What banks should do to overcome fintechs' head start in payments innovation
Over the past half-decade, fintech companies have gained undeniable momentum by offering cutting-edge payment services that banks haven’t matched or have been historically slow to offer. In fact, PwC’s Global Fintech Report found that banks could lose up to 24% of their revenue to fintech over the next three to five years.
Those unfavorable numbers should be a catalyst for banks investing in and speeding up payments innovation. Problem is, that hasn’t happened in many cases. The good news is that this is a marathon, not a sprint, so banks still have ample opportunity to match fintech in the long race for payments supremacy.
Before suggesting the overarching idea for how banks can win in payments and the tack they need to take, it might be valuable to consider where we’ve been and where we find ourselves presently.
Not shockingly, banks have always dominated in the online banking space, even when it came to transitioning those activities to a mobile device and user experience. The banks own the accounts, they’ve owned the customer relationship all along, and any tier one bank without a bread and butter mobile banking strategy has become a laggard.
The real lag behind fintech started when banks rested on those online and mobile banking laurels and allowed other players in the mobile space to bypass them in working toward mobile point of sale payment services. Both device manufacturers and mobile network operators seized this opportunity, and a proliferation of mobile wallets or mobile payment apps emerged: Apple Pay, Samsung Pay, Android Pay and more. These apps proved that banks didn’t have a stranglehold on payment services, and the gaping opportunity was soon filled by fintech.
Meanwhile, Visa Checkout, Masterpass, PayPal and others focused their time and resources on owning e-commerce and in-app payments, enabled via web gateways and companion mobile authentication.
Then more recently came the P-to-P payment phenomenon, with fintech like Venmo and Square Cash out ahead of banks by a couple years. Now we’re seeing most of the major banks adding P-to-P payment to catch up. Although the “better late than never” cliché applies here and there’s a long way to go to catch Venmo’s traction, it’s a step in the right direction.
And that’s because, in order for banks to effectively outpace and outlast fintech in the long run and retain (or in some cases regain) their market share, they need their mobile apps to be all things to all people. They need to be the Amazon, Walmart or supermarket of payments and banking services, whereas fintech has operated more like specialty shops.
That means continuing to improve the mobile banking services where they’ve always been rock solid. That means developing the ability to transact at the in-store point of sale via tap-and-pay contactless straight from the bank’s mobile app. That means being able to complete an instant, secure P-to-P payment in the app, rather than needing yet another download or exposing personal and financial data to another unproven provider.
Perhaps as important as versatility, it means beating fintech to the punch on security and trust. With a chief focus on time to market, fintech typically prioritizes user experience first and security comes second. Banks have the opportunity, the expertise and the resources to do both simultaneously. By capitalizing on and highlighting the security practices, tools and safeguards that they’re carrying forward to the next swell of payment services in their apps, banks can convince the average consumer to value a sense of trust before convenience, UX or other perks.
Finally, banks should address some of the green field opportunity that does still exist in payments. Mobile commerce is set to skyrocket, to the tune of reaching $284 billion, or 45% of the total U.S. e-commerce market, by 2020 according to BI Intelligence. And yet there hasn’t been a particularly good example of smooth, easy payment experiences in m-commerce. Taking care of m-commerce payments, or payments anywhere online, really, through a direct gateway to and from my bank should be just as plug-and-play and simple as how I access online TV services through my cable provider login.
Being a generalist rather than a specialist isn’t always the most advisable route, but in this case, it is. Banks haven’t been able to realistically compete on time to market or flashy features, so if they are to beat fintech in the payments long game, they need to win on comprehensiveness, the convenience of centralization, staunch security advantages and imbuing diverse forms of payment with the sense of trust that they have long held with customers. The finish line isn’t anywhere close to being in sight, but the race strategy is clear: Immediately doubling down on mobile innovation for all types of payments discussed above is the only way banks catch fintech.