Times are changing—and the banking payments ecosystem is evolving with new challengers. Innovation and next-gen technologies are set to give a shifting base of consumers more options. In fact, 68% of Gen Z consumers are interested in instant person to person (P2P) payments—more than any other age group. While 64% of consumers plan to use a mobile wallet in 2020, up from 46% today.
Payment systems anew
Payments are a fundamental service for banks and credit unions. Yet with the changing ecosystem of new payment-enabling technologies, new customer expectations and increased competition (i.e., fintechs), the traditional payment processing intermediary role will likely decline.
How will banking organizations stay relevant in the payment ecosystem?
The competitive dynamics between banking organizations and alternative digital payment providers are growing. These dynamics are motivating banking organizations to rethink their payment systems to enable next-gen capabilities. And that’s not all—greater momentum is being achieved by the Federal Reserve System’s Faster Payments Task Force, which is a call to action for rapid technological innovation in smarter, faster and highly secure payment capabilities. The plan is to make real-time payments (RTP) available to every U.S. consumer and business by 2020.
The RTP effect
Many consumers and retailers may think they’re already doing RTP. They do, after all, use credit and debit cards online or in-store, and, digital wallets and mobile P2P payment services have great traction. Yet, these are not RTP. Credit cards are structured loan products and while debit payments are linked directly to the payer’s bank account, it’s not settled in real time. Services like Venmo and PayPal may seem instant, yet these funds are only held in those wallets. If a customer attempts to move the cash to his/her bank or to a different P2P wallet, then it’s back to multi-day, automated clearing house.
True RTP is when money moves almost instantaneously from one account to another 24/7, resulting in the real-time, immediate or close-to-immediate interbank clearing of the transaction and crediting of the payee’s account.
What’s in it for banking organizations? Greater flexibility, monetization opportunities and superior services. For customers, the benefits include speed, availability and certainty. Once financial institutions, retailers and consumers recognize the benefits of RTP, adoption of the new payment rail will certainly increase.
Personalized mobile pay
When considering advancements in payment personalization, mobile pay comes into play. In fact, in PwC’s 2018 Digital Banking Consumer Survey, smartphone banking is growing with more online dominant users shifting to mobile.
Banks are adding video for a personalized CX as part of the omni-channel experience. According to an Efma study, two-thirds of banks and credit unions are either deploying (11%), piloting (21%), or planning to deploy (28%) remote video banking capabilities.
The seeds of mobile video banking were planted with interactive teller machines, used in-branch and at drive-throughs, and video kiosks, which are becoming popular at “smart branches.” With the growing adoption of video applications by banking employees and customers, mobile video banking is trending as a preferred channel to make payments and interact with banking organizations.
New payment capabilities
In the shifting payments ecosystem, banking organizations are actively contributing to and shaping the evolution. From P2P payments, where banks are creating their own solutions and partnering (i.e., Zelle) to joining the RTP movement and expanding adoption of mobile video banking. This evolution requires the right network and communications infrastructure as a foundation. Consider RTP and the need for speed—having a low latency, high availability network with integrated security is critical. For mobile video banking, customers want personalized and fast service, which requires a unified communications strategy to seamlessly connect the various digital channels by which customers wish to conduct their banking. Additionally, all aspects must be safe and secure to ensure a trusted banking experience and mitigate cyber attacks like DDoS.
The banks and credit unions who will thrive in this rapidly changing payment landscape will be those that are agile and apply forward-looking strategies that leverage emerging technologies to innovate the CX.
In part 1 of this series, we explored how customers today are pushing the boundaries of digital innovation for the banking industry—and as part of the transformation, how fintechs (financial technology companies) play a catalyst role in the evolution of the banking ecosystem that’s helping to set more competitive benchmarking and sharpen the focus on the customer experience (CX).
While fintechs are certainly a catalyst for digital innovation and can provide banking services, there are several key factors that reinforce the incumbent banking organization’s position, including regulatory compliance, the inertia of customers to switch and the ability for banks to incorporate these new capabilities.
Are fintechs a threat or an opportunity for banking organizations?
Customers today, including millennials, want both physical branches and a digital experience. The physical banking centers and their branches respectfully represent the core brand and values of trust and service. The digital experience is about innovating the CX and leveraging the power of data to avail customers greater convenience and personalization across channels. Both the physical presence and digital experience are required for banks to attract and retain new customers and deliver sustainable growth. However, for banks that fail to embrace this future-focus, the risk of falling behind can result in customer churn and loss in market share.
Progressive banks and credit unions realize these new challenges connected to fintechs are more about an opportunity than a threat. In fact, regional and community banks as well as credit unions, have an advantage—they tend to be more nimble in adopting new processes and technology than larger financial institutions with proprietary platforms. Additionally, these organizations often have more flexibility to partner with technology providers to formulate solutions that are tailored to their unique business requirements and enable a differentiated CX.
As banking organizations seek to transform their CX and partner with fintechs to expand their digital innovation, having the right network infrastructure is mission‑critical. For example, improving cloud-based application performance is pivotal to enabling the digital CX with more value-added services and support for new revenue channels. Ensuring the availability of critical applications is essential to delivering a frictionless CX and ensuring banking employees can properly address customers’ needs.
When evaluating your network infrastructure to determine its bandwidth, security and scalability to support your banking organization’s digital transformation, it’s important to gain insight into how banking organizations are adopting emerging technologies. These areas are examined further in this white paper, which includes feedback from Tier 1, 2 and 3 institutions.
Additionally, for banking organizations seeking to modernize their network infrastructure—whether it’s a short-term update or long-term overhaul—leveraging professional services to help with the evaluation and navigation of options can be extremely beneficial. Taking this approach with a technology partner that specializes in network solutions and cloud-based applications can provide an audit of your existing network and security infrastructure. A number of banking organizations prefer this approach, as an assessment of their infrastructure identifies any network gaps or security vulnerabilities and provides options for network optimization, as well as migration and configuration services. When looking to transform your infrastructure for growth and elevate the customer experience, the modernization of your network is an essential step.
Customers today are pushing the boundaries of digital innovation for the banking industry, and banking organizations are paying attention. In fact, according to industry research, banking executives’ strategic priorities are:
To help drive these goals, banks are increasing innovation investments in the following areas:
These priorities are triggering investments in emerging technologies that will enable and accelerate the speed of change, as well as evolve a once regulatory-driven focus to an innovation-led transformation.
At the core of this transformation is the customer experience (CX). The CX today is about greater mobility, convenience and personalized solutions wrapped with the traditional values of trust and service. To deliver on these demands and attract and retain new customers, banking institutions are innovating the omnichannel experience and turning to technology as the enabler. Yet the breadth and depth of these demands are increasing beyond the capabilities of most banks and credit unions, forcing them to look outside of their organizations for options that can accelerate their speed to market, free up internal IT resources and provide a new level of agility.
As the industry shifts to a more cloud-based ecosystem, the ability to leverage technology partners and fintechs with different characteristics from conventional providers is becoming a differentiator for success.
Fintechs (which stands for financial technology) is the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. Fintechs are exposing customers to new and more personalized ways of conducting business, services, which were conventionally reserved for more affluent customers. As such, asset managers are seeking to push these services downstream to add revenue and differentiate in a competitive landscape. With this momentum, a number of regional and community banks, as well as credit unions, are evaluating whether to replicate what fintechs are doing—partner to leverage speed to market or pursue a mix that can advance their strategic position and gain market share.
Ways in which fintechs are evolving the banking ecosystem are expanding, for instance, peer-to-peer (P2P) payments, journey analytics and artificial intelligence (AI)/robotic process automation (RPA).
P2P platforms: Payments directly between people allowing a person to transfer funds from his/her own banking account into another person’s account via online or mobile applications.
Journey analytics: Map of the process customers take when interacting with their bank via a call center, online banking or text message. By capturing data throughout this process, banks can apply analytics to see what’s working and what’s not, which is critical to developing a more frictionless customer experience.
AI and RPA: Developments in cloud-based technologies and AI that focus on machine learning, speech recognition and natural language processing are availing new applications to tailor customer preferences and automate service delivery at lower costs.
There’s no doubt that fintechs play a catalyst role in the evolution of the banking industry—one that’s helping to set more competitive benchmarking and to sharpen the focus on the CX. As such, this presents the question: Are fintechs a threat to incumbent banking organizations or an opportunity? Stay tuned for more on this in part 2 of this series.
In banking, your customer experience (CX) program is a pivotal factor for growth – or stagnation. In fact, one of the most pervasive market challenges in banking is customer centricity and how to transform this focus on the customer into a modern program that can attract and grow customers in a rapidly evolving ecosystem.
While CX has been a media buzzword for years, in practice it’s actually not that widespread in the banking space. According to a study by Deloitte, the U.S. banking industry is playing catch up in relation to implementing customer experience programs. Large national banks lead at 55% with defined CX programs followed by regional banks at 50%, credit unions at 27%, and community banks at 16%. There’s obviously a gap, especially for regional banks, credit unions and community banks.
Customer experience programs are not pervasive in many types/sizes of banks (Source: Deloitte 2018 Banking Industry Outlook, DBR Research© February 2017 The Financial Brand)
Part of the lag is due to slower adoption of the cloud and making the move from on-premises or legacy systems. This move is a game-changer to modernize the customer experience as cloud-based applications offer banks and their clientele a more reliable solution than traditional methods of hosting these services internally, since they can be accessed at anytime, anywhere. Furthermore, cloud-based solutions can help better manage costs and improve operational efficiency ensuring that the customer experience – from transactional activity to everyday communications – is reliable and scalable.
Digital transformation: Welcome to ‘smart’ banking
This move to the cloud is especially relevant in relation to the breadth and depth of services that customers nowadays demand as methods to conduct their banking. They want immediate answers from customer service via chat windows, social media, and text messages. A driver for this shift involves the demographics of new customers who seek a more omni-channel experience that caters to greater mobility and convenience when interacting with their banks. As such, the shift is prompting banks to invest in technology that will enhance their CX across channels. And with more channels, there’s more data – and more ways in which this data can be translated into predictive analytics to better understand customer behavior. It’s like cognitive or ‘smart’ banking.
To make this transformation, there’s a process and a system, and the system helps to enable the process. For instance, your customers or members expect a simple and frictionless experience that is seamless, mobile and secure. This involves addressing the needs of customers across all channels – those who use online banking and apps, call contact centers, and visit branches – and establishing the internal processes to support the customer journey over time. The system can actually have a dual role: enabling the process as well as acting as a catalyst to evolve the process to meet forward-looking strategies for growth.
This is where cloud-based solutions like Unified Communications as a Service (UCaaS) come into play. UCaaS involves the integration of multiple applications with a unified interface across devices and media types to simplify the user experience in a way that represents how customers want to interact with their banking institutions – like mobile banking, instant messaging (chat), video banking, contact centers, and digital branches.
Driving innovation to keep up with your peers – and customers
In a study conducted by SourceMedia and American Banker, tech-savvy leaders at banks and credit unions were surveyed to gain insight into their timeline for implementing unified communications (UC). Over 50% agreed on the value of UC in improving the customer experience or internal processes, and an impressive 57% reported already implementing UC. Yet only 18% said they understand UC well.
Why unify communications now?
The way customers and their banks interact is shifting. By 2020, roughly 2B customers will conduct banking on mobile phones — far more than online.* They expect a consistent experience across all service channels and banks are noticing:
Source: SourceMedia and American Banker study: Developing a unified communications strategy: How to streamline and coordinate customer interactions across banking channels, 2018
Looking at the data, it is clear that banking industry leaders understands that importance of driving innovation, and adopting new customer centric technologies like cloud and UC. However, the specific understanding of the technology itself, and what it can do, might lag just slightly further behind. That’s a gap that needs to be closed soon, since it’s clear customers are already heading in that direction.
To help with the understanding of UC and learn more about driving innovation and CX, download the SourceMedia Research and American Banker whitepaper “Developing a Unified Communications Strategy,” sponsored by Windstream Enterprise, which provides industry expertise in relation to key considerations and approaches to building your UC strategy. With the acceleration of the banking industry’s digital transformation and availability of UCaaS solutions, you have the opportunity to lead – not lag — with your bank’s customer experience.