Apple Pay, Android Pay, Samsung Pay, Square,Bitcoin and many such names have one thing in common. These are all modern digital payment frameworks and none of these are banks!
A number of factors are driving digital mobile payments and banks need to pay attention to the changing landscape as non banking startups and tech companies lay a claim on the mobile payment supply chain.
One look at the current payment fin-tech landscape and you quickly realize that the banks need to offer more than lip service when it comes to payments.
A number of large banks are realizing the criticality of taking charge and looking at multi-pronged strategy to compete and cooperate. American Express e.g. recently announced that they will establish an Amex Enabled Digital Solutions umbrella under which it will bring key technologies for payments.
What is causing this disruption in the mobile payment industry? How can large and existing institutions participate in the payment framework of the future?
- Non banking entities participating in customer disintermediation: Nonbank digital entrants with no legacy burden and active learning from other industries on how to delight a customer are started to chip away at mobile payment services. The ubiquity of smartphones and the shift from desktop to mobiles has resulted in expectation of a frictionless customer experience. Startups and larger firms are both competing to own the customer and the customer experience. To maintain their customer relationships and stay relevant, banks will need to respond to these changes with new strategies, capabilities and operating models.
- Availability of end to end payment infrastructure: From availability of mobile phones with NFC services for customers, to larger payment networks modernizing their infrastructure, the plumbing is being modernized for payments to handle global volumes. According to a recent report by Mckinsey, more than 15 countries have modernized their payments infrastructures in the last few years, and many others are in the planning stage. Additionally a number of third party end to end platforms are cropping up. A recent report e.g. mentions how a Blockchain platform Setl claims to be capable of processing one billion transactions per day – matching every electronic payment made globally. Non cash transactions around the world are projected to grow to 389.7 billion transactions in 2014 growing 9%. For banks, what and how you invest in a payment platform is a strategic decision.
- Emergence of alternative currency: Virtual currencies such as BitCoin, although a niche, has seen a lot of interest from banking and non banking players. Still not mainstream, regulators are struggling with how to integrate the technology adoption if it does ever happen. What these virtual currencies have done is introduced new technologies such as blockchain which do disrupt the payment landscape. A number of banks have been working or setting up fin-tech ventures to participate in the emergence of such technologies.
- Pace of Digitization in retail banking: Retail banking like any other consumer facing business today are “Competing for Convenience”. The expectation of a digital experience will extend beyond consumer retail banking to transaction banking. A recent research by McKinsey & Company and by Greenwich Associates already shows a growing preference for digital channels among companies.
Faced with these threats, banks need to address the disruption with a sense of renewed energy and focus by building the right compete and cooperate model.
