Digital payments are becoming a massive “hidden” source of revenues for banks, as transaction volumes continue to grow. According to McKinsey’s annual global payments report that was published in October 2015, payments revenues rose 9 percent to $1.7 trillion in 2014, compared to 4% the years before. The report also states that global payments revenues are expected to grow 6% per year for the next 5 years.
But the transformation of the digital payments ecosystem has not translated into profitability for all banks. In fact, payments have traditionally been seen as a cost of doing business, rather than a business themselves. As a result, many banks have kept their payment developments to the bare minimum required, and they are now finding themselves falling behind, and facing competitive threats in the form of:
- Increasing non-bank competition – New players such as fintech startups, venture investment and tech giant companies including Apple, Facebook, Tencent and Alibaba all want a piece of the payments pie. Not only do they come with a loyal, engaged customer base, but these new entries can focus on profitable pieces of the digital payments value chain and avoid the cost of being tied to constrained budgets, legacy banking systems and complex regulatory requirements.
- New technology – With faster market entry through the utilization of Cloud computing, SaaS, Agile development, open standards (ie: ISO20022) and API’s, it is not surprising to find ourselves in a constant state of innovation and change. Many of these new digital payment innovations are now treated as key product features in smartphone applications, such as the Apple fingerprint authentication. “Set-it-and-forget-it” features, as found in applications such as Uber, are making payments so easy, it’s like they’ve disappeared.
- Growing consumer demands – In addition to the high expectations around fast, secure, convenient digital payment mechanisms, customers are also seeking more catered solutions that align with their habits. They expect seamless, personalized experiences and less friction in exchanging money.
In a webinar held last week, INETCO introduced the 3 T’s of payments modernization: tracking, troubleshooting and tactics. We discussed how these concepts can help you handle growing digital payment transaction volumes, roll out digital banking strategies smoothly, improve IT agility and recover investment costs as quickly as possible by unlocking new revenue streams and channels.
If your bank is considering a controlled transformation approach to payment system modernization, and is thinking about ways to turn your transaction payments into a customer-centric business, we recommend you watch this webinar: