How banks can go to market and reinvent payment experiences with ecosystem partners
How do established financial institutions evolve and make progress in 2021? On the face of it, the odds are stacked against them. Alongside the need to address continued challenges such as an ever-growing regulatory agenda, low interest rates, loan impairments, fast-changing technology and cybersecurity, firms now face existential questions too: What is their role in their customers’ lives and how do they stay relevant to them? How do they take their monolithic and complex legacy architectures and transform them at pace, so they can attract and retain a new generation of digital-savvy customers?
However, it isn’t just the dynamics of the industry that have shifted, but also the entire relationship between banks and their customers. In the past, banks brought products and capabilities to the marketplace and customers simply had to accept the way they were delivered. We now live in a much more consumer- and customer-led world: one where customers demand how they want to engage with their banks, and the onus is on the banks to provide the customer experience and journey the consumer is seeking.
Payments is one component of this customer experience-led environment and lifecycle – albeit an extremely important one. Banks are wrestling with working out where they will sit in the customer lifecycle and how they want to play within it. Once they’ve made these choices, the key question becomes how quickly they can get to their target position – perhaps then using it as a starting-point for proliferating their services and capabilities across the lifecycle to drive further value.
Developing an ecosystem model for payments requires a new strategic approach
For financial services institutions, the move to an ecosystem model demands some fundamental strategic choices. Banks must change their current mindsets in how they view themselves and their relationships with both partners, vendors, fintechs and even other banks. With ecosystems not being constrained by any industry vertical the potential for banks to become core in their customers’ lives is almost limitless. News ways of thinking and asking questions of themselves should be encouraged, such as:
Old: What business are we in?
New: What capabilities are we uniquely good at?
Old: Who are our customers?
New: What ecosystems can benefit from our assets?
Old: Through what channels can we reach our customers?
New: What relationships will allow us to enter these ecosystems?
At the end of the day, banking and payments are only part of the ecosystem. A bank can’t also be a
travel agency or a food provider or an online retailer. There are certain choices to be made as to how far you go – whether to manufacture the product propositions yourself, at the back end, or act as an orchestrator that brings various ecosystem partners together to fulfill the customer’s needs. With experts predicting over 400 use cases with which banks could be involved, the ecosystem approach is fascinating.
But what you can’t be is a jack of all trades. So there’s some interesting strategic decision making to be made.
The rise of managed services in payments
Historically, financial institutions adopted the approach that they will own and run everything themselves, but many are re-examining the sustainability of this model. It’s in meeting the need for transformation at pace, with payments at its core, that the evolving banking ecosystem – including technology partners – is coming strongly into its own. This in turn is creating growing traction for managed services, which are often delivered to banks through collaboration between different ecosystem partners, who bring the best of their respective organizations together to create value and realize economies of scale. Banks can then take their balance sheets and headcount savings and redeploy them to fund innovation and address other challenges. Here, the ecosystem is both spurring demand for managed services in payments, and also shaping how they’re delivered.
What’s the ultimate direction of travel for payments? We see it as moving toward a world where payments are not perceived as a separate service carried out for their own sake, but as one element of a wider value proposition and customer journey created via the ecosystem.
Banks must learn to adapt and find their feet in the constantly evolving market. The future holds great opportunities for banks, cards companies and new entrants, alike. Those that made the first move are using it to their advantage by transforming business strategies, operating models and systems to stay relevant.
Discover where the ecosystem is heading for banks, and how ensuring the right partnerships are key to success: