Financial institutions, at one time the central facilitators of payments, find themselves in a rapidly changing payment environment today and confronted by all the various competitive digital payment and money movement offerings that are available in the market and directed at their account holders.
This disruption raises the question, what are banks and credit unions doing to compete?
In comparison, payment solutions offered today at most community banks and credit unions are dated and put financial institutions at a disadvantage as many transactions still process through the 40+-year-old ACH network, a batch-based system filled with codes, addenda records, with no transaction confirmation and no funds guarantees. In addition, it is a multi-day process often taking three to five days to process, not including weekends.
As a response to this, the ACH network will spend the next few years creating a system of real-time digital payments and the Federal Reserve recently said it is working to speed up processing times. Unfortunately, it is just a Band-Aid approach to the challenge. By the time they act, how many other new payment mechanisms will emerge? It is comparable to the classic “buggy whip scenario” where, when faced with the arrival of the automobile, the buggy-whip industry continued to try to innovative its product instead of adapting to the new mode of transportation. As it turned out whips were useless when it comes to horseless carriages.
Banks and credit unions need help now.
Digital payments are a big opportunity for banks and credit unions to retain their rightful spot as the facilitators of commerce.
To help in this endeavor, newer financial technology players have emerged to streamline multiple channel, modern day online and mobile banking services that offer a competitive advantage.
The fact that non-traditional banking entities do not come close to providing the same level of services, convenience and safekeeping of current accounts as banks and credit unions provides FIs with a real opportunity to compete. In fact, P2P services, such as Venmo often face criticism for lacking the robust security, consumer protections, and support that banks and credit unions must provide.
While many consumers think digitization of the payments ecosystem will drive the financial services industry in a new direction that does not mean accountholders are willing to hand over the banking keys to nontraditional payment providers just yet.
As consumers' behavior changes, financial institutions require adaptable solutions. They need to and can provide consumers with a seamless experience across multiple delivery channels. Banks and credit unions can adjust to the new behavior for new payment methods.
To compete better with non-traditional payment players, financial institutions need to evolve with the right technology to meet the changing needs and demands of the new digital world.
The digital payment revolution, though disruptive, does not have to be a game changer for financial institutions, but instead be a game saver for those that respond quickly. To move forward banks and credit unions need to evaluate new solutions that take advantage of modern technology to create a safe, ubiquitous and faster payments experience. They should be looking into a single unified platform that reliably processes bill payment, P2P and A2A money movement transactions.
Jeff Weikert is president of Payveris.