The payments space has experienced a huge influx of interest in recent months, with global players such as Google and PayPal making continued investments in new technologies aimed at simplifying the payments process for customers. However, as anyone who has held discussions with global retail banks will testify, payments, for the most part, are still regarded as nothing more than a cost centre.
Traditionally, payments have always been a necessary function for banks, but not one that could consistently drive revenue. As a result, we’ve seen them focus on controlling and reducing costs by implementing technology and processes that improve efficiencies and help keep expenditure down. But have the banks missed a trick and failed to notice the opportunities, or indeed threats, in the front office while on their quest for cost cutting?
Trusted brands, Google and PayPal have brought the fight to the retail banks with the launch of new payment offerings aimed at luring customers from their traditional banks. Although consumers are still very trusting of the service that banks provide, they are savvier than ever before and are increasingly turning to other sources and organisations to fulfill the trusted advisor role.
For example, after being told of a new offering or service when visiting a local bank, it is now more common for consumers to turn to Google in search for more information, alternative products and of course,trusted customer reviews. It’s important to recognise that this dynamic is unlikely to occur the other way round. For this reason, Google is quickly becoming a customer’s first port of call when looking for information and advice. It’s well worth bearing in mind, not least because of the fact that by focusing purely on cost cutting, and not considering innovations that might turn payments into a source of revenue, banks are in danger of becoming a simple utility provider.
A good way to illustrate this is to consider the supply of perhaps the most common utility – water. In this world there are two kind of water suppliers; tap water providers that deliver water through a common infrastructure to your home, and those who deliver it to you in a bottle. The strange thing with these two suppliers is that although they essentially deliver you the same service (water, which in the Netherlands at least, is known to come from the same source for both suppliers), the difference between the two providers is striking.
One has extensive far-reaching infrastructure that is costly to maintain, which pumps massive amounts of water, for which the company is not able to charge very much at all as customers have come to simply expect it. However, at the same time, let’s not forget that consumers will happily part with a few pounds for a small bottle of bottled water, which in essence is the same thing, despite the fact that it has been packaged and delivered in a way and time that is seen to offer more value.
Similarly, retail banks that do not shift their mindset of payments as a cost centre, to one of a potential revenue stream will end up as as the tap water providers of the financial industry, and what I see happening in the very near future is the same kind of separation between payment providers as we see with these common utilities.
Banks are in pole position to capture a sizable chunk of the payments pie but in order to do so they must rethink the payments business model. Clearly, they already have both the customers and the data. However, by embracing an innovative approach and the right technology, they can transform these payments into a steady stream of income.