, transactions are less and less likely to occur with a physical card present. E-commerce will play a continuing role in this trajectory, as will digital wallets if Apple has its way. Notice how the company positions its metal Apple Card as almost an afterthought in its TV spots, as a “backup” plan for stores that don’t accept Apple Pay (yet).
After years of false starts, another use case poised for a U.S. breakout is contactless payments – where the user taps their card or NFC-enabled device on a card reader, rather than utilizing pre-loaded credentials. For example, New York City’s rollout of contactless payments for entry to its transit system may serve as the long-awaited flashpoint encouraging wide-spread adoption.
In light of these, a well-formulated digital strategy has never been more essential. Banks and credit unions must campaign for digital top-of-wallet status in their card products or face a slow march toward volume erosion. They must also choose which parts of the consumer relationship are worth fighting for and which parts should be shifted to partner providers.
The Bottom Line: Defend the keys to the kingdom. Whether it’s contactless or seamless payments, when it comes to consumer payments transaction data, banks and credit unions still hold an enviable position as the keepers of valuable transaction data…their challenge comes in putting it to effective use.
Note: we consciously chose the word “defend” rather than “protect.” Simply putting one’s data on lockdown is almost certainly a losing approach. This data can be an ace in the hole when creating relevant digital strategies – again highlighting data literacy as an essential internal capability.
You can read about more of SRM’s 2020 trends here. Rest assured, we’ll be tracking and sharing insights on further developments as the year, and decade, progress.