In payments, the readiness is all, to quote Shakespeare. For large financial institutions, the readiness … requires some readiness.
In the latest Data Drivers, PYMNTS’ Karen Webster spoke with Marc Winitz, CMO of i2c, to get a sense of how fierce competition is in financial services. As evidenced by the Innovation Readiness Index, done in collaboration between the two firms, more than 200 banks and financial institutions are in varying stages of preparedness when it comes to payments innovation. The three data points discussed (among others) show that customers are top of mind — pleasing them, that is, and keeping them from defecting to a peer/competitor.
Data Point Number One: 64 Percent
This is the percentage of FIs surveyed who say they are focused on delivering innovation, either through new products or through new features to existing products. Winitz said that innovation can be disruptive or it can be incremental. “One is not better or worse than the other, and they both have their place,” he said.
What this shows, said the executive, is that larger financial institutions, with hundreds of billions of dollars or more in assets focused on product innovation, have an eye on conceptualizing and developing new products that their consumers want.
These juggernauts are looking to outflank other larger financial players or FinTechs. And they are investing heavily in digital operations and initiatives, said Winitz, as “that is where the money is going to be made in the future.”
The smaller players in the financial landscape focus more heavily on product features (rather than new, fully formed products), with several reasons worth considering. Among those reasons, said Winitz, is “keeping consumers close to you and making sure they are satisfied.”
The survey shows that smaller banks “look at the bank across the street,” eyeing them as primary competition. They are trying out new capabilities that regularly improve the consumer experience, thus keeping them from leaving for the competition — and keeping an eye on the local geographies they serve.
Data Point Number Two: 64.2 Percent
This is the percentage of FIs that report they have more funding allocated to payments innovation than any other bank product or service within their arsenal. While the first data point shows the focus on innovation, as Webster noted, data point number two shows that the corporate money is where the corporate mouth is, so to speak.
There has been incremental innovation around digital wallets, said the executive, with the survey finding that multi-function systems are valuable, providing a “consistent user experience across all platforms, from credit to debit to prepaid.”
Data Point Number Three: 36 Percent
The data shows that this is the percentage of FIs that say their infrastructures make innovation difficult — the specific language is “hard” or “very hard” — which stands in contrast to the majority of FIs stating they have a flexible structure that helps with a successful embrace of innovation.
Call it a tale of two infrastructures, perhaps?
Said Winitz, those with flexible and configurable platforms “can do great things, and they also have a lot funding, which helps.”
But the challenge lies in the fact that financial firms need to be able to turn innovation and customer engagement “into their regular diet.” This means embracing a sandbox approach with a focus on scaling new approaches in order to monetize new ideas. Notably, this capability is missing among large financial firms, as more than 83 percent said their existing platforms lack those characteristics.
Particularly for legacy players, “this is a wakeup call,” said Winitz. Yet he also noted that the vast majority — more than 90 percent — of the top performers among the largest FIs (he stated that “biggest and top are not the same thing” within the financial services industry) had been early to market with new products, “showing that they have the will and the ability” to scale new solutions.
What happens next? Said the executive, “There needs to be an understanding in the industry that there are alternatives” and that there are more flexible systems that need consideration. The FIs need to understand the value that an integrated payments system can bring, even in a de-risked environment.