Financial institutions are in a predicament as demand for fast payment services is clearly growing, among consumers and merchants alike, and is aggressively being fulfilled by fintechs.
Key factors driving this speed are emerging technologies, an evolving payments infrastructure and a favorable regulatory landscape. Customer expectations are also changing drastically, expecting the payment submission and settlement processes to be faster and in real time.
While the emerging payments infrastructure and regulatory landscape with same day ACH are set to further advance the real-time delivery of payments into a variety of industries, fintechs have capitalized on these changing trends and are piling into the mobile/digital payments space, while capturing the hearts and minds of consumers and merchants.
Amid these developments, it's imperative for financial institutions to keep up. How? With changes in customer expectations as well as the regulatory landscape, financial institutions and merchants have to shift gears to incorporate real-time solutions, harnessing such technologies as mobile, blockchain, open APIs and analytics within key touch points in the payments lifecycle. The investment in such technologies will enable banks to offer differentiated services and solutions, earn additional revenue through these offerings, and deliver a differentiated customer experience, thus protecting against customer loss.
Mobile as a channel for payments has already been proven in the marketplace. Financial institutions need to invest in adding additional features to their mobile payments wallet. Solutions such as biometric authentication, tap-n-pay, integration of the payments wallet with merchant apps, and support for in-app payments should be introduced to make payments more frictionless, gaining wider acceptability of wallet solutions.
Financial institutions should also leverage the power of advanced analytics for better understanding of customers’ spending patterns and requirements, using these insights to personalize and push real-time offers to maximize the success of cross-selling. They should also look at rewarding the customers through flexible loyalty programs. Adoption of loyalty programs will help the financial institutions better engage with their customers and further enhance the customer experience and gain market share.
Another key area financial institutions could hone in on is cross-border and B-to-B payments, which have historically been very slow because of interoperability issues. Technologies like blockchain address the interoperability issue through a distributed ledger with blockchain companies having already established the business case for blockchain. Financial institutions should leverage the benefits of blockchain to increase speed of cross-border and B-to-B payments, in order to manage their corporate liquidity in much more efficient ways.
Increasing speed of payments cannot be limited to financial institutions, however; retailers and merchants should also invest in this transformation in order to increase purchase conversion rates from advertising channels. It’s worth exploring options to digitize the offers and coupons, making them available in a more timely and frictionless fashion, and further reducing in-store, online, and mobile checkout cycles. Coupling analytics and data science technology can help merchants and financial institutions predict customer behavior and take proactive actions accordingly.
Amid the drive to enhance payments speed, it’s important to not lose focus on advancing security and minimizing risk, including credit risk, fraud, liquidity, and operational risk. Banks should leverage technologies such as predictive analytics and real-time fraud detection to address such risks. Improving payment speed has significant benefits provided the risks are efficiently managed. And when financial institutions harness new technologies such as mobile, analytics, and blockchain to enable real-time payments, all stakeholders benefit and traditional institutions become poised to better compete with fintechs.