* The views expressed in this article are solely those of the authors and should not be attributed to the European Payments Council.
It has been evident in the last years that banks are increasingly being driven
- by the regulator
(stop thinking nationally ! do instant ! open up ! reduce interchange ! keep cash available ! …)
- by customers
(merchants demanding pan-European solutions, changing customer behaviours, …)
- by technological developments (mobile, , DLT, …)
- by new competitors (FinTech, challenger banks, big tech, …)
Banks are struggling to keep up, find themselves faced with high infrastructure and compliance costs and increasing demands under the agenda of others.
Maybe it is time for banks to regain the initiative and drive their agenda themselves?
This is getting increasingly urgent as there is no indication that the pressure on banks is reducing. Quite the contrary.
Options going forward
The first option is to let events develop and await instruction from the regulator on what to do, triggered by increasingly unsatisfied customers demanding change.
This means that banks will have to implement changes, at high expense, under time pressure, under rules laid down by others.
Non-banks will also entrench themselves in key areas with customers and will be hard to displace later.
This is clearly not an attractive option.
Actively follow developments
A more pro-active approach is to systematically monitor changes in technology, user demands, market developments and actively consider which should be met. Some smart filtering methods are available to manage this.
This is a good first step but is far from “regaining the initiative” as this in no way shapes the industry, but is a follower position with, at best, optional engagement.
Regaining the initiative
Regaining the initiative means not only being aware of what is needed, but actually actively acting upon it in a timely manner and indeed shaping the developments oneself.
This is not always easy in a network economy like payments where all actors tend to have to move together. However, if banks are not willing to move together of their own accord, they will be forced to – by the regulator, by new entrants taking the new market spaces, by public pressure.
One frequently perceived impediment is that it is not easy to find a clear business case in emerging trends. Especially when developments are still uncertain and revenues not guaranteed.
However the business case for actively moving in these dynamic times is given, and by two factors:
- if the development is inevitable, it is better and cheaper to start early. Active, timely implementation of own smart solutions is to be preferred over later, more costly, stressful implementation of regulations imposed by others
- payments is not a zero-sum game: smart new business models will dramatically increase the size of the market and allow incumbents to take a large slice of the bigger pie. Thus all will win.
So, a strategic approach is required, which balances potentially large future gains against current uncertainties and maybe initial sacrifices. We need to look at the bigger picture.
Selected financial services communities have shown that this is possible – and met with great success. Over 10 years ago, when it was becoming likely that online payments were going to be big and that nimble competitors might occupy this increasingly significant space, the Dutch banks created iDeal – a world-leading solution, which proved much better than all competitors and to this day and enjoys amazing growth rates. Similarly, the Nordic banks recognised early that one needs to move up the value chain around payments and have created world leading solutions for identity (BankID), mobile (Swish), invoicing etc which have ensured that the customer relationships, data and profits stay with banks. Thus, seeing the writing on the wall and acting upon it is the clear and proven way forward.
Especially by now embracing modern Open Banking – although this does require some initial investment – banks have the opportunity to take pressure off. FinTechs can supply the solution to the latest wearable gadget, RegTech can help make compliance easier, smart partnering with solution companies can share the burden on satisfying the latest customer/regulator/technology demands. Banks no longer have to take care of everything themselves. Indeed, banks can then themselves cherry-pick which propositions they want to address themselves and which to leave to others.
- by investing banks can save money and indeed open up new revenues
- by smart partnering with those who used to cherry-pick, become cherry-pickers themselves
- by opening up to others, banks can reduce the pressure and regain the initiative.
Call to action
During the development of modern electronic payment, we have repeatedly seen the writing on the wall: batch to real-time, national to global, physical to online, online to mobile
and now proprietary to open systems.
Today we again see a large number of inevitable changes afoot: the economy, the increased need for end-end solutions, leveraging of assets like bank-based identity, increasing globalisation and more.
Let us this time not wait for others to drive us – but instead let us this time embrace the new changes – even though all questions may not yet be answered, even though the business case may not yet be fully clear.
This will mean we can choose our own timetable, develop answers according to our rules and surely spend our resources more wisely.
For full text see article in JPSS Journal of Payments Strategy & Systems (Volume 13 Number 1).
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