The primary purpose of a functioning bank is to enable a consumer to pay and the merchant to receive the pay. Payments are the heart of banking ecosystem. Almost every application, system and process has to correlate with the function of payments unit within the bank. The exchange of service and value through payments has evolved heaps and bounds since the inception of Banks. Originally marked as barter system, moving on to token system and further in to pooling and cashless, the transformation has been enormous.
Banking transformation is progressing at a massive pace and so is the key function with in banking – Payments. Just in the past decade, we have seen contactless, mobile – apple and android, OBeP (Online banking ePayments), Online market places, Crowd funding, QR Codes, SMS Payments, NFC and better schemes such as faster payments. There has been an unprecedented change in the customer behaviour with the evolution of ecommerce channels. Customers have now lowered their footfall on highstreet shopping habits and constantly looking for E-tailing options. This form of customer behaviour is constantly evolving and omnicommerce is the need of the hour.
It follows from there with the current introduction of new payments regulations around schemes like ICS (Image Clearing System), Payments consolidation and Open Banking (PSD2) to enrich the customer journeys and experience. Further to this there are larger disruptions taking place across the industry such as Distributed Ledger Technology, opening out payments through non-physical interfaces such as VR and voice assistants and UPI amongst a few. All in all, the magnanimity of transformation through the opportune technologies and the landscape is exciting.
Banks have realised that transformation with in Payments and participants is inevitable. It has called for banks to bring in agile technologies and consider the changes in the industry effectively and immediately. Legacy models and banking systems are evolving at a rapid pace to accommodate the needs raised through customer expectations, innovations in the market and the digital native revolutions. Fintechs are becoming more prominent with the innovations and regulations supporting the customers. The cost to income ratio for the banks is becoming more and more mature and the banks have to compete with payment service providers, fintechs and evolving markets along with traditional banking institutions. B2B, B2C payments are largely driven through regulations however, C2C is an area that is actively driven through technology and fintechs and technology giants are capturing this niche area of payments swiftly. The economy of scale that this segment generates is a key factor for the digital native organisations. Convenience, ease of use and agility are the drivers for actors in this area.
Payments are continuously integrating more POS, Channels, Agile and simpler processes involving lesser hops to serve the customer needs. The cumulative culminations of all of the foresaid integrations support the customer journey transformation and make the banks digitally evolve to handle disruptions. Devops and continuous integration patterns are now standard to support most of the application changes and technical advancements. Cloud is no longer a vision, it is definitive in managing the rapid and ever changing customer needs. Internet of things is paving significant opportunities in transforming the customer expectations for multichannel/omnichannel and closed channel services. Settlement cycle has been diminishing with advancement in regulations.
The landscape of payments has been enticing for the banking and nonbanking institutions alike. Irrespective of the macro and micro economic changes the function of payment is essential for banks to continue their business as usual. While banks can continue to move forward, incoherence to the factors listed above in payments will bring dormancy to the core service (payments) if the banks fail to address the customers’ expectations. Having said that, it is not easy for banks to consider the changes and still continue with the regular day to day service. Hence, the symphony of synchronizing banks to cater for the challenges that the current transformation is providing is essential. It is an iterative process and banks have to plan, build and deliver. Strategies have to consider the cycle of planning, building and delivering in very close and frequent quarters.
I wish to conclude this article by mentioning some of the immediate planning activities that the banks may wish or already progressing with to deliver in responding to macroeconomic changes around payments.
- Influx of digital natives/fintechs ready to disrupt the payments landscape and the delivery of advanced financial services
- Refactoring the legacy set-up to rapidly respond and cater to changes regularly/quickly
- Expanding financial services to broader geographies
- Responding to customer stickiness, customer churn and cost to income ratio
- Easier inclusion of POS, Channels and Customer engaging models
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