The Banks & Future Innovation Forum
"Banks & Future" is an innovation forum, which brings together several international banks and IT partners to cooperatively investigate interests and research issues related to the current and future needs of banks1. Since the group was established in 2004, it has carried out an annual survey. Originally conducted in Germany, the survey was extended across Europe in 2007. The survey on the European payments market "Banks & Future 2010" (see link included below) focuses exclusively on payment services. The aim of this study is to identify key trends and developments in the European payments market and to highlight current and future challenges for banks and service providers.
Key challenges for banks
The European payments market is continuously evolving. In this context, banks and payment service providers are faced with many challenges and important issues to address. The results highlight that most of the survey respondents are currently focused on optimising internal efficiencies across cost structures and business processes. More specifically, approximately three out of four banks state that increasing productivity is the most important challenge they face in 2010. Increased productivity leads to economies of scale in a market which has highly standardised processes and a high number of transactions to deal with. The implementation of new solutions means that banks must constantly change their organisational structures and processes.
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Migrating customers to the new instruments is also a key challenge in 2010, according to more than 50 per cent of respondents. For banks and service providers, it is highly important that customers use the new instruments to support increased standardisation in the market. The benefits of will only be realised once there is uptake of these instruments on a mass scale.
Public authorities as early adopters
The survey highlights that this year the respondents believe public authorities should be the early adopters of . In previous years, large corporations were expected to move first. This indicates that there is an increasing expectation within the market that the public sector has a responsibility to implement and disseminate the new standards in the market.
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A majority 80 per cent of respondents, representing the European banking industry, considers that the EU Commission should take regulatory action to set a definite end date (or dates) for the migration to payment instruments.
According to payment experts participating in the survey, the predominant way to establish reach for intra-European cross border payments is still the connection via a Pan-European Automated Clearing House (PE-ACH). Other options preferred by roughly a quarter of banks include bilateral agreements, and using multiple Clearing and Settlement Mechanisms (CSM) or processing banks. There is an expectation however, that this will change in the future and the options to establish reach will become more competitive.
Service providers are still predominantly evaluated by their quality and price. A similar finding was shown in the results of the German trend survey "Bank & Zukunft 2010". Reach and security are also seen as important by the majority of the banks. Value added services or additional optional services are generally regarded as "nice to haves" but not essentially critical for business.
The cards business is an important segment for many banks. The survey illustrates that three out of four European banks plan to expand their card business either on the issuing or acquiring side or both. The future growth potential within Europe seems to be attractive to banks. The majority of banks will try to achieve growth by introducing new functionality (e.g. contactless cards), completely new products (e.g. prepaid credit cards) or by expanding their current merchant and card holder base.
Innovation for future growth
Every year, the findings related to the top innovations driving future growth in the payments business provide the most interesting reading. In previous years, banks expected e-invoicing to be the most promising innovation. This year shows a significant change in this line of thought. The top innovation this year, with a jump of 24 per cent in its rating from last year, is e-payments. This leap to the top of the table for e-payments is even more surprising, as banks still rated e-invoicing a little higher than last year (69 per cent compared to 63 per cent last year).
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While e-billing gained 15 per cent on last year's rating, bringing it to 65 per cent in total, it remained at number three in the list of top innovations. It appears that the finished e-operating model pertaining to electronic mandates issued under the Direct Debit Schemes2 and the European Payments Council's envisaged e-Payments Framework3 helped to push e-payments unexpectedly to the top of the list. Banks still do not seem to be very clear on mobile and contactless payments; neither of these changed significantly in their overall ranking or ratings from last year.
Technological innovations in an IT context will become more important for the payment sector in the near future. Due to changing customer behaviour and the implementation of new IT solutions, service offerings need to be adapted for private and corporate customers in the payment sector. Security and mobile technologies in particular are expected to remain important, or even grow in importance, in the future.
There is a general trend in the banking sector which shows an increase in the integration of supply and financial chains. The "Banks & Future 2010" innovation forum has developed solutions in this area to help implementing partner networks by showing how the integration of supply and financial processes can create new business. The payment survey highlights the importance of standards for the integration of the supply and the financial chains, and also the integration of process flows, within a network of different partner organisations.
The findings of "Banks & Future 2010" confirm that the future of banking is not in single banks - it lies in the creation of dynamic value partner networks (banks and non-banks), which are designed and implemented to respond to customer demands (customer centric banking value networks).
Claus-Peter Praeg is Head of the Center for Financial Services at the Fraunhofer Institute for Industrial Engineering and Project Manager of the innovation forum "Banks & Future". Benjamin Syrbe is Adviser in the area of innovative processing solutions at Equens SE.
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1 The "Banks & Future" forum brings together 18 partners in total representing the financial services sector including the Fraunhofer Institute for Industrial Engineering (IAO), Equens and IBM and further 15 partners from the financial service sector.
2 The Direct Debit Schemes include the option to create mandates through the use of electronic channels - called e-mandates. When issuing an e-mandate, payers can re-use their online banking credentials or other bank-provided electronic access channels for completing the mandate online with the biller. No additional means of identification are necessary. As with all existing direct debit schemes, under the Direct Debit a payer completes a mandate to authorise a biller to collect payments. At the same time, the Direct Debit mandate authorises the payer's bank to pay these collections.
3 In response to the rapidly increasing volume of e-commerce the committed to provide a Framework outlining the specific rules and standards relating to e-payment schemes making use of the Credit Transfer. The first deliverable is envisaged to be the e-Payments Framework, which is based on principles facilitating online payments with a payment-guarantee for web-retailers followed by a Credit Transfer.
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