How Technology is Changing the Banking Payment Ecosystem

by Anne Guenther
November 27, 2018

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.

Banking Stats

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.

Smartphone banking is on the rise

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.

Mobile video banking

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.