Beyond the banks: payment technology in 2018

By Peter Caparso, President North America,

Payment technology has been shaking up financial services for years. The advent of debit and credit cards, contactless payments, and mobile banking has moved us towards an increasingly cashless society. In fact, by 2022, global card payments are expected to exceed 500bn transactions.

Technological leaps are occurring in shorter and shorter time spans – the invention of the telephone in 1876 is a prime example of this. Nearly 100 years passed before the first mobile phone was created in 1973. It was just 20 years later that the first smartphone was introduced, and then only 10 years later that the iPhone burst onto the scene. It’s a concept that the inventor and futurist, Ray Kurzweil, calls the law of accelerating returns, in which each generation leverages the one before.

With the rapidly increasing pace of innovation comes shifting consumer expectations. In order to keep up with these expectations, all businesses, regardless of sector and size, need to think progressively and continuously adapt to the environment.

While banks have adopted technology into their offering to varying degrees, they have not yet incorporated it in an efficient, reactive, and flexible way. And so, 2018 may well see progressive players continue to chip away at the big banks’ dominance – to become serious competitors.

Breaking down banks

Banks have long dominated financial services: they’re the industry’s major players, and they have been for centuries.

But this relatively unchallenged position has led to a degree of complacency. Banks are rigid and hierarchical by nature, because they’ve never needed to be anything else: over the years, they’ve fostered a culture where their primacy is a basic fact of life. Technology isn’t their bread and butter so the speed, the reactivity, and the transparency that merchants need to survive and thrive, isn’t something that banks are not naturally able to deliver.

Traditionally, banks have assumed that the market will move at their speed. But as online spending habits change, and as the options available to merchants and customers expand, the market is simply beginning to outpace their offering.

Finance first

Of course, banks can’t entirely be blamed for falling behind. They understand themselves as finance companies that just make use of technology, not technology companies that operate in the finance space. They’re not purposely avoiding change, but they have a laissez-faire approach to it: one that concentrates on the iterative improvement of deeply entrenched systems. Due to the sheer size of their organizations doing anything else is a major undertaking: they’re often unable to change one aspect of their technological infrastructure without affecting a number of other moving parts.

These days, with everything shifting to online, merchants need much better flexibility, agility and service than what banks can offer in order to maintain their competitiveness – and companies that focus on the ‘technology’ part of ‘payment technology’ are better placed to provide it.

If you had a choice between sending a fax or an email – what would you pick? The slower, laborious and tedious option or the faster, easier and painless option?

Banking on technology companies

Banks have the self-awareness to know that the technological aspects of their service require more than incremental, systematic improvements. There is no quick-fix, it’s in need of a major overhaul, if not a complete revolution.

Consequently, many are taking the quick and dirty approach of just buying some of the many technology companies active on the scene. JP Morgan, for example, spent $200m on WePay in October 2017.

But the two environments are worlds apart. The cultures of a scrappy tech start-up and a gigantic, 200-year-old international financial services institution don’t blend very easily. The former can respond to market changes rapidly: if they come up with an innovation that might make their clients happier or their processes more efficient, they can do so with relative ease. The latter has a complicated network of stakeholders to appease before anything useful can be done – and with the bank being the senior party in any acquisition, it will invariably get its way.

Accentuate the personal

A plucky tech start-up has another advantage over an enormous, established financial services institution: when you’re a small company – every customer matters. Whereas big, multinational investment banks struggle to provide anything resembling a personal touch. Consequently, average-to-poor customer service has become the norm. You never hear people talk about average customer service, but you always hear about exceptional service.

Alongside this, with the vast amounts of data available on tap, merchants are able to easily do their homework on the best options available to their business.  They understand that their needs can be better serviced by younger, more agile businesses. Nobody, if given the chance, wants to drive a mid-sized economically-priced hybrid if they can get a Tesla.

A technology company is better placed to offer the options and add-ons merchants might require, and can typically provide more flexible terms. Things like reporting – an almost mechanical concern for many banks – can be tailored to the client’s individual requirements. Tech companies are also better placed to collaborate with merchants: as developer-led enterprises, they’re used to taking a problem, knocking heads together, and working to find the best solution for everyone.

The result of this is that we are now operating in an environment where banks may still dominate the payment space, but they’re no longer the immediate first choice for merchants.

The future of payments

For banks, this might not be a bad thing. Unaccustomed to serious challenges, banks have the ideal opportunity to redefine their internal processes and innovate in a fashion that suits our increasingly cashless, technologically empowered society.

But there’s also the possibility – as we’ve seen time and time again, that they will maintain the status quo: one where they innovate rarely, and begrudgingly if at all. That may well suit their immediate priorities, but it won’t suit those of fast growing merchants.

In 2018, payment services no longer fall within the exclusive remit of financial organizations. Banks have struggled to come to terms with this idea for some time, and they will likely struggle with it for a while yet. But in truth, these services are now as much a technological matter as anything else – and it should come as no surprise that technology companies are better placed to provide them.

We’re in the midst of a payments revolution, no longer is our industry simply viewed as a commodity. Payments is increasingly being seen as a critical component of the customer experience – an area in which expertise and acumen is provided – it has the power to enhance and ultimately increase business efficiency and the bottom line.

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