As 2020 draws closer, many financial institutions are considering how to strengthen and enhance customer relationships, and the answer may partly be found in payments and digital banking. At this time last year, few could have predicted the heavy M&A activity experienced in the payments space in 2019. Deals like the Fiserv/First Data, FIS/Worldpay and Global Payments/TSYS acquisitions have further demonstrated how valuable payments are to the broader financial services ecosystem. The number and complexity of payments options available to consumers today continue to increase. To maintain their relevance in consumers’ financial lives and compete, banks and credit unions must prioritize integrating easy, intuitive and modern payments options into their overall digital banking strategies.
Consumer experiences, expectations and behaviors are being shaped by evolving technologies, new market entrants and reimagined business models – and payments are no different. Major tech companies have been trying to disrupt the payments space for years, with varying levels of success. While the ‘Pays’ (Apple, Samsung, Google) haven’t taken off as quickly and with as much momentum as some might have predicted, other payment providers and options have proven to be more disruptive threats to traditional banking relationships.
For example, companies like Venmo and PayPal have successfully delivered a simple and convenient payment experience and, as a result, have experienced notable increases in transaction volumes this year. Even some retailers have found ways to effectively infiltrate the payments space. Starbucks, for instance, has a substantial stake in payments, as consumers frequently leverage the app to store money and make purchases. This is money that used to be housed in secure, FDIC-insured accounts that is now displaced among a myriad of channels, something that is alarming to banks and credit unions – and for good reason.
This trend of new payments players and options is only expected to persist. However, these new entrants lack the critical trust equity that banks and credit unions have spent decades building. Traditional institutions have the advantage; but, to properly capitalize on it, they must be able to provide an experience on par with what the modern consumer expects.
The payments experience banks and credit unions deliver must be as quick, convenient and intuitive as using the Starbucks app or Apple Card, as these interactions are now the litmus test against which consumers will judge all other experiences. Payments options should be seamlessly integrated into the overall digital banking experience, removing friction and adding value. A customer or member should never have to leave their financial institution’s digital banking app to make a payment.
Perhaps most importantly, financial institutions must invest in the modern architecture that allows for continuous innovation and the quick, nimble introduction of new products and services. For example, conversational banking and payments via voice assistants like Alexa continue to gain traction, and those banks that have the flexible infrastructure in place to easily enable such innovations will be most successful. If institutions can’t respond to consumer wants or business needs in a timely fashion, they risk harming their reputations and losing market share.
More widely and strategically leveraging APIs in the banking ecosystem is another way banks and credit unions can better keep up with the evolving competitive landscape. APIs enable community and large financial institutions, those without the vast resources of national banks, to more seamlessly connect with third parties and enable contemporary functionality. As pressure mounts for institutions to become more open, those already using APIs will be ahead of the curve. Consumers today have an unprecedented amount of choices for how they manage their money, monitor spending, build budgets and make payments. An institution’s digital strategy will determine whether its brand stays top of mind or fades into the background. While consumers will always have their ‘go to’ apps for shopping, searching and connecting socially, banks and credit unions must ensure that consumers’ digital banking apps remain top of mind during every phase of their financial journeys. They can do this by ensuring payments options are conveniently embedded in their overarching digital strategies, investing in modern architecture and committing to continuous innovation.