The financial services industry might be experiencing one of the most innovative periods in recent history. With the advent of faster payments, contactless technology, mobile wallets, and more, developments in the space are transforming the way we make and receive payments.
"Payments innovation is all around us, creating a new norm for our industry"
Today, community banks have a smorgasbord of innovative payment offerings with real-time volume predicted to grow to$6.4 billion by 2021. Mobile wallet and contactless payments advances are also plentiful, with mobile wallets expected to be the go-to payment option for as much as 41 percent of consumers by 2021. Tap and go is another hot card payment option on the rise. Contactless payments are much more prevalent in other countries but are beginning to take shape in the U.S. with 20 of the top 25 U.S. card issuers expected to distribute contactless credit and debit cards by the end of the year, which could generate an estimated $2.4 billion in card-related earnings over the next few years.
With so much innovation, determining how best to align technology to meet your community banks’ business goals and evolving customer expectations can be overwhelming. That’s where a digital payments strategy can be of immense value to chart a successful course in the digital age.
An overwhelming majority (90 percent) of financial institutions realize the importance of digital payments and believe it will fundamentally change the economics and competitive landscape of banking, according to Boston Consulting Group. And they also recognize that fintechs, big tech (i.e., Amazon, Facebook, Apple, and Google), and outside players will become serious competitors in the battle for market share around digital commerce. Despite these acknowledgments, only 19 percent have a clear digital strategy and a well-defined roadmap for digitization.
Creating a Digital Payments Strategy
Your digital payments strategy should align with and complement your organization’s overall strategy and strategic plan. It can be used to inform related investments, set priorities, and define policies across the organization. Which faster payments offering would be best for my community bank? How can my institution support mobile technology my customers want? Could contactless cards increase revenue, or can small business credit cards be the new revenue stream my institution seeks? These are the questions a digital payments strategy can help you address. It can also serve as a guidepost to help you identify, implement, and roll out the right products and solutions at the right time to support your community bank’s digital future and ensure you continue to meet the needs of your customers today – and into the future.
With a well-developed and executed digital payments strategy, community banks can:
Improve the customer experience with a more user-friendly and digital interface;
Enhance a bank’s reputation and retain and grow their customer base; and,
Increase revenue and profitability with digital products and services and facilitate innovation. According to the MIT Center for Digital Business, companies that have embraced digital transformation are 26 percent more profitable than their average industry competitors.
But getting started with a digital payments strategy is not always easy, nor is it something that every bank is positioned to do right away. ICBA Bancard offers a Digital Payments Strategy Guide to help community banks develop or evolve their digital payment strategies.
Through a series of questions designed to help assess a bank’s current product lineup, market base, and existing digital payments offerings, banks can build on their existing foundation to create a responsive digital payments strategy.
It’s also important for community banks to foster an environment where innovation is encouraged by:
Consulting with their core providers for information on the latest technology;
Seeking out resources such as the ICBA ThinkTECH Accelerator, which identifies and supports community-based fintechs solutions; or
Conducting their research, evaluation, and reporting on the latest products and technology to support goals and objectives.
Payments innovation is all around us, creating a new norm for our industry. Understanding and planning for the role innovations can play in supporting this new-age payments infrastructure. By keeping the door open to innovation, you can set your institution up for success.
Tina Giorgio is President and CEO of ICBA Bancard, the payments subsidiary of the Independent Community Bankers of America.
Payment Innovation Landscape
Today, community banks can choose from a multitude of innovative options, including Same Day ACH, The Clearing House’s RTP system, and soon, FedNow. And they can use products and platforms that leverage these systems, such as Ondot, ExcheQ, linked2pay, and PayFi, to enable faster and real-time payments for their customers.
Mobile wallet and contactless payment advances are also advancing. While only 8 percent of consumers use Apple Pay weekly, and 6 percent use Samsung Pay, by the end of this year, consumers will have spent $142 billion via mobile payments. And as many as 20 percent of those consumers will be using digital wallets on their smartphone.
If it’s not the mobile wallet, the preferred payment option could very well be a tap of the card. While just 3 percent of cards in the U.S. are currently contactless, compared to 64 percent in the U.K. and upwards of 96 percent in South Korea, the more secure technology is picking up steam in the United States.